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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER: 1-6828 COMMISSION FILE NUMBER: 1-7959
STARWOOD HOTELS & STARWOOD HOTELS &
RESORTS RESORTS WORLDWIDE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS
CHARTER) CHARTER)
MARYLAND MARYLAND
(STATE OR OTHER JURISDICTION (STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION) OF INCORPORATION OR ORGANIZATION)
52-0901263 52-1193298
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
777 WESTCHESTER AVENUE 777 WESTCHESTER AVENUE
WHITE PLAINS, NY 10604 WHITE PLAINS, NY 10604
(ADDRESS OF PRINCIPAL EXECUTIVE (ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES, INCLUDING ZIP CODE) OFFICES, INCLUDING ZIP CODE)
(914) 640-8100 (914) 640-8100
(REGISTRANT'S TELEPHONE NUMBER, (REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE) INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, par value $0.01 per share, New York Stock Exchange
("Corporation Share") of Starwood Hotels & Resorts Pacific Exchange
Worldwide, Inc. (the "Corporation"), the Class B
shares of beneficial interest, par value $0.01 per
share ("Class B Shares"), of Starwood Hotels &
Resorts (the "Trust"), and Preferred Stock Purchase
Rights of the Corporation, all of which are
attached and trade together with as a Unit
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of each Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 29, 1999, the aggregate market value of the Registrants' voting
and non-voting common equity held by non-affiliates (for purposes of this Joint
Annual Report only, includes all shares other than those held by the
Registrants' Directors, Trustees and executive officers) was $4,051,152,064.06.
As of March 29, 1999, the Corporation had outstanding 176,864,503
Corporation Shares and the Trust had outstanding 176,864,503 Class B Shares and
100 Class A shares of beneficial interest, par value $0.01 per share ("Class A
Shares").
For information concerning ownership of Units, see the Proxy Statement for
the Corporation's Annual Meeting of Stockholders that is currently expected to
be held on May 29, 1999 (the "Proxy Statement"), which is incorporated by
reference under various Items of this Joint Annual Report.
DOCUMENT INCORPORATED BY REFERENCE:
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DOCUMENT WHERE INCORPORATED
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Proxy Statement Part III (Items 11, 12 and 13)
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TABLE OF CONTENTS
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ITEM
NUMBER PAGE
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PART I
1. Business.................................................... 10
2. Properties.................................................. 25
3. Legal Proceedings........................................... 30
4. Submission of Matters to a Vote of Security Holders......... 30
Executive Officers of the Registrants....................... 30
PART II
5. Market for Registrants' Common Equity and Related
Stockholder Matters....................................... 30
6. Selected Financial Data..................................... 32
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 36
7A. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 48
8. Financial Statements and Supplementary Data................. 48
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 49
PART III
10. Directors, Trustees and Executive Officers of the
Registrants............................................... 49
11. Executive Compensation...................................... 56
12. Security Ownership of Certain Beneficial Owners and
Management................................................ 56
13. Certain Relationships and Related Transactions.............. 56
PART IV
14. Exhibits, Financial Statements, Financial Statement
Schedules and Reports on Form 8-K......................... 56
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This Joint Annual Report is filed by Starwood Hotels & Resorts Worldwide,
Inc., a Maryland corporation (the "Corporation"), and its subsidiary, Starwood
Hotels & Resorts, a Maryland real estate investment trust (the "Trust"). Unless
the context otherwise requires, all references to the Corporation include those
entities owned or controlled by the Corporation, including SLC Operating Limited
Partnership, a Delaware limited partnership (the "Operating Partnership"), but
excluding the Trust; all references herein to the Trust include the Trust and
those entities owned or controlled by the Trust, including SLT Realty Limited
Partnership, a Delaware limited partnership (the "Realty Partnership" and,
together with the Operating Partnership, the "Partnerships"); and all references
to "Starwood Hotels" or the "Company" refer to the Corporation, the Trust and
their respective subsidiaries, collectively. The shares of common stock, par
value $0.01 per share, of the Corporation ("Corporation Shares") and the Class B
shares of beneficial interest, par value $0.01 per share, of the Trust ("Class B
Shares") are attached and traded together and may be held or transferred only in
units consisting of one Corporation Share and one Class B Share (a "Unit").
Prior to the restructuring of Starwood Hotels (the "Restructuring") on January
6, 1999, the common shares of beneficial interest, par value $0.01 per share, of
the Trust ("Trust Shares") were traded together with the Corporation Shares as
"Paired Shares," just as the Class B Shares and the Corporation Shares are
currently traded as Units. Unless otherwise stated herein, all information with
respect to Units refers to Units since January 6, 1999 and to Paired Shares for
periods before January 6, 1999.
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This Joint Annual Report contains statements that constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements appear in a number of places in
this Joint Annual Report, including, without limitation, the section of Item 1,
"Business," captioned "Business Strategy" and Item 5, "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Such
forward-looking statements may include statements regarding the intent, belief
or current expectations of Starwood Hotels, its Directors or Trustees or its
officers with respect to the matters discussed in this Joint Annual Report. All
such forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those projected in the forward-looking
statements including, without limitation, the risks and uncertainties set forth
below. The Company undertakes no obligation to publicly update or revise any
forward-looking statements to reflect current or future events or circumstances.
THE RESTRUCTURING
On January 6, 1999, Starwood Hotels consummated the Restructuring pursuant
to an Agreement and Plan of Restructuring dated as of September 16, 1998, as
amended (the "Restructuring Agreement"), among the Corporation, ST Acquisition
Trust, a wholly owned subsidiary of the Corporation, and the Trust. Pursuant to
the Restructuring, the Trust became a subsidiary of the Corporation, which holds
all the outstanding Class A shares of beneficial interest, par value $0.01 per
share, of the Trust ("Class A Shares"). The Restructuring was proposed in
response to the Internal Revenue Service Restructuring and Reform Act of 1998
("H.R. 2676"), which made it difficult for Starwood Hotels to acquire and
operate additional hotels while still maintaining its former status as a
"grandfathered paired share real estate investment trust." While the Corporation
and the Trust believe that the Restructuring was the best alternative in light
of the 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.
ABILITY TO MANAGE RAPID GROWTH
The full benefits of the Company's acquisition of Westin Hotels & Resorts
Worldwide, Inc. ("Westin Worldwide") and certain of its affiliates
(collectively, "Westin"), of ITT Corporation ("ITT") and of the other hotel
properties acquired during 1998 and thereafter will require the integration of
administrative, finance, operations and marketing organizations; the
coordination of sales efforts; and the implementation of appropriate operations,
financial and management systems and controls in order to realize the
efficiencies,
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revenue enhancements and cost reductions that are expected from such
acquisitions. Although the Company's management team has experience integrating
acquisitions, none of the prior acquisitions have been of comparable magnitude
to, or included the breadth of operations involved in, the acquisition of Westin
or ITT. The diversion of management attention, as well as any other difficulties
which may be encountered in the transition and integration process, could have
an adverse impact on the revenue and operating results of the Company. There can
be no assurance that the Company will be able to integrate successfully the
operations of the acquired properties with those of the Company or that
anticipated synergies will be fully realized or that such synergies will occur
when anticipated.
The Company's future success and its ability to manage future growth depend
in large part upon the efforts of its senior management and its ability to
attract and retain key officers and other highly qualified personnel.
Competition for such personnel is intense. Since January 1996, the Company has
experienced significant changes in its senior management, including executive
officers. (See Item 10, "Directors, Trustees and Executive Officers of the
Registrants," of this Joint Annual Report.) There can be no assurance that the
Company will continue to be successful in attracting and retaining qualified
personnel. Accordingly, there can be no assurance that the Company's senior
management will be able to successfully execute and implement the Company's
growth and operating strategies.
ACQUISITION OPPORTUNITIES
The Company intends to make acquisitions that complement its business.
There can be no assurance, however, that the Company will be able to identify
acquisition candidates on commercially reasonable terms or at all. If additional
acquisitions are made, there can also be no assurance that any anticipated
benefits will actually be realized. Similarly, there can be no assurance that
the Company will be able to obtain additional financing for acquisitions, or
that such financing will not be restricted by the terms of the Company's current
debt arrangements.
TAX RISKS
ABILITY TO QUALIFY AS A REIT. The Trust believes that it has operated so
as to qualify as a "real estate investment trust" (a "REIT") under the Internal
Revenue Code of 1986, as amended (the "Code"), commencing with the Trust's
taxable year ended December 31, 1995, and the Trust intends to continue to so
operate. No assurance, however, can be given that the Trust will remain
qualified as a REIT. Qualification as a REIT involves the application of highly
technical and complex Code provisions for which there are only limited judicial
or administrative interpretations. The complexity of these provisions is greater
in the case of a REIT that owns hotels and leases them to a corporation of which
it is a subsidiary. As a result, the Trust is likely to encounter a greater
number of interpretive issues under the REIT qualification rules, and more such
issues which lack clear guidance, than are other REITs. The determination of
various factual matters and circumstances not entirely within the Trust's
control may affect its ability to qualify as a REIT. In addition, no assurance
can be given that new legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to qualification as a REIT or the federal income tax consequences
of such qualification. Furthermore, the qualification of the Trust as a REIT
will depend on the Trust's continuing ability to meet various requirements
concerning, among other things, the ownership of Units and other equity
securities of the Trust, the nature of the Trust's assets, the sources of its
income and the amounts of its distributions to its shareholders. In connection
with the acquisition of Westin in January 1998 and ITT in February 1998, the
Trust acquired new assets and operations (including the leasing of newly
acquired assets, loans to the Corporation and the ownership of certain
corporations that own hotels or intangible assets). By increasing the complexity
of the Company's operations, these assets and operations may make it more
difficult for the Trust to continue to satisfy the REIT qualification
requirements.
Prior to the Restructuring, the Trust's ability to qualify as a REIT was
also dependent on its continued exemption from the anti-pairing rules of Section
269B(a)(3) of the Code. Section 269B(a)(3) would ordinarily prevent a company
such as the Trust from qualifying as a REIT if its stock is paired with the
stock of another company (such as the Corporation) whose activities are
inconsistent with REIT status. The "grandfathering rules" governing Section
269B(a)(3) generally provide, however, that (except to the extent
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provided by H.R. 2676) Section 269B(a)(3) does not apply to a paired-share REIT
if the shares of the REIT and its paired operating company were paired on or
before June 30, 1983, and the REIT was taxable as a REIT on or before June 30,
1983. However, courts and administrative agencies have not interpreted Section
269B(a)(3) to any significant degree.
If in any taxable year the Trust were to fail to qualify as a REIT, the
Trust would not be allowed a deduction for distributions to shareholders in
computing its taxable income and would be subject to federal income tax on its
taxable income at regular corporate rates. Unless entitled to relief under
certain Code provisions, the Trust would also be disqualified from treatment as
a REIT for the four taxable years following the year during which qualification
was lost. The failure of the Trust to qualify as a REIT would reduce its net
earnings available for distribution to shareholders because of the additional
tax liability to the Trust for the year or years involved. In addition,
distributions would no longer be required to be made. To the extent that
distributions to shareholders would have been made in anticipation of the Trust
qualifying as a REIT, the Trust might be required to borrow funds or to
liquidate certain of its investments to pay the applicable tax. The failure to
qualify as a REIT would also constitute a default under certain debt obligations
of the Trust.
REQUIRED DISTRIBUTIONS TO SHAREHOLDERS. In order to obtain and retain REIT
status, the Trust must distribute to its shareholders (including the
Corporation) at least 95% of its REIT taxable income (excluding any net capital
gain). In addition, the Trust will be subject to tax on its undistributed net
taxable income and net capital gain, and a 4% nondeductible excise tax on the
amount, if any, by which certain distributions paid by the Trust with respect to
any calendar year are less than the sum of (i) 85% of the Trust's ordinary
income, (ii) 95% of its capital gain net income for that year and (iii) 100% of
its undistributed income from prior years. The Trust intends to make
distributions to its shareholders to comply with the distribution requirements
of the Code and to minimize federal income taxes and the nondeductible federal
excise tax. The Trust (or the Realty Partnership) could be required to borrow
funds on a short-term basis to meet the REIT distribution requirements, which
borrowing may not otherwise be advisable for the Company.
Distributions by the Corporation and Trust will be determined by the
Corporation's Board of Directors (the "Board of Directors") or the Trust's Board
of Trustees (the "Board of Trustees"), as applicable, and will depend on a
number of factors, including the amount of cash available for distributions, the
Company's financial condition, decisions by either such board to reinvest funds
rather than to distribute such funds, the Company's capital expenditures, the
annual distribution requirements under the REIT provisions of the Code (in the
case of the Trust) and such other factors as either Board deems relevant. For
federal income tax purposes, distributions paid to shareholders may consist of
ordinary income, capital gains (in the case of the Trust), nontaxable return of
capital, or a combination thereof. Subject to certain conditions, holders of
Class B Shares are entitled to receive a non-cumulative annual dividend, at an
initial annual rate of $0.60 per share, to the extent the dividend is authorized
by the Board of Trustees. The dividend may increase after 1999 pursuant to a
formula, and may not be paid under certain circumstances. 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), all of which are currently held by the Corporation.
DEBT FINANCING
As a result of incurring debt, the Company is subject to the following
risks associated with debt financing: (i) the risk that cash flow from
operations will be insufficient to meet required payments of principal and
interest; (ii) the risk that (to the extent that the Company maintains floating
rate indebtedness) interest rates will fluctuate; and (iii) risks resulting from
the fact that the agreements governing the Company's loan and credit facilities
contain covenants imposing certain limitations on the Company's ability to
acquire and dispose of assets. In addition, although the Company anticipates
that it will be able to repay or refinance its existing indebtedness and any
other indebtedness when it matures, there can be no assurance that it will be
able to do so or that the terms of such refinancings will be favorable.
In connection with the acquisitions of Westin and ITT, the Company incurred
a substantial amount of additional debt, thereby increasing its exposure to the
risks associated with debt financing. The Company's increased leverage may have
important consequences including the following: (i) the ability of the Company
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to obtain additional financing for acquisitions, working capital, capital
expenditures or other purposes, if necessary, may be impaired or such financing
may not be available on terms favorable to the Company; (ii) a substantial
decrease in operating cash flow or an increase in expenses of the Company could
make it difficult for the Company to meet its debt service requirements and
force it to modify its operations; (iii) the Company's higher level of debt and
resulting interest expense may place it at a competitive disadvantage with
respect to certain competitors with lower amounts of indebtedness and/or higher
credit ratings; and (iv) the Company's greater leverage may make it more
vulnerable to a downturn in its business or in the economy generally.
LIMITS ON CHANGE OF CONTROL AND OWNERSHIP LIMITATION
OWNERSHIP LIMITATION. In order for the Trust to maintain its qualification
as a REIT, not more than 50% in value of its outstanding shares may be owned,
directly or indirectly, by five or fewer individuals (which term is defined in
the Code to include certain entities) at any time during the last half of the
Trust's taxable year. Furthermore, actual or constructive ownership of a
sufficient number of the Units could cause the Corporation to become a "related
party tenant" of the Trust, which would result in the loss of the Trust's REIT
status. In order to help preserve the Trust's REIT status, the Corporation's
charter (the "Articles of Incorporation"), and the Trust's declaration of trust,
as amended and restated (the "Declaration of Trust"), prohibit actual or
constructive ownership by any one person or group of related persons of more
than 8.0% of the shares of the Corporation or the Trust, whether measured by
vote, value or number of shares (the "Ownership Limit"). Generally, the Units
owned by related or affiliated persons will be aggregated and certain options
and warrants will be treated as exercised for purposes of the Ownership Limit.
Although the Class A Shares constitute more than 50% in value of the shares of
the Trust, all of which are held by the Corporation, this ownership is not
subject to the Ownership Limit and will not prevent the Trust from continuing to
qualify as a REIT. In addition, the leasing of the Trust's assets to the
Corporation does not constitute a lease to a related party for purposes of REIT
qualification.
The constructive ownership rules of the Code are extensive and complex and
may cause Units owned, directly or indirectly, by certain direct or indirect
partners in any partnership, including the direct and indirect owners of
interests in the Realty Partnership and the Operating Partnership, and other
classes of related individuals and/or entities, to be deemed to be
constructively owned by one individual or entity. As a result, the acquisition
of less than 8.0% of the Units (or the acquisition of an interest in an entity
which owns Units) by an individual or entity could cause that individual or
entity (or another individual or entity) to own constructively in excess of 8.0%
of the Units, and thus subject such Units to the Ownership Limit. Direct or
constructive ownership in excess of the Ownership Limit would cause the
violative transfer or ownership to be void, or cause such shares to be converted
into "Excess Shares," which have limited economic rights, to the extent
necessary to ensure that the purported transfer or other event does not result
in a violation of the Ownership Limit. Notwithstanding the Ownership Limit,
given the breadth of the Code's constructive ownership rules and the inability
of the Trust and the Corporation to continuously monitor direct and constructive
ownership of Units, it is possible that an individual or entity could at some
time constructively own sufficient Units to cause termination of the Trust's
REIT status.
LIMITS ON CHANGE OF CONTROL. Certain provisions of the Articles of
Incorporation, the Corporation's Bylaws and the Declaration of Trust, including,
without limitation, the Ownership Limit, those providing for the ability to
issue preferred shares and the maintenance of staggered terms for Directors and
Trustees, may have the effect of discouraging a third party from making an
acquisition proposal for the Corporation and the Trust and may thereby delay,
defer or prevent a change in control under circumstances that could otherwise
give the holders of Units or other equity securities of the Company the
opportunity to realize a premium over then-prevailing market prices.
INFLUENCE BY STARWOOD CAPITAL
Individuals employed by or otherwise affiliated with Starwood Capital
Group, L.L.C. ("Starwood Capital") hold two positions on the Board of Directors
and two positions on the Board of Trustees. Although the Company has a policy
requiring a majority of its Directors and Trustees to be "independent," Starwood
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Capital may have the ability to exercise certain influence over the affairs of
the Company. Barry S. Sternlicht is the President and Chief Executive Officer
of, and controls, Starwood Capital. Mr. Sternlicht is a Director of the
Corporation and Chairman and Chief Executive Officer of the Corporation, and a
Trustee of the Trust and Chairman and Chief Executive Officer of the Trust.
Jonathan D. Eilian, a Director of the Corporation, and Madison F. Grose, a
Trustee of the Trust, are Senior Managing Directors of Starwood Capital. As a
consequence, Mr. Sternlicht has the ability to exercise certain influence over
the affairs of the Company. Starwood Capital and certain of its affiliates own
limited partnership interests in the Realty Partnership and the Operating
Partnership ("Partnership Units") that are exchangeable for Units. As a result,
and due to its different tax situation, prior to the exchange of its Partnership
Units into Units, Starwood Capital's objectives regarding the pricing, structure
and timing of any sale of certain properties or the restructuring or sale of
certain mortgage loans may differ from the objectives of the shareholders of the
Company or current management of the Company.
RISKS RELATING TO HOTEL OPERATIONS
OPERATING RISKS. The properties of the Company are subject to all
operating risks common to the hotel industry. These risks include changes in
general economic conditions (as described below); decreases in the level of
demand for rooms and related services; cyclical over-building in the hotel
industry; restrictive changes in zoning and similar land use laws and
regulations or in health, safety and environmental laws, rules and regulations;
the inability to obtain property and liability insurance fully to protect
against all losses or to obtain such insurance at reasonable rates; and changes
in travel patterns. In addition, the hotel industry is highly competitive. The
properties of the Company compete with other hotel properties in their
geographic markets, and some of the Company's competitors may have substantially
greater marketing and financial resources than the Company.
SEASONALITY OF HOTEL BUSINESS. The hotel industry is seasonal in nature;
however, the periods during which the Company's properties experience higher
hotel revenues or gaming activities vary from property to property and depend
principally on location. Although the Company's revenues historically have been
lower in the first quarter than in the second, third or fourth quarters, the
acquisitions of Westin and ITT are expected to affect, and future acquisitions
may further affect, seasonal fluctuations in revenues and cash flow.
CAPITAL INTENSIVE BUSINESS. The Company's properties are capital intensive
and, in order to remain attractive and competitive, must be well maintained as
well as periodically modernized and refurbished. This creates an ongoing need
for capital and, to the extent such capital expenditures may not be funded from
cash generated by the Company, financial results may be sensitive to the cost
and availability of funds.
REAL ESTATE INVESTMENT RISKS
GENERAL RISKS. Real property investments are subject to varying degrees of
risk. The investment returns available from equity investments in real estate
depend in large part on the amount of income earned and capital appreciation
generated by the related properties as well as the expenses incurred.
In addition, income from properties and real estate values are also
affected by a variety of other factors, such as governmental regulations and
applicable laws (including real estate, zoning, tax and eminent domain laws),
interest rate levels and the availability of financing. For example, existing or
new real estate, zoning or tax laws can make it more expensive and/or time
consuming to develop real property or expand, modify or renovate hotels.
Governments can, under eminent domain laws, take real property, sometimes
for less compensation than the owner believes the property is worth. When
prevailing interest rates increase, the expense of acquiring, developing,
expanding or renovating real property increases, and values decrease as it
becomes more difficult to sell property because the number of potential buyers
decreases. Similarly, as financing becomes less available, it becomes more
difficult both to acquire real property and, because of the diminished number of
potential buyers, to sell real property. Any of these factors could have a
material adverse impact on the Company's results of operations or financial
condition, as well as on the Trust's ability to make distributions to its
shareholders.
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In addition, equity real estate investments, such as the investments held
by the Company and any additional properties that may be acquired by the
Company, are relatively illiquid. If the properties of the Company do not
generate revenue sufficient to meet operating expenses, including debt service
and capital expenditures, the income of the Company and the Trust's ability to
make distributions to shareholders will be adversely affected.
HOTEL DEVELOPMENT. The Company intends to develop hotel properties as
suitable opportunities arise and is currently developing several upscale hotels.
New project development is subject to a number of risks, including risks of
construction delays or cost overruns that may increase project costs; receipt of
zoning, occupancy and other required governmental permits and authorizations;
and the incurring of development costs for projects that are not pursued to
completion. There can be no assurance that any development project will be
completed in a timely manner or within budget.
POSSIBLE LIABILITY RELATING TO ENVIRONMENTAL MATTERS. Under various
federal, state, local and foreign environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may become
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability without regard
to whether the owner or operator knew of, or was responsible for, the presence
of such hazardous or toxic substances. The presence of hazardous or toxic
substances, or the failure properly to remediate such substances when present,
may adversely affect the owner's ability to sell or rent such real property or
to borrow using such real property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic wastes may be liable for the costs
of removal or remediation of such wastes at the disposal or treatment facility,
regardless of whether such facility is owned or operated by such person. Other
federal, state, local and foreign laws, ordinances and regulations require
abatement or removal of certain asbestos-containing materials in the event of
demolition or certain renovations or remodeling and govern emissions of and
exposure to asbestos fibers in the air. The operation and subsequent removal of
certain underground storage tanks also are regulated by federal, state, local
and foreign laws.
RISKS RELATING TO GAMING OPERATIONS
REGULATION OF GAMING OPERATIONS. The Company owns and operates a number of
casino gaming facilities, including Caesars Palace and the Desert Inn Resort &
Casino (the "Desert Inn") in Las Vegas, Nevada; Caesars Atlantic City in
Atlantic City, New Jersey; and Caesars Tahoe in Stateline, Nevada. Other gaming
facilities are located in Delaware, Indiana and Mississippi; in six foreign
countries; and on cruise ships operating in international waters. Each of these
gaming operations is subject to extensive licensing, permitting and regulatory
requirements administered by various governmental entities. Typically, gaming
regulatory authorities have broad powers with respect to the licensing of gaming
operations, and may revoke, suspend, condition or limit the gaming approvals and
licenses of the Company and its gaming subsidiaries, impose substantial fines
and take other actions, any of which could have a material adverse effect on the
business and the value of the Company's hotel/casinos. Directors, officers and
certain key employees of the Company and its gaming subsidiaries are subject to
licensing or suitability determinations by various gaming authorities. If any of
such gaming authorities were to find a person occupying any such position
unsuitable, the Company would be required to sever its relationship with that
person.
INCREASED GAMING COMPETITION. The Company faces significant domestic and
international competition from both established casinos and newly emerging
gaming operations. Proposals have been made for a significant number of casinos,
both land-based and those involving vessels on navigable waters, in a number of
jurisdictions and large metropolitan areas. Legalization of gaming in additional
jurisdictions may also provide opportunities for expansion by the Company's
competitors that could adversely affect the Company's existing gaming
operations. The Company believes that the adoption of legalized gaming in any
jurisdiction near Nevada (particularly California or other states in the
southwestern United States) or near New Jersey (particularly New York or
Pennsylvania) or the advent of gaming on nearby Native American lands could have
a material adverse effect on the Company's operations in Las Vegas and Atlantic
City. In November 1998, California voters approved a ballot initiative that
mandates that the California governor sign compacts relating to gaming on tribal
lands with California tribes upon their request. The initiative also
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amended current California law to permit gambling devices, including slot
machines, banked card games and lotteries, at tribal casinos. The Supreme Court
of California has stayed the implementation of this initiative and its ultimate
impact on the Company's gaming operations is uncertain.
RISKS ASSOCIATED WITH HIGH-END GAMING. There are risks associated with the
high end gaming business that currently comprises a portion of the Company's
Caesars Palace and Desert Inn operations. High-end gaming is more volatile than
other forms of gaming, and variances attributable to high-end gaming could,
under certain circumstances, have a positive or negative impact on cash flow,
earnings and other financial measures in a particular quarter. In addition, a
substantial portion of the Company's table gaming revenues from its Caesars
Palace and Desert Inn operations is attributable to the play of a relatively
small number of international customers. The loss of, or a reduction in play of,
the most significant of such customers could have an adverse effect on the
Company's future operating results. In addition, the Company may extend credit
to certain high-end gaming customers at its casinos. Although the Company takes
appropriate measures to confirm the creditworthiness of these customers, the
failure of such customers to repay amounts borrowed from the Company, whether as
a result of gaming losses or otherwise, could have an adverse effect on the
Company's results of gaming operations.
FOREIGN OPERATIONS AND CURRENCY FLUCTUATIONS
The Company has significant international operations, including, as of
December 31, 1998, majority ownership interest in 31 properties in Europe, five
properties in Africa and the Middle East, 17 properties in Latin America and
five properties in the Asia-Pacific region. In addition, the Company manages
approximately 135 properties in these regions. International operations
generally are subject to various political and other risks that are not present
in U.S. operations, including, among other things, the risk of war or civil
unrest, expropriation and nationalization. In addition, certain international
jurisdictions restrict the repatriation of non-U.S. earnings. Various
international jurisdictions also have laws limiting the right and ability of
non-U.S. entities to pay dividends and remit earnings to affiliated companies
unless specified conditions have been met. In addition, sales in international
jurisdictions typically are made in local currencies, which subjects the Company
to risks associated with currency fluctuations. Currency devaluations and
unfavorable changes in international monetary and tax policies and other changes
in the international regulatory climate and international economic conditions
could materially adversely affect the Company's profitability and financing
plans. The Company is subject to certain risks due to currency fluctuations.
Other than in Italy, the Company's properties are geographically diversified and
not concentrated in any particular region.
EUROPEAN UNION CURRENCY CONVERSIONS
On January 1, 1999, 11 of the 15 member countries of the European Union
(the "Participating Countries") established fixed conversion rates between their
existing sovereign currencies and the Euro. Following the introduction of the
Euro, the legacy currencies of the Participating Countries will remain legal
tender during a transition period ending on January 1, 2002. During the
transition period, both the legacy currency and the Euro will be legal tender in
the respective Participating Countries. During the transition period, currency
conversions will be computed by triangulation with reference to conversion rates
between the respective currencies and the Euro. The Company currently operates
in 10 of the 11 Participating Countries. The effect on the Company of the
adoption of the Euro by the Participating Countries in which it operates is
currently uncertain. However, it is possible that the Euro adoption will result
in increased competition within the European market. In addition, the Company is
currently evaluating and updating its information systems to make them Euro
compliant; however, there is no assurance that the Company or third-party
vendors of applications used by the Company will successfully bring all of its
systems into compliance. Failure of the Company to do so could result in
disruptions in the processing of transactions in Euros or computed by reference
to the Euro.
POSSIBLE LIABILITY OF TRUST SHAREHOLDERS
Both the Maryland statute governing real estate investment trusts formed
under the laws of that state (the "Maryland REIT Law") and the Declaration of
Trust provide that no shareholder of the Trust will be
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personally liable for any obligation of the Trust solely as a result of such
shareholder's status as a shareholder of the Trust. The Declaration of Trust
further provides that the Trust shall indemnify each shareholder against any
claim or liability to which the shareholder may become subject by reason of
being or having been a shareholder. In addition, it is the Trust's policy to
include a clause in its contracts which provides that shareholders assume no
personal liability for obligations entered into on behalf of the Trust. However,
with respect to tort claims, contractual claims where shareholder liability is
not so negated, claims for taxes and certain statutory liabilities, the
shareholders may, in some jurisdictions, be personally liable to the extent that
such claims are not satisfied by the Trust. Inasmuch as the Trust does and will
carry public liability insurance that it considers adequate, any risk of
personal liability to shareholders is limited to situations in which the Trust's
assets plus its insurance coverage would be insufficient to satisfy the claims
against the Trust and its shareholders.
RISKS RELATING TO GENERAL ECONOMIC CONDITIONS
The Company's hotel and gaming operations may be adversely affected by
moderate or severe economic downturns, including conditions that may be isolated
to one or more geographic regions. As a result, the Company's ability to achieve
or sustain substantial improvements in operating income and other important
financial tests may be adversely affected by general economic conditions.
Further, an economic downturn in the countries from which the Company's
gaming operations draw high-end international customers could cause a reduction
in the frequency of visits and the revenues generated by such customers.
Similarly, the collectibility of receivables from international gaming customers
could be adversely affected by future business or economic trends, or by
significant events, in the countries in which such customers reside.
Large parts of the world economy, including Asia, are currently in moderate
to severe recession. In addition, the United States could experience a recession
in the near or medium term. A continued recession overseas or a recession in the
United States would likely have a material adverse effect on the results of
operations of the Company.
RISKS RELATED TO THE YEAR 2000
Since all major computerized central facilities reservation systems and
applications have been tested and reservations for the year 2000 have been
accepted, Starwood Hotels believes that it has addressed all significant risks
related to the Company's reservation function. The remaining risks relate to the
non-critical business applications, support hardware for the central facilities
and embedded systems at the properties owned or managed by the Company. A
failure of certain of these systems to become Year 2000 Compliant could disrupt
the timeliness or the accuracy of management information provided by the central
facilities.
There can be no assurance that the efforts related to the gaming and hotel
properties will be sufficient to make these properties' computerized systems and
applications Year 2000 Compliant in a timely manner or that the allocated
resources will be sufficient. A failure to become Year 2000 Compliant could
affect the integrity of the gaming and hotel property guest check-in, billing
and accounting functions. Certain physical hotel property machinery and
equipment could also fail resulting in safety risks and customer
dissatisfaction. Additionally, failure of the gaming properties' systems to
become Year 2000 Compliant could result in the inefficient processing of
operational gaming information and the malfunction of computerized gaming
machines.
Starwood Hotels has asked substantially all of its significant vendors and
service providers to provide reasonable assurances as to those parties' Year
2000 state of readiness. Risk assessments and contingency plans, where required,
will be finalized in the first six months of 1999. To the extent that vendors
and service providers do not provide satisfactory evidence that their products
and services are Year 2000 Compliant, the Company will seek to obtain the
necessary products and services from alternative sources. There can be no
assurance, however, that Year 2000 remediation by vendors and service providers
will be completed timely or that qualified replacement vendors and service
providers will be available, and any failure of such third parties' systems
could have a material adverse impact on the Company's computer systems and
operations.
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RISKS RELATING TO ACTS OF GOD AND WAR
The Company's financial and operating performance may be adversely affected
by acts of God, such as natural disasters, in both the locations in which the
Company owns and/or operates significant properties and areas of the world from
which the Company draws a large number of customers. Similarly, wars, political
unrest and other forms of civil strife have in the past, and may in the future,
cause the Company's results to differ materially from predicted results.
RISKS INVOLVED IN INVESTMENTS THROUGH PARTNERSHIPS OR JOINT VENTURES
Instead of purchasing hotel properties directly, the Company may invest as
a co-venturer. Joint venturers often have shared control over the operation of
the joint-venture assets. Therefore, such investments may, under certain
circumstances, involve risks such as the possibility that the co-venturer in an
investment might become bankrupt, or have economic or business interests or
goals that are inconsistent with the Company's business interests or goals, or
be in a position to take action contrary to the Company's instructions or
requests or contrary to the Company's policies or objectives.
Consequently, actions by a co-venturer might subject hotel properties owned
by the joint venture to additional risk. Although the Company generally seeks to
maintain sufficient control of any joint venture, the Company may be unable to
take action without the approval of its joint-venture partners. Alternatively,
the Company's joint-venture partners could take actions binding on the joint
venture without the Company's consent. Additionally, should a joint-venture
partner become bankrupt, the Company could become liable for such partner's
share of joint-venture liabilities.
PART I
ITEM 1. BUSINESS.
GENERAL
Starwood Hotels is one of the world's largest hotel operating companies.
The Company conducts its hotel business both directly and through its
subsidiaries, including ITT Sheraton Corporation ("Sheraton"), the Trust and
Ciga, S.p.A. ("Ciga"), and engages in the gaming business principally through
its subsidiary Caesars World, Inc. ("Caesars"). The Company's brand names
include Sheraton(TM), Westin(TM), The Luxury Collection(TM), St. Regis(TM),
W(TM), Ciga(TM), Four Points(TM) and Caesars(TM). Through these brands, Starwood
Hotels is well represented in most major markets around the world.
The Company's revenue and earnings are derived primarily from two sources:
- Hotel operations, which include the operation of the Company's owned
hotels, the operation of other hotels for a management fee pursuant to
long-term management contracts and the receipt of franchise fees; and
- Gaming operations, which include the operation of the Company's owned,
partially owned and managed casinos.
The Company's hotel business emphasizes the global operation of
full-service hotels in the luxury and upscale segment of the lodging industry.
Starwood Hotels seeks to acquire interests in or management rights with respect
to hotels in this segment. In the first quarter of 1998, Starwood Hotels
completed two major transactions: the acquisition of Westin (the "Westin
Merger") and the acquisition of ITT (the "ITT Merger"). As a result, at December
31, 1998, the Company's portfolio of owned, managed or franchised hotels totaled
694 hotels with approximately 225,000 rooms in 70 countries. This portfolio is
comprised of 171 hotels that Starwood Hotels owns or leases or in which Starwood
Hotels has a majority equity interest (substantially all of which hotels
Starwood Hotels also manages), approximately 226 hotels managed by Starwood
Hotels on behalf of third-party owners (including entities in which Starwood
Hotels has a minority equity interest), approximately 280 hotels for which
Starwood Hotels receives franchise fees and 17 hotels
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with gaming operations. For further discussion of the ITT Merger and the Westin
Merger, see the notes to the combined consolidated financial statements of this
Joint Annual Report.
The Trust was organized in 1969, and the Corporation was incorporated in
1980, both under the laws of Maryland.
The Company's principal place of business is 777 Westchester Avenue, White
Plains, New York, 10604, and its telephone number is (914) 640-8100.
For a discussion of the revenues, profits and assets of each industry and
geographical segment of the Company's business, see notes to the combined
consolidated financial statements of this Joint Annual Report. For additional
information concerning the Company's business, see Item 2, "Properties," of this
Joint Annual Report.
RECENT DEVELOPMENTS
In June 1998, Starwood Hotels sold approximately 13 million shares of ITT
Educational Services, Inc. ("Educational Services") in a public offering for net
proceeds of approximately $304 million. In February 1999, Starwood Hotels sold
its remaining interest of approximately 9.5 million shares of Educational
Services for net proceeds of approximately $310 million.
Caesars Indiana's "Glory of Rome" Riverboat, a floating casino in Harrison
County, Indiana, commenced operations in November 1998, near the Louisville,
Kentucky border. The 93,000 square foot casino is the largest riverboat casino
in the United States.
COMPETITIVE STRENGTHS
Management believes that the following factors contribute to the Company's
position as a leader in the lodging and gaming industries and provide a
foundation for the Company's business strategy:
BRAND STRENGTH. Starwood Hotels believes that it has strong brand
leadership in major markets worldwide based on the global recognition of the
Company's lodging and gaming brands. The strength of the Company's brands is
evidenced, in part, by the superior ratings received from the Company's hotel
guests and from industry publications. For example, the Conde Nast Traveler
Magazine 1999 Gold List Readers' Choice Poll included 50 Starwood Hotels
properties as part of the top 500 places to stay in the world. Starwood Hotels
owns or manages more Gold List winners than any other hotel company in the
world. Additionally, Westin was ranked as the premier upscale hotel chain in the
1997 Frequent Flyer Magazine/JD Power and Associates Domestic Hotels Guest
Satisfaction Survey. With the Company's well known lodging and gaming brands,
Starwood Hotels benefits from a luxury and upscale branding strategy that
provides strong operating performance from new customer penetration and customer
loyalty. During 1998, Starwood Hotels selected approximately 25 of its owned
hotels, which had been operated on a non-branded or non-proprietary-branded
basis, and converted them to proprietary brands owned by the Company. In 1998,
the Company also added an additional 32 hotels with approximately 7,400 rooms to
its branded-hotel system. This program has enhanced and expanded the Company's
global presence and brand recognition.
SIGNIFICANT PRESENCE IN TOP MARKETS. The Company's luxury and upscale
full-service hotel assets are well positioned in the United States, Canada,
Europe, Asia and Latin America. These assets are primarily located in major
cities and resort areas that management believes have historically demonstrated
a strong breadth, depth and growing demand for luxury and upscale full-service
hotels, in which the supply of sites suitable for hotel development has been
limited and in which development of such sites is relatively expensive.
PREMIER AND DISTINCTIVE PROPERTIES. Starwood Hotels controls a
distinguished and diversified group of hotel properties throughout the world,
including The St. Regis Hotel in New York City, the Phoenician in Scottsdale,
Arizona, the Westin St. Francis in San Francisco, the Danieli in Venice, Italy,
and the Palace in Madrid, Spain. These are among the leading hotels in the
industry and are at the forefront of providing the highest quality and service.
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SCALE. As the largest hotel company focusing on the luxury and upscale
full-service lodging segment of the market, Starwood Hotels has the scale to
support its core marketing and reservation functions. The Company also believes
that its scale will contribute to lowering its cost of operations through
purchasing economies in such areas as insurance, telecommunications, employee
benefits, food and fixture supplies.
DIVERSIFICATION OF CASH FLOW AND ASSETS. Management believes that the
diversity of the Company's brands, market segments served, revenue sources and
geographic locations provides a broad base from which to enhance revenue and
profits and to strengthen the Company's global brands. This diversity limits the
Company's exposure to any particular lodging or gaming asset, brand, market
segment or geographic region.
While Starwood Hotels focuses on the luxury and upscale portion of the
full-service hotel segment, the Company's brands cater to a diverse group of
sub-markets within this segment. For example, The Luxury Collection caters to
high-end hotel and resort clientele while Four Points hotels deliver
full-service hotel amenities at more affordable rates. Management believes that
the diversity of the Company's brands and customer base reduces the likelihood
of competition for customers at any one of the Company's hotels from other
hotels within its portfolio. Instead, management believes that this diversity
serves to increase the Company's market share within markets where Starwood
Hotels operates more than one brand.
Starwood Hotels derives its cash flow from multiple sources, including
owned hotels, management and franchise fees and gaming operations, and is
geographically diverse with operations in five continents. The following table
reflects the Company's properties by revenue source for the year ended December
31, 1998:
<TABLE>
<CAPTION>
NUMBER OF
PROPERTIES
----------
<S> <C>
Owned Hotels(1)............................................. 171(1)
Managed and franchised hotels............................... 506
Gaming...................................................... 17
---
Total............................................. 694
===
</TABLE>
- ---------------
(1)Includes wholly owned, majority owned and leased hotels.
The following table shows the Company's geographical presence by major
geographic area for the year ended December 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF
PROPERTIES
----------
<S> <C>
North America............................................... 432
Europe...................................................... 97
Latin America(1)............................................ 39
Asia Pacific................................................ 79
Africa and the Middle East.................................. 47
---
Total............................................. 694
===
</TABLE>
- ---------------
(1)Includes Mexico and the Caribbean basin.
GAMING OPERATIONS. Starwood Hotels has a significant presence in the
gaming industry, primarily under the Caesars brand name. Starwood Hotels
conducts gaming operations not only in the United States but also in six foreign
countries and on two cruise ships while they are in international waters. The
Company's gaming operations provide revenue and cash flow separate from the
Company's hotel operations. Starwood Hotels recently made significant
investments in many of its gaming properties, including the addition of 1,130
rooms and 110,000 square feet of meeting space in Caesars Palace and the
addition of 620 rooms and 30,000 square feet of casino space in Caesars Atlantic
City.
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BUSINESS STRATEGY
The Company's primary business objective is to maximize earnings and cash
flow by increasing the profitability of the Company's existing portfolio,
selectively acquiring interests in additional assets and increasing the number
of the Company's hotel management contracts and franchise agreements. The
Company plans to increase revenue by leveraging its global assets, broad
customer base and other resources by taking advantage of the Company's scale to
reduce costs. The Company's specific business strategies include the following:
FOCUS ON LUXURY AND UPSCALE FULL-SERVICE HOTEL SEGMENT. The luxury and
upscale full-service segment of the lodging industry has benefited in recent
years from a favorable supply and demand relationship. Increases in occupancy
rates and average daily rate ("ADR") indicate that rising demand for luxury and
upscale hotel rooms has not been met by a similar rate of growth in supply.
According to Smith Travel Research, growth in supply of luxury and upscale hotel
rooms in the United States decreased from approximately 2% to 3% annually from
1988 through 1991 to an average of approximately 1% from 1991 to 1997.
Management believes that this slower increase in the supply growth rate was
attributable to many factors, including:
- The limited availability of attractive building sites for full-service
hotels;
- The limited availability of financing for new full-service hotel
construction due to a perception that projected returns did not justify
new construction; and
- The ability to purchase existing full-service properties at a discount to
their replacement cost.
The Company's hotels have benefited from these favorable trends, which have
allowed Starwood Hotels to increase ADR primarily by replacing discounted
business with higher-rated business and by selectively raising room rates. As a
result, revenue per available room ("REVPAR") for the Company's 151 comparable
owned full-service hotels increased by approximately 7.6% for the year ended
December 31, 1998, as compared with the corresponding period in 1997. The
Company cannot provide any assurances, however, that these trends will continue.
INTERNAL GROWTH OPPORTUNITIES. The combination of the Company's historical
businesses with ITT's and Westin's properties and operations provides Starwood
Hotels with the opportunity to leverage ITT's and Westin's market presence,
reputation and the scale of the combined companies, thereby strengthening the
performance of the Company's hotel and gaming assets. Management has identified
several internal growth opportunities that are expected to enhance the Company's
operating performance and profitability, including:
- Refining the positioning of the Company's brands to further its strategy
of strengthening brand identity. By re-branding certain owned hotels to
the Sheraton, Westin, Four Points or new St. Regis flags, Starwood Hotels
will seek to further solidify its brand reputation and market presence,
leading to enhanced REVPAR performance;
- Expanding the Company's role as a third-party manager of hotel
properties. This allows Starwood Hotels to expand the presence of its
lodging brands and gain additional cash flow generally with modest
capital commitment;
- Franchising the Sheraton, Westin and Four Points brands to selected
third-party operators, thereby expanding the Company's market presence,
enhancing the exposure of its hotel brands and providing additional
income through franchise fees;
- Integrating the Company's owned, managed and franchised hotels into a
single, multi-brand reservations system, coordinating the global sales
office, and expanding the Company's Internet presence and sales
capabilities to drive revenue, enhance profitability and improve customer
service;
- Launching the Company's new Preferred Guest Program in February 1999,
which the Company believes will increase occupancy rates and provide the
Company's customers with benefits covering the spectrum of its lodging
and gaming portfolios;
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<PAGE> 15
- Enhancing the Company's marketing efforts by integrating the Company's
proprietary customer databases, so as to sell additional products and
services to existing customers, improve occupancy rates and create
additional marketing opportunities;
- Optimizing the Company's use of its real estate assets to improve
ancillary revenue, such as restaurant, beverage and parking revenue from
the Company's hotel and gaming properties; and
- Creating the new "W" hotel brand to appeal to upscale business travelers
and other customers seeking full-service boutique hotels in major
markets, such as New York, where the first W hotel opened in December
1998, Atlanta, where the second W hotel opened in February 1999, and San
Francisco, Chicago, Los Angeles and New Orleans, where future W hotels
are currently planned.
EXTERNAL GROWTH OPPORTUNITIES. Starwood Hotels intends to explore
opportunities to expand and diversify the Company's hotel and gaming portfolios
through minority investments and selective acquisitions in properties
domestically and internationally that meet some or all of the following
criteria:
- Luxury and upscale full-service hotels in major metropolitan areas and
business centers;
- Major tourist hotels, destination resorts or conference centers that have
favorable demographic trends and are located in markets with significant
barriers to entry or with major room demand generators such as office or
retail complexes, airports, tourist attractions or universities;
- Undervalued hotels whose performance can be increased by re-branding to
one of the Company's hotel brands, the introduction of more professional
and efficient management techniques and practices and/or the injection of
capital for renovating, expanding or repositioning the property; and
- Portfolios of hotels or hotel companies that exhibit some or all of the
criteria listed above, where the purchase of several hotels in one
transaction enables Starwood Hotels to obtain favorable pricing or obtain
attractive assets that would otherwise not be available.
In addition, Starwood Hotels intends to enhance its gaming portfolio by
expanding the Caesars brand internationally, as in the instances of the
Philippines and South Africa. Starwood Hotels may also selectively choose to
develop and construct desirable hotel and gaming properties to help the Company
meet its strategic goals. Currently, Starwood Hotels has hotel properties under
construction in Seattle and San Francisco, which the Company expects to complete
by mid-1999.
INTEGRATING HOTEL OPERATIONS. Management believes that the ongoing
integration of the Company's historic operations with those of Westin and ITT
has given rise to a number of opportunities for long-term cost reductions (e.g.,
taking advantage of new economies of scale to reduce purchasing and insurance
costs and eliminating general and administrative redundancies). This ongoing
integration includes the recent adoption of a comprehensive frequent guest
program and reservation system and improves performance through the application
of certain operating practices consistently to all the Company's assets (e.g.,
applying the "best practices" from Westin, Sheraton and the Company's other
hotels).
COMPETITION
The hotel and gaming industries are highly competitive. Competition is
generally based on quality and consistency of room, restaurant, casino,
entertainment and convention facilities and services, attractiveness of
locations, availability of a global distribution system, price and other
factors. Management believes that Starwood Hotels competes favorably in these
areas. The properties of Starwood Hotels compete with other hotel and casino
properties, including facilities owned by local interests and facilities owned
by national and international chains, in their geographic markets. The principal
competitors of Starwood Hotels include other hotel operating and gaming
companies (including hotel REITs) and national hotel brands.
Starwood Hotels also encounters strong competition as a hotel operator and
developer. There are over 500 hotel management companies in the United States,
including several that operate more than 100 properties. While some of the
Company's competitors are private management firms, several are large national
and international chains that own and operate their own hotels, as well as
manage hotels for third-party owners,
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<PAGE> 16
under a variety of brands that compete directly with the Company's brands. In
addition, hotel management contracts are typically long-term arrangements, but
most allow the hotel owner to replace the management firm if certain financial
or performance criteria are not met.
To the extent that hotel capacity is expanded by others in a city where one
of the Company's hotels is located, competition will increase. The completion of
a number of room expansion projects and the opening of new hotel casinos led to
an increase in hotel capacity in Las Vegas in 1998 compared to 1997, thereby
increasing competition in all segments of the Las Vegas market. Certain of the
Company's competitors have also announced, or are developing, new casino
projects in Las Vegas and Atlantic City that, if completed, will add significant
casino space and hotel rooms to these markets. Certain new casino projects in
Atlantic City are subject to continuing litigation that may preclude completion
of contemplated projects. Such new capacity additions to the Las Vegas and
Atlantic City markets could adversely impact the Company's gaming income.
Numerous states are currently considering the legalization of casino gaming
in their jurisdictions. In November 1998, California voters approved a ballot
initiative that mandates that the California governor sign compacts relating to
gaming on tribal lands with California tribes upon their request. The initiative
also amended current California law to permit gambling devices, including slot
machines, banked card games and lotteries, at tribal casinos. The Supreme Court
of California has stayed the implementation of this initiative, and its ultimate
impact is uncertain.
The competitive impact on Nevada gaming establishments, in general, and the
Company's operations, in particular, from the continued growth of gaming in
jurisdictions outside of Nevada cannot be determined at this time. The business
of the Company's Nevada casinos might also be adversely affected if gaming
operations of the type conducted in Nevada were to be permitted under the laws
of other states, particularly California. Similarly, legalization of gaming
operations in any jurisdiction located near Atlantic City, New Jersey, or the
establishment of new large-scale gaming operations on nearby Native American
tribal lands, could adversely affect the Company's Atlantic City casino. The
expansion of riverboat gaming or of casino gaming on Native American tribal
lands could also adversely impact the Company's gaming operations.
OTHER ASSETS AND OPERATIONS; CERTAIN RECENT DEVELOPMENTS
EDUCATIONAL SERVICES. As a consequence of its acquisition of ITT, Starwood
Hotels acquired 83.3% (approximately 22.5 million shares) of the outstanding
shares of Educational Services. The shares of common stock of Educational
Services are traded on the New York Stock Exchange (the "NYSE") under the symbol
"ESI." In June 1998, Starwood Hotels completed the sale of approximately 13
million shares of common stock of Educational Services in an underwritten public
offering for total net proceeds of approximately $304 million. The proceeds from
this transaction were used to repay a portion of the Company's outstanding debt.
In February 1999, Starwood Hotels completed the sale of approximately 8 million
shares of common stock of Educational Services in an underwritten public
offering. Concurrently, Educational Services repurchased the Company's remaining
1.5 million shares of Educational Services common stock. Starwood Hotels
received aggregate net proceeds of approximately $310 million from these
transactions. The proceeds were used to repay a portion of the Company's
outstanding debt.
MADISON SQUARE GARDEN. In August 1994, subsidiaries of ITT and Cablevision
Systems Corporation ("Cablevision") formed Madison Square Garden, L.P. ("MSG"),
to acquire and operate the New York Knickerbockers, the New York Rangers,
Madison Square Garden and the MSG cable television network, among other
businesses.
As a consequence of several redemptions and contributions, ITT's interest
in MSG has been reduced to 7.81%, which Cablevision has agreed to purchase for
net proceeds of $87 million. This transaction is expected to close in April
1999.
GOVERNMENTAL REGULATION AND LICENSING
GENERAL. Starwood Hotels' gaming operations include Caesars Palace and the
Desert Inn, both in Las Vegas, Nevada; Caesars Atlantic City in Atlantic City,
New Jersey; Caesars Tahoe in Stateline, Nevada;
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<PAGE> 17
Caesars "Glory of Rome" riverboat casino, which began operations on the Ohio
River in Harrison County, Indiana in late 1998; the Sheraton Casino in Tunica
County, Mississippi; the Sheraton Lima Hotel and Casino in Lima, Peru; the
Sheraton Halifax Hotel and Casino in Halifax, Nova Scotia; the Sheraton Casino
Sydney in Sydney, Cape Breton, Nova Scotia. Caesars also owns one-half of a
management company that operates Casino Windsor, a casino in Windsor, Canada,
which is owned by Government of the Province of Ontario. A Caesars subsidiary
operates small casinos on two cruise ships as well. Sheraton also operates
casinos in Australia and Egypt. Another subsidiary of the Corporation, Hotel
Investors Corporation of Nevada ("HICN"), leased and operated the King 8 Hotel
in Las Vegas, Nevada; the Trust sold the King 8 in 1996 pursuant to an
arrangement in which HICN continued to operate the hotel and casino until June
30, 1998. The Desert Inn is owned and operated by Sheraton Desert Inn
Corporation ("SDI"), which is a wholly owned subsidiary of Sheraton Gaming
Corporation ("SGC"), which is a wholly owned subsidiary of Sheraton (Sheraton,
SGC and SDI are collectively referred to as the "Sheraton Desert Inn
Companies"). Sheraton Casino & Hotel in Tunica County, Mississippi, is owned and
operated by Sheraton Tunica Corporation ("STC"), which is a wholly owned
subsidiary of SDI.
Caesars' casino gaming operations in Las Vegas, Nevada and Stateline,
Nevada are conducted by Desert Palace, Inc. ("DPI"), which is a wholly owned
subsidiary of Caesars Palace Corporation ("CPC"), which is a wholly owned
subsidiary of Caesars (Caesars, CPC and DPI are hereinafter collectively
referred to as the "Caesars Nevada Companies"). Caesars is a wholly owned
subsidiary of Sheraton. Caesars' casino gaming operations in Atlantic City are
conducted by Boardwalk Regency Corporation ("BRC"), which is a wholly owned
subsidiary of Caesars New Jersey, Inc. ("CNJ"), which is a wholly owned
subsidiary of Caesars (as required by the context, Caesars, CNJ and BRC are
collectively referred to as the "Caesars New Jersey Companies"). In addition,
DPI owns all of the issued and outstanding capital stock of Tele/Info, Inc.
("Tele/ Info"), which is a Nevada licensed disseminator of horse race simulcasts
for the purpose of receiving and disseminating live telecasts of horse racing
information.
The ownership and/or operation of casino gaming facilities in the United
States are subject to extensive Federal, state and local regulations. Under
Federal law, Starwood Hotels' casino gaming operations are specifically subject
to the compliance with the Gambling Devices Act of 1962, as amended, and the
Bank Secrecy Act, as amended. These statutes govern the ownership, possession,
manufacture, distribution and transportation in interstate commerce of gaming
devices, and the recording and reporting of currency transactions, respectively.
Starwood Hotels' Nevada casino gaming operations are subject to the Nevada
Gaming Control Act and the regulations promulgated thereunder (the "Nevada
Act"), and the licensing and regulatory control of the Nevada Gaming Commission
(the "Nevada Commission") and the Nevada State Gaming Control Board (the "Nevada
Board"), as well as certain county government agencies (collectively referred to
as the "Nevada Gaming Authorities"). Due to the development of a riverboat
gaming facility located on the Ohio River in Harrison County, Indiana, Starwood
Hotels' casino gaming operations in Indiana are subject to the Indiana Gaming
Control Act (the "Indiana Act"), and the licensing and regulatory control of the
Indiana Gaming Commission, as well as various local, county and state regulatory
agencies. Starwood Hotels' New Jersey casino gaming operations are subject to
the New Jersey Casino Control Act (the "New Jersey Act"), and the licensing and
regulatory control of the New Jersey Casino Control Commission (the "New Jersey
Commission"), and the New Jersey Department of Law & Public Safety, Divisions of
Gaming Enforcement (the "New Jersey DGE"), as well as various local, county and
state regulatory agencies (collectively referred to as the "New Jersey Gaming
Authorities"). Starwood Hotels' Mississippi casino gaming operations are subject
to the Mississippi Gaming Control Act (the "Mississippi Act"), and the licensing
and regulatory control of the Mississippi Gaming Commission (the "Mississippi
Commission"), as well as various local, county and state regulatory agencies
(collectively referred to as the "Mississippi Gaming Authorities"). Starwood
Hotels' Ontario casino gaming operations are subject to the Ontario Gaming
Control Act (the "Ontario Act"), and the licensing and regulatory control of the
Ontario Gaming Control Commission (the "Ontario Commission"), as well as various
local, provincial and federal regulatory agencies (collectively referred to as
the "Ontario Gaming Authorities"). Starwood Hotels' Nova Scotia casino gaming
operations are subject to the Nova Scotia Gaming Control Act (the "Nova Scotia
Act"), and the licensing and regulatory control of the Nova Scotia Gaming
Control Commission (the "Nova Scotia Commission"), as
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well as various local, provincial and federal regulatory agencies (collectively
referred to as the "Nova Scotia Gaming Authorities").
The casino gaming laws, regulations and supervisory procedures of Nevada,
New Jersey, Indiana, Mississippi, Ontario and Nova Scotia are extensive and
reflect certain public policy considerations as to (i) the integrity of casino
gaming operations and their participants; (ii) the need for strict governmental
and regulatory control of casino gaming operations; (iii) the creation of
economic development, taxes and employment; and (iv) the maintenance and
development of public confidence and trust in casino gaming regulation and
control. Changes to these laws, regulations and supervisory procedures could
have an adverse effect on Starwood Hotels' casino gaming operations.
NEVADA GAMING REGULATION. The gaming laws, regulations and supervisory
procedures of Nevada seek to (i) prevent unsavory or unsuitable persons from
having any direct or indirect involvement with gaming at any time or in any
capacity; (ii) establish and maintain responsible accounting practices and
procedures; (iii) maintain effective control over the financial practices of
licensees, including establishing minimum procedures for internal fiscal affairs
and the safeguarding of assets and revenues, providing reliable record-keeping,
and making periodic reports to the applicable casino gaming authority; (iv)
prevent cheating and fraudulent practices; and (v) provide a source of state and
local revenues through taxation and licensing fees.
Starwood Hotels, ITT and Caesars are registered with the Nevada Commission
as publicly traded corporations and Starwood Hotels has been found suitable by
the Nevada Gaming Authorities to own all of the outstanding capital stock of
ITT. The Nevada Gaming Authorities have found suitable ITT as the sole
shareholder of Sheraton. Sheraton is registered with the Nevada Commission as an
intermediary company and been found suitable by the Nevada Gaming Authorities to
own all the outstanding capital stock of Caesars and SGC. Similarly, SGC is
registered with the Nevada Commission as an intermediary company and been found
suitable by the Nevada Gaming Authorities to own all the outstanding capital
stock of SDI. SDI operates the Desert Inn and DPI operates both Caesars Palace
and Caesars Tahoe pursuant to licenses granted by the Nevada Gaming Authorities.
These casino gaming licenses are not transferable and must be renewed
periodically by the payment of various gaming license fees and taxes.
No person may become a stockholder of, or receive any percentage of profits
from SDI or DPI without first obtaining certain required licenses and approvals
from the Nevada Gaming Authorities. The Nevada Gaming Authorities may
investigate any individual who has a material relationship to, or material
involvement with, a corporation which is involved in gaming activities.
Officers, directors and key employees of each of SDI and DPI must be
individually licensed by, and changes in corporate positions must be reported to
the Nevada Gaming Authorities, which changes may be disapproved by the Nevada
Gaming Authorities. Certain of Starwood Hotels' officers, directors and key
employees and those of Starwood Hotels' subsidiaries who are actively and
directly involved in Starwood Hotels' gaming activities have been, and others
may be, required to be licensed or found suitable by the Nevada Gaming
Authorities. The Nevada Gaming Authorities may deny an application for licensing
for any cause which they deem reasonable. A finding of suitability is comparable
to licensing, and both require submission of detailed personal and financial
information followed by a thorough investigation. If the Nevada Gaming
Authorities find an officer, director or key employee unsuitable for licensing
or unsuitable to continue having a relationship with Starwood Hotels, ITT, the
Sheraton Desert Inn Companies, or the Caesars Nevada Companies, the companies
involved would be required to sever all relationships with such person. In
addition, the Nevada Gaming Authorities may require a registered company or
licensee to terminate the employment of any person who refuses to file
appropriate applications or disclosures.
Starwood Hotels, ITT, the Sheraton Desert Inn Companies, and the Caesars
Nevada Companies are required to submit detailed financial and operating reports
to the Nevada Commission. Substantially all loans, leases, sales of securities
and similar financing transactions by either SDI or DPI must be reported to or
approved by the Nevada Commission. Nevada law prohibits a corporation registered
by the Nevada Commission from making a public offering of its securities without
the prior approval of the Nevada Commission if any part of the proceeds of the
offering of the securities is, or the securities themselves are, to
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be used either to (i) finance the construction, acquisition or operation of
gaming facilities in Nevada; or (ii) retire or extend obligations incurred for
one or more such purposes.
If it were determined that the Nevada Act was violated by SDI or DPI, the
gaming license each holds could be limited, conditioned, suspended or revoked.
In addition, at the discretion of the Nevada Commission, Starwood Hotels, ITT,
the Sheraton Desert Inn Companies and the persons involved could be subject to
substantial fines for each separate violation of the Nevada Act by the Desert
Inn. Similarly, and also at the discretion of the Nevada Commission, Starwood
Hotels, ITT, the Caesars Nevada Companies and the persons involved could be
subject to substantial fines for each separate violation of the Nevada Act by
either Caesars Palace or Caesars Tahoe. Furthermore, a supervisor could be
appointed by the Nevada Commission to operate the gaming property of SDI or DPI
and, under certain circumstances, earnings generated during the supervisor's
appointment (except for the reasonable rental value of the affected gaming
property) could be forfeited to the State of Nevada. Any suspension or
revocation of the licenses or approvals, or the appointment of a supervisor,
would have a material adverse effect on SDI or DPI, as the case may be.
The Nevada Gaming Authorities may investigate and require a finding of
suitability of any holder of any class of Starwood Hotels' voting securities at
any time. Nevada law requires any person who acquires more than 5% of any class
of Starwood Hotels' voting securities to report the acquisition to the Nevada
Commission and such person may be investigated and found suitable or not
suitable. Any person who becomes a beneficial owner of more than 10% of any
class of Starwood Hotels' voting securities must apply for a finding of
suitability by the Nevada Commission within 30 days after the Nevada Board
Chairman mails a written notice requiring such filing, and must pay the costs
and fees incurred by the Nevada Board in connection with the investigation.
Under certain circumstances, an "institutional investor," as defined by the
Nevada Act, that acquires more than 10% but not more than 15% of Starwood
Hotels' voting securities may apply to the Nevada Commission for a waiver of
such finding of suitability requirements if such institutional investor holds
the voting securities for investment purposes only. An institutional investor
will not be deemed to hold voting securities for investment purposes unless the
voting securities were acquired and are held in the ordinary course of business
as an institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of either the Board of
Directors or the Board of Trustees, any change in Starwood Hotels' corporate
charter, bylaws, management, policies or operations or any of Starwood Hotels'
casino gaming operations, or any other action which the Nevada Commission finds
to be inconsistent with holding Starwood Hotels' voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include (i) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in its management, policies or
operations; and (iii) such other activities as the Nevada Commission may
determine to be consistent with such investment intent. If the stockholder who
must be found suitable is a corporation, partnership or trust, it must submit
detailed business and financial information, including a list of beneficial
holders of its ownership interests. Any person who fails or refuses to apply for
a finding of suitability or a license within 30 days after being ordered to do
so by the Nevada Commission or by the Chairman of the Nevada Board may be found
unsuitable. Any person found unsuitable who holds, directly or indirectly, any
beneficial ownership of Starwood Hotels' debt or equity voting securities beyond
such period or periods of time as may be prescribed by the Nevada Commission may
be guilty of a gross misdemeanor. Starwood Hotels, ITT, the Desert Inn Companies
or the Caesars Nevada Companies could be subject to disciplinary action if,
without the prior approval of the Nevada Commission and after receipt of notice
that a person is unsuitable to be an equity or debt security holder or to have
any other relationship with Starwood Hotels, ITT, the Sheraton Desert Inn
Companies or the Caesars Nevada Companies, any of such entities either (i) pays
to the unsuitable person any dividend, interest or any distribution whatsoever;
(ii) recognizes any voting right by such unsuitable person in connection with
such securities; (iii) pays the unsuitable person remuneration in any form; (iv)
makes any payment to the unsuitable person by way of principal, redemption,
conversion, exchange, liquidation or similar transaction; or (v) fails to pursue
all lawful efforts to require such unsuitable person to relinquish his
securities including, if necessary, the immediate purchase of such securities
for cash at fair market value.
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Regulations of the Nevada Commission provide that control of a registered
publicly traded corporation cannot be changed through merger, consolidation,
acquisition of assets, management or consulting agreements, or any form of
takeover without the prior approval of the Nevada Commission. Persons seeking
approval to control a registered publicly traded corporation must satisfy the
Nevada Commission as to a variety of stringent standards prior to assuming
control of such corporation. The failure of a person to obtain such approval
prior to assuming control over the registered publicly traded corporation may
constitute grounds for finding such person unsuitable. Regulations of the Nevada
Commission also prohibit certain repurchases of securities by registered
publicly traded corporations without the prior approval of the Nevada
Commission. Transactions covered by these regulations are generally aimed at
discouraging repurchases of securities at a premium over market price from
certain holders of more than 3% of the outstanding securities of the registered
publicly traded corporation. The regulations of the Nevada Commission also
require prior approval for a "plan of recapitalization." Generally, a plan of
recapitalization is a plan proposed by the management of a registered publicly
traded corporation that contains recommended action in response to a proposed
corporate acquisition opposed by management of the corporation if such
acquisition would require the prior approval of the Nevada Commission.
Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons (collectively
"Licensees"), and who proposes to become involved in a gaming operation outside
the State of Nevada is required to deposit with the Nevada Control Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Board of the Licensees' participation in
such foreign gaming; the revolving fund is subject to increase or decrease in
the discretion of the Nevada Commission. Once such revolving fund is
established, the Licensees may engage in gaming activities outside the State of
Nevada without seeking the approval of the Nevada Commission provided (i) such
activities are lawful in the jurisdiction where they are to be conducted; and
(ii) the Licensees comply with certain reporting requirements imposed by the
Nevada Act. Licensees are subject to disciplinary action by the Nevada
Commission if they (i) knowingly violate any laws of the foreign jurisdiction
pertaining to the foreign gaming operation; (ii) fail to conduct the foreign
gaming operation in accordance with the standards of honesty and integrity
required of Nevada gaming operations; (iii) engage in activities that are
harmful to the State of Nevada or its ability to collect gaming taxes and fees;
or (iv) employ a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
NEW JERSEY GAMING REGULATION. The New Jersey gaming laws and regulations
primarily concern (a) the financial stability and character of casino operators,
their employees, their security holders and others financially interested in
casino operations; and (b) the operating methods and the financial and
accounting procedures used in connection with casino operations. The New Jersey
gaming laws and regulations include, among other requirements, detailed
provisions concerning (i) the type, manner and number of applications and
licenses required to conduct casino gaming and ancillary activities; (ii) the
licensing, regulation and curricula of gaming schools; (iii) the establishment
of minimum standards of accounting and internal control, including the issuance
and enforceability of casino credit; (iv) the manufacture, sale, distribution
and possession of gaming equipment; (v) the rules of the games; (vi) the
exclusion of undesirable persons; (vii) the use, regulation and reporting of
junket activities; (viii) the possession, sale and distribution of alcoholic
beverages; (ix) the regulation and licensing of suppliers to licensed casino
operators; (x) the conduct of entertainment within licensed casino facilities;
(xi) equal employment opportunity for employees of licensed casino operators,
contractors for casino facilities and other entities; (xii) the payment of gross
revenue taxes and similar fees and expenses; (xiii) the conduct of casino
simulcasting; and (xiv) the imposition and discharge of casino reinvestment
development obligations. A number of these regulations require practices which
are different from those in many casinos elsewhere and some of them result in
casino operating costs greater than those in comparable facilities elsewhere. As
a prerequisite to being licensed, a New Jersey hotel/casino facility must meet
certain facilities requirements concerning, among other things, the size and
number of guest rooms.
BRC is licensed to operate Caesars Atlantic City by the New Jersey
Commission, which has broad discretion with regard to the issuance, renewal,
revocation or suspension of licenses. A New Jersey casino
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license is not transferable and must be renewed at designated periods of up to
four years. Renewal is not automatic and involves an extensive review by the New
Jersey DGE, a report by the New Jersey DGE to the New Jersey Commission, an
independent review by the New Jersey Commission, and the affirmative vote of at
least four of the five sitting Commissioners of the New Jersey Commission. The
casino license to operate Caesars Atlantic City was renewed on November 30,
1996, and expires on November 30, 2000. As a prerequisite to BRC holding a
license, ITT, Caesars and CNJ have been and are approved by the New Jersey
Commission due to their corporate relationship to BRC. Starwood Hotels also is
required to be approved by the New Jersey Commission, and has received interim
casino authorization.
Except for certain banking and lending institutions exempted under the New
Jersey Act, all financial backers, investors, mortgagees, debt holders,
landlords under leases relating to Starwood Hotels' New Jersey hotel/casino
facilities, all lenders to BRC, all officers and directors of BRC and all
employees who work at Caesars Atlantic City have to be qualified, licensed,
approved or registered by or with the New Jersey Commission. In addition, all
contracts and leases entered into by BRC are subject to approval by the New
Jersey Commission.
Any holder of the debt or equity securities of Starwood Hotels, Caesars or
CNJ must be found qualified; the qualification requirement may be waived based
on an express finding by the New Jersey Commission, with the consent of the
Director of the New Jersey DGE, that the security holder either (a)(i) is not
significantly involved in the activities of BRC; (ii) does not have the ability
to control Starwood Hotels, ITT, Caesars, CNJ or BRC; and (iii) does not have
the ability to elect one or more members of the Board of Directors, the Board of
Trustees, or the respective boards of directors of ITT, Caesars, CNJ or BRC; or
(b) is an "institutional investor." The New Jersey Act presumes that any
security holder that is not an "institutional investor" who owns or beneficially
holds 5% or more of Starwood Hotels' equity securities has the ability to
control Starwood Hotels, ITT, Caesars, CNJ or BRC, unless such presumption is
rebutted by clear and convincing evidence.
The New Jersey Act and regulations define an "institutional investor" as
(i) any retirement fund administered by a public agency for the exclusive
benefit of Federal, state or local public employees; (ii) an investment company
registered under the Investment Company Act of 1940; (iii) a collective
investment trust organized by banks under Part Nine of the Rules of the
Comptroller of the Currency; (iv) a closed end investment trust; (v) a chartered
or licensed life insurance company or property and casualty insurance company;
(vi) banking or other licensed or chartered lending institutions; (vii) an
investment advisor registered under the Investment Advisors Act of 1940; or
(viii) such other persons as the New Jersey Commission may determine for reasons
consistent with the policies of the New Jersey Act. In the absence of a prima
facie showing by the Director of the DGE that there is any cause to believe that
such institutional investor may be found unqualified, upon application and for
good cause shown, an institutional investor holding either (a) less than 10% of
Starwood Hotels' equity securities; or (b) debt securities constituting less
than 20% of Starwood Hotels' outstanding debt and less than 50% of the issue
involved may be granted a waiver of qualification as to such holdings if (i)
such securities are those of a publicly traded corporation; (ii) the
institutional investor's holdings of such securities were purchased for
investment purposes only; and (iii) upon request by the New Jersey Commission,
the institutional investor files with the New Jersey Commission a certified
statement to the effect that the institutional investor has no intention of
influencing or affecting the affairs of Starwood Hotels, ITT, Caesars, CNJ or
BRC; notwithstanding the foregoing, the institutional investor is permitted to
vote on matters put to the vote of the outstanding security holders of Starwood
Hotels.
If an institutional investor who has been granted a waiver subsequently
determines to influence or affect Starwood Hotels' affairs, the institutional
investor must provide to the New Jersey Commission not less than 30 days' prior
notice of such intent and the institutional investor must file with the New
Jersey Commission an application for qualification before taking any action that
may influence or affect Starwood Hotels' affairs; notwithstanding the foregoing,
the institutional investor is permitted to vote on matters put to the vote of
Starwood Hotels' outstanding security holders. If an institutional investor
changes its investment intent, or if the New Jersey Commission finds reasonable
cause to believe that the institutional investor may be found unqualified, no
action other than divestiture shall be taken by that institutional investor
until there has been
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compliance with the interim casino authorization provisions of the New Jersey
Act, including the execution of a trust agreement. Starwood Hotels, ITT,
Caesars, CNJ and BRC are required to immediately notify the New Jersey
Commission and the New Jersey DGE of any information about, or action of an
institutional investor holding Starwood Hotels' equity or debt securities where
such information or action may impact on the eligibility of such institutional
investor for a waiver. If the New Jersey Commission finds an institutional
investor unqualified or if the New Jersey Commission finds that, by reason of
the extent or nature of its holdings, an institutional investor is in the
position to exercise a substantial impact on the controlling interests of BRC so
that qualification of the institutional investor is necessary to protect the
public interest, the New Jersey Act vests in the New Jersey Commission the power
to take all necessary action to protect the public interest, including the power
to require that the institutional investor submit to qualification and become
qualified under the New Jersey Act.
Any holder of Starwood Hotels' debt or equity securities, including an
institutional investor, who is required to be found qualified by the New Jersey
Commission must submit an application for qualification within 30 days after
being ordered to do so or divest all security holdings within 120 days after the
New Jersey Commission determines such qualification is required. The application
for qualification must include a trust agreement by which the security holder
places its interest in Starwood Hotels' securities in trust with a trustee
qualified by the New Jersey Commission. If the security holder is ultimately
found qualified, the trust agreement is terminated. In connection with the ITT
Merger, Starwood Hotels petitioned for, and on January 28, 1998 received,
interim casino authorization under the provisions of the New Jersey Act,
including the execution of a trust agreement; on October 22, 1998, the New
Jersey Commission found Starwood Hotels plenarily qualified without condition
and, as a result, the interim casino authorization trust was dissolved.
If the security holder is not found qualified or withdraws its application
for qualification, the trustee will be empowered with all rights of ownership
pertaining to such security holder's securities, including all voting rights and
the power to sell the securities; in any event, the unqualified security holder
will not be entitled to receive in exchange for its securities an amount in
excess of the lower of (i) the actual cost the security holder incurred in
acquiring the securities; or (ii) the value of such securities, calculated as if
the investment had been made on the date the trust became operative. If the
security holder is not found qualified, it is unlawful for the security holder
to (i) receive any dividends or interest on such securities; (ii) exercise,
directly or through any trustee or nominee, any right conferred by such
securities; or (iii) receive any remuneration in any form from Starwood Hotels,
ITT, Caesars, CNJ or BRC for services rendered or otherwise.
Each officer, director, lender and certain other persons of Starwood
Hotels, ITT, Caesars and CNJ must be found qualified unless the New Jersey
Commission, with the consent of the Director of the New Jersey Commission, with
the consent of the Director of the New Jersey DGE, finds that such officer,
director, lender or other person is not significantly involved in the affairs of
BRC and is thus waived from qualification. New Jersey law requires that an
officer or director of Starwood Hotels, ITT, Caesars or CNJ must apply for
temporary qualification at least 30 days before assuming any duties.
The New Jersey Act requires that each of Starwood Hotels, ITT, Caesars, CNJ
and BRC maintain financial stability and capability. For purposes of these
requirements, the New Jersey Commission has adopted regulations defining
"financial stability" and has set forth certain standards for determining
compliance with the financial stability regulations. Under the regulations of
the New Jersey Commission, "financial stability" has been defined as (i) the
ability to assure the financial integrity of casino operations by the
maintenance of a casino bankroll or equivalent provisions adequate to pay
winning wagers to casino patrons when due; (ii) the ability to meet ongoing
operating expenses which are essential to the maintenance of continuous and
stable casino operations; (iii) the ability to pay, as and when due, all local,
state and Federal taxes and any and all fees imposed by the New Jersey Act; (iv)
the ability to make necessary capital and maintenance expenditures in a timely
manner which are adequate to insure maintenance of a superior first class
facility of exceptional quality as required by the New Jersey Act; and (v) the
ability to pay, exchange, refinance or extend debts, including long-term and
short-term principal and interest and capital lease obligations, which will
mature or otherwise come due and payable during either the license term or
within 12 months after the end of the license term or to otherwise manage such
debts and any default with respect to the debts. The New Jersey Commission
regulations provide that the financial stability standards concerning casino
bankroll, operating
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expenses and capital and maintenance expenditures are met if the following is
shown by clear and convincing evidence: (i) casino bankroll -- the maintenance,
on a daily basis, of a casino bankroll at least equal to the average daily
casino bankroll, calculated on a monthly basis, for the corresponding month in
the previous year; (ii) operating expenses -- the demonstration of the ability
to achieve positive gross operating profit measured on an annual basis; and
(iii) capital and maintenance expenditures -- the demonstration that its capital
and maintenance expenditures over the five-year period, which includes the
previous 36 calendar months and the upcoming license period, average at least 5%
of net revenue per annum. Starwood Hotels believes that, at current operating
levels, BRC will have no difficulty in complying with these requirements. The
New Jersey Commission has the authority to restrict or prohibit the transfer of
cash or the assumption of liabilities by BRC if such action will adversely
impact the financial stability of BRC and the prior approval of the New Jersey
Commission is required to incur indebtedness and guarantees of affiliated
indebtedness by BRC involving amounts greater than $25 million.
If it were determined that New Jersey gaming laws were violated by BRC, BRC
could be subject to fines or its casino license could be limited, conditioned,
suspended or revoked. In addition, if a security holder of Starwood Hotels, ITT,
Caesars, CNJ or BRC is found disqualified but does not dispose of the
securities, the New Jersey Commission is authorized to take any necessary action
to protect the public interest, including the suspension or revocation of the
casino license. The New Jersey Commission, however, will not take any action
against Starwood Hotels, ITT, Caesars, CNJ or BRC in connection with a
disqualified holder if the New Jersey Commission finds that (i) Starwood Hotels
has provided in its corporate and trust charters that Starwood Hotels'
securities are held subject to the condition that, if a holder is found to be
disqualified by the New Jersey Commission pursuant to the provisions of the New
Jersey Act, such holder shall dispose of its interest in Starwood Hotels; (ii)
Starwood Hotels has made a good faith effort, including the prosecution of all
legal remedies, to comply with any order of the New Jersey Commission requiring
the divestiture of the interest held by the disqualified holder; and (iii) such
disqualified holder does not have the ability to control Starwood Hotels, ITT,
Caesars, CNJ or BRC or to elect one or more members of the Board of Directors,
the Board of Trustees or the respective boards of directors of ITT, Caesars, CNJ
or BRC. If BRC's license is revoked, not renewed or suspended for a period in
excess of 120 days, the New Jersey Commission is empowered to appoint a
conservator to operate, and to dispose of, BRC's casino/hotel facilities. If a
conservator operates the casino/hotel facilities, payments to shareholders would
be limited to a "fair return" on their investment, with any excess going to the
State of New Jersey. If a conservator is appointed, the conservator's charges
and expenses become a lien against the property which has priority over all
prior and subsequent liens. Any suspension or revocation of the licenses or
approvals, or the appointment of a conservator would have a material adverse
effect on BRC.
MISSISSIPPI GAMING REGULATION. Gaming in Mississippi can be legally
conducted only on vessels of a certain minimum size either in navigable waters
of counties bordering the Mississippi River or in the waters of the State of
Mississippi which lie adjacent to the coastline of the three counties bordering
the Gulf of Mexico. STC possesses a license for the ownership and operation of
The Sheraton Casino & Hotel in Robinsonville, Tunica County, Mississippi issued
by the Mississippi Commission pursuant to the Mississippi Act. The Mississippi
Act does not restrict the amount or percentage of space on a vessel that may be
utilized for casino gaming; the Mississippi Act also does not limit the number
of licenses that the Mississippi Commission can grant for a particular area.
Starwood Hotels, ITT and STC are required to submit detailed financial,
operating and other reports to the Mississippi Commission. Substantially all
loans, leases, sales of securities and similar financing transactions entered
into by Starwood Hotels, ITT or by STC must be reported to or approved by the
Mississippi Commission. Starwood Hotels, ITT and STC are also required
periodically to submit detailed financial and operating reports to the
Mississippi Commission and to furnish any other information which the
Mississippi Commission may require.
Each of the directors, officers and certain key employees of Starwood
Hotels, ITT and STC who are actively and directly engaged in the administration
or supervision of casino gaming in Mississippi, or who have any other
significant involvement with the activities of STC, must be found suitable
therefor and may be required to be licensed by the Mississippi Commission. A
finding of suitability is comparable to licensing, and
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both require the submission of detailed personal and financial information
followed by a thorough investigation. An application for licensing may be denied
for any cause deemed reasonable by the Mississippi Commission. Changes in
licensed positions must be reported to the Mississippi Commission. In addition
to its authority to deny an application for a license, the Mississippi
Commission has the authority to disapprove a change in corporate position. If
the Mississippi Commission finds a director, officer or key employee of Starwood
Hotels, ITT or STC unsuitable for licensing or unsuitable to continue having a
relationship with Starwood Hotels, ITT or STC, such entity is required to
suspend, dismiss and sever all relationships with such person. Starwood Hotels,
ITT and STC have similar obligations with regard to any person who fails or
refuses to file appropriate applications. Each gaming employee must obtain a
work permit; the Mississippi Commission may refuse to issue a work permit to a
gaming employee (i) if the employee has committed larceny, embezzlement or any
other crime of moral turpitude or knowingly violated the Mississippi Act or the
regulations of the Mississippi Commission; or (ii) for any other reasonable
cause.
Mississippi gaming licenses are not transferable and must be renewed
periodically. The Mississippi Commission is empowered to deny, limit, condition,
revoke and/or suspend any license, finding of suitability or registration, and
to fine any person as it deems reasonable and in the public interest, subject to
the due process considerations of notice and an opportunity for a hearing. The
Mississippi Commission may fine any licensee or other person that is subject to
the Mississippi Act up to $100,000 for each violation of the Mississippi Act
that is the subject of an initial complaint and up to $250,000 for each
violation of the Mississippi Act that is the subject of any subsequent
complaint.
License fees and taxes, computed in various ways depending on the type of
casino gaming involved, are payable to the State of Mississippi and to the
counties and cities in which gaming operations are located. Generally, these
fees and taxes are based on a percentage of the gross gaming revenues received
by the casino operation, the number of slot machines operated by such casino, or
the number of table games operated by such casino. Moreover, several local
governments have been authorized to impose either additional gross fees on
adjusted gross gaming revenues or, alternatively, per person boarding fees and
annual license fees based on the number of gaming devices aboard the vessel.
License fees paid to the State of Mississippi are allowed as a credit against
Mississippi state income taxes.
In all other material respects, casino gaming regulation in Mississippi is
similar to the regulation of casino gaming in Nevada and New Jersey.
ONTARIO GAMING REGULATION. Windsor Casino Limited ("WCL"), which is
half-owned by Caesars and which operates the casino in Windsor, Ontario, Canada,
is required to comply with licensing requirements similar to Nevada and New
Jersey and is also subject to operational regulation by the Province of Ontario.
Pursuant to the Ontario Act, the Registrar of the Ontario Commission must
approve any change in the directors or officers of WCL. The Ontario Act also
provides that the Ontario Commission may require the submission of certain
disclosures and informational material from any person who has an interest in
WCL. Starwood Hotels has submitted to the Registrar all required disclosures and
informational material.
Under the Ontario Act, no person may provide goods or services for a casino
or other business operated by, on behalf of or under contract with the Ontario
Casino Corporation unless, among other things, that person is registered as a
supplier under the Ontario Act. The Registrar has the power, subject to the
Ontario Act, to grant, renew, suspend or revoke registrations. The Registrar is
entitled to make such inquiries and conduct such investigations as are necessary
to determine that applicants for registration meet the requirements of the
Ontario Act and to require information or material from any person who has an
interest in an applicant for registration as a registrant. The criteria to be
considered in connection with registration under the Ontario Act include
financial responsibility, integrity, honesty and the public interest. The
Registrar may, at any time, subject to the provisions of the Ontario Act,
revoke, suspend or refuse to renew WCL's registration under the Ontario Act.
NOVA SCOTIA GAMING REGULATION. Sheraton Casino Nova Scotia ("SCNS"), the
subsidiary of ITT that owns and operates the casino in the City of Halifax, Nova
Scotia, and operates the casino in the City of
23
<PAGE> 25
Sydney, Nova Scotia, is required to comply with licensing requirements similar
to the Province of Ontario and is also subject to operational regulation by the
Province of Nova Scotia.
Under the Nova Scotia Act, the Director of Registration of the Nova Scotia
Commission must be notified, within 15 days, of any change in the officers or
directors of SCNS. SCNS is also required to file a disclosure form with the
Director of Registration within 15 days of (i) a person acquiring a beneficial
interest in the business of SCNS; (ii) a person exercising control, either
directly or indirectly, over the business of SCNS; or (iii) a person providing
financing, either directly or indirectly, to the business of SCNS. The Nova
Scotia Act also provides that the Director of Registration may require
information or material from SCNS or any person who has an interest in SCNS.
Starwood Hotels has submitted all required disclosure forms and informational
materials as applicable.
INDIANA GAMING REGULATION. Because Caesars began operating the Caesars
Indiana riverboat casino in Harrison County, Indiana on November 16, 1998,
Starwood Hotels and ITT are subject to the gaming regulations in force in that
state. Indiana currently imposes regulations on gaming companies similar to, and
in Starwood Hotels' opinion, no more restrictive than, the gaming regulations in
force in Nevada and New Jersey.
The riverboat also must comply with U.S. Coast Guard requirements as to
boat design, on-board facilities, equipment, personnel and safety and must hold
a Certificate of Seaworthiness or must be approved by the American Bureau of
Shipping for stabilization and flotation. The U.S. Coast Guard requirements
establish design standards, set limits on the operation of the vessel and
require individual licensing of all personnel involved with the operation of the
vessel. Loss of the vessel's Certificate of Seaworthiness or the American Bureau
of Shipping approval would preclude its use as a floating casino. The land-based
facilities developed and used in connection with the riverboat are subject to
local zoning and building codes.
Under the Indiana Act and regulations prior approval of the ITT Merger was
not required; however, Starwood Hotels was required to and did file for approval
of the ITT Merger within 45 days of the closing of the ITT Merger. On November
16, 1998, the Indiana Commission granted the application of Starwood Hotels for
approval of the ITT Merger and, immediately thereafter, issued a riverboat
owner's license to Caesars Indiana, thereby enabling Caesars Indiana to commence
gaming operations.
PROVISIONS OF THE CORPORATION'S ARTICLES OF INCORPORATION RELATED TO CASINO
GAMING. The Articles of Incorporation provide 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; 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.
ENVIRONMENTAL MATTERS
Starwood Hotels is subject to certain requirements and potential
liabilities under various federal, state and local environmental laws,
ordinances and regulations ("Environmental Laws"). For example, a current or
previous owner or operator of real property may become liable for the costs of
removal or remediation of hazardous or toxic substances on, under or in such
property. Such laws often impose liability without regard to whether the owner
or operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of hazardous or toxic substances may adversely
affect the owner's ability to sell or rent such real property or to borrow using
such real property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic wastes may be liable for the costs of removal or
remediation of such wastes at the treatment, storage or disposal facility,
regardless of whether such facility is owned or operated by such person.
Starwood Hotels uses certain substances and generates certain wastes that may be
deemed hazardous
24
<PAGE> 26
or toxic under applicable Environmental Laws, and Starwood Hotels from time to
time has incurred, and in the future may incur, costs related to cleaning up
contamination resulting from historic uses of certain of the Company's current
or former properties or the Company's treatment, storage or disposal of wastes
at facilities owned by others. Other Environmental Laws require abatement or
removal of certain asbestos-containing materials ("ACMs") (limited quantities of
which are present in various building materials such as spray-on insulation,
floor coverings, ceiling coverings, tiles, decorative treatments and piping
located at certain of the Company's hotels) in the event of damage or
demolition, or certain renovations or remodeling. These laws also govern
emissions of and exposure to asbestos fibers in the air. Environmental Laws also
regulate polychlorinated biphenyls ("PCBs"), which may be present in electrical
equipment. A number of the Company's hotels have underground storage tanks
("USTs") and equipment containing chlorofluorocarbons ("CFCs"); the operation
and subsequent removal or upgrading of certain USTs and the use of equipment
containing CFCs also are regulated by Environmental Laws. In connection with the
Company's ownership, operation and management of its properties, Starwood Hotels
could be held liable for costs of remedial or other action with respect to PCBs,
USTs or CFCs.
Environmental Laws are not the only source of environmental liability.
Under the common law, owners and operators of real property may face liability
for personal injury or property damage because of various environmental
conditions such as alleged exposure to hazardous or toxic substances (including,
but not limited to, ACMs, PCBs and CFCs), poor indoor air quality, radon or poor
drinking water quality.
Although Starwood Hotels has incurred and expects to incur remediation and
other environmental costs during the ordinary course of operations, management
anticipates that such costs will not have a material adverse effect on the
operations or financial condition of the Company.
EMPLOYEES
At December 31, 1998, Starwood Hotels employed approximately 130,000
persons (including 12,000 employees in its gaming operations) at its owned and
managed hotels, of whom approximately 52% were employed in the United States. At
December 31, 1998, approximately 34% of the U.S.-based employees (other than
gaming facility employees) were covered by various collective bargaining
agreements providing, generally, for basic pay rates, working hours, other
conditions of employment and orderly settlement of labor disputes. Generally,
labor relations have been maintained in a normal and satisfactory manner, and
management believes that the Company's employee relations are good.
ITEM 2. PROPERTIES.
Starwood Hotels is one of the largest hotel and resort companies in the
world, with operations throughout the United States and in approximately 70
countries around the world. In addition, through its Sheraton and Caesars
subsidiaries, Starwood Hotels operates casinos or other gaming facilities in the
United States and Canada and overseas in Australia, Egypt (two), Peru, the
Philippines and South Africa. Starwood Hotels considers its hotels and casinos
generally to be premier establishments with respect to desirability of location,
size, facilities, physical condition, quality and variety of services offered in
the markets in which they are located. Although obsolescence arising from age
and condition of facilities can adversely effect the Company's hotel and gaming
properties, Starwood Hotels expends substantial funds to renovate and maintain
its facilities in order to remain competitive. For further information, see Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Capital Expenditures," in this
Joint Annual Report.
LODGING
The Company's lodging business included 694 owned, operated, managed or
franchised hotels with approximately 225,000 rooms at December 31, 1998,
predominantly under eight brands: St. Regis (luxury full-service hotels and
resorts), The Luxury Collection (luxury full-service hotels and resorts), Ciga
(classic European luxury hotels and resorts), Westin (luxury and upscale
full-service hotels and resorts), Sheraton (full-service hotels and resorts), W
(stylish boutique full-service urban hotels), Caesars (full-service hotels
25
<PAGE> 27
and casinos) and Four Points (moderately-priced hotels). At December 31, 1998,
171 of these hotels were owned or leased by Starwood Hotels or an entity in
which Starwood Hotels has a majority equity interest, approximately 226 were
managed by Starwood Hotels on behalf of third-party owners (including entities
in which Starwood Hotels has a minority equity interest), approximately 280 were
owned and operated by franchisees using one of the Company's brands or were
otherwise represented by Starwood Hotels and 17 were associated with gaming
operations.
The following table sets forth the number of hotels, number of rooms, ADR,
average occupancy rate and REVPAR achieved by the Company's owned, leased and
consolidated joint venture hotels with comparative results by region and
worldwide at December 31, 1998, and for the year ended December 31, 1998.
<TABLE>
<CAPTION>
AT DECEMBER 31, YEAR ENDED DECEMBER 31, 1998
1998(1) -------------------------------
---------------- AVERAGE
HOTELS ROOMS ADR OCCUPANCY REVPAR
------ ------ ------- --------- -------
<S> <C> <C> <C> <C> <C>
North America.............................. 104 35,237 $137.99 70.8% $ 97.72
Europe..................................... 29 6,304 $194.52 71.5% $139.03
Latin America(2)........................... 13 5,179 $128.97 68.1% $ 87.82
Asia Pacific............................... 3 1,116 $127.23 74.8% $ 95.19
Africa and the Middle East................. 2 776 $ 64.63 69.7% $ 45.07
--- ------
Worldwide.................................. 151 48,612 $143.11 70.7% $101.15
=== ======
</TABLE>
- ---------------
(1) Excludes 18 hotels under significant renovation in 1998 or 1997 and 2 hotels
held for disposition at December 31, 1998.
(2) Includes Mexico and the Caribbean basin.
HOTEL MANAGEMENT AND FRANCHISING
Hotel and resort properties in the United States are often owned by
entities that neither manage hotels nor own a brand name. Hotel owners typically
enter into management contracts with hotel management companies to operate their
hotels. When a management company does not offer a brand affiliation, the hotel
owner often chooses to pay separate franchise fees to secure the benefits of
brand marketing, centralized reservations and other centralized administrative
functions, particularly in the sales and marketing area. Management believes
that companies, such as Starwood Hotels, that offer both hotel management
services and well-established worldwide brand names appeal to hotel owners by
providing the full range of management and marketing services.
MANAGED HOTELS. Through its subsidiaries, Starwood Hotels manages a number
of hotels worldwide, usually under a long-term agreement with the hotel owner.
The Company's responsibilities under hotel management contracts typically
include hiring, training and supervising the managers and employees that operate
these facilities. For additional fees, Starwood Hotels provides reservation
services and coordinates national advertising and certain marketing and
promotional services. Starwood Hotels prepares and implements annual budgets for
the hotels it manages and is responsible for allocating property-owner funds for
periodic maintenance and repair of buildings and furnishings.
Management contracts typically provide for base fees tied to gross revenue
and incentive fees tied to profits. In the Company's experience, owners seek
hotel managers that can provide attractively priced base, incentive, marketing
and franchise fees combined with demonstrated sales and marketing expertise and
operations-focused management designed to enhance profitability. Some of the
Company's management contracts permit the hotel owner to terminate the agreement
when the hotel is sold or otherwise transferred to a third party, as well as if
Starwood Hotels fails to meet established performance criteria. In addition,
many hotel owners seek an equity or debt investment from Starwood Hotels to help
finance hotel renovations or conversion to the new brand and to align the
interests of the owner and the Company. The Company's ability or willingness to
make such investments may determine, in part, whether Starwood Hotels will be
offered, will accept, or will retain a particular management contract.
26
<PAGE> 28
BRAND FRANCHISING. Starwood Hotels franchises its Sheraton, Westin and
Four Points brand names and generally derives licensing and other fees from
franchisees based on a fixed percentage of franchise hotel room revenue, as well
as fees for other services, including centralized reservations, sales and
marketing, public relations and national and international media advertising. In
addition, a franchisee may also purchase hotel supplies, including
brand-specific products, from certain Starwood Hotels-approved vendors. Starwood
Hotels approves certain plans for, and the location of, franchised hotels and
reviews their design.
As of December 31, 1998, there were approximately 238 franchised properties
with approximately 60,000 rooms operating under the Sheraton brand (including
Four Points) and approximately 29 franchised properties with approximately 9,000
rooms operating under the Westin brand.
GAMING
Starwood Hotels operates casinos or other gaming facilities in the United
States, Canada, the Philippines and South Africa, generally under the Caesars
and Sheraton brand names. The following table sets forth information for certain
of the Company's hotel/casinos at December 31, 1998.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
-------------------------
CASINO LOCATION ROOMS CASINO (SQ. FEET)
- ------ -------------------------- ----- -----------------
<S> <C> <C> <C>
Caesars Palace.............................. Las Vegas, NV 2,456 129,000
Caesars Atlantic City....................... Atlantic City, NJ 1,144 117,000
Caesars Indiana............................. Harrison County, IN -- 93,000
Caesars Tahoe............................... Stateline, NV 440 40,000
Sheraton Casino & Hotel..................... Robinsonville, MS 140 33,000
The Desert Inn Resort & Casino.............. Las Vegas, NV 715 32,000
Dover Downs................................. Dover, DE -- 25,000
Casino Windsor.............................. Windsor, Canada 389 100,000
Caesars Gauteng............................. Kempton Park, South -- 70,000
Africa
Sheraton Casino Sydney...................... Cape Breton, Canada -- 12,000
Caesars Manila.............................. Manila, Philippines -- 7,000
Caesars Palace at Sea....................... S.S. Crystal Harmony * *
S.S. Crystal Symphony * *
</TABLE>
- ---------------
* Starwood Hotels operates the Caesars Palace at Sea casinos only while the
cruise ships on which they are located are in international waters.
GAMING FACILITIES IN THE UNITED STATES. Caesars Palace in Las Vegas is one
of the premier gaming properties in the world, attracting patrons from all over
the world to its 129,000 square foot casino. Significant capital investments
have been made in Caesars Palace over the past three years to create a more
exciting gaming environment, to add additional rooms and a new hotel tower and
to construct other facilities for conventions, meetings and banquets. Starwood
Hotels also owns and operates Caesars Atlantic City, a hotel/casino complex with
more than 117,000 square feet of casino space, located at the center of the
boardwalk in Atlantic City, New Jersey. Caesars Atlantic City has undergone
extensive renovation since 1996 to enhance its convention, meeting and banquet
facilities, including expanded dining facilities, a multi-function grand
ballroom and a four-story atrium. These renovations are expected to enhance the
appeal of Caesars Atlantic City as a convention site, as well as attract more
walk-in patrons from the boardwalk.
Caesars Indiana's "Glory of Rome" Riverboat, a floating casino in Harrison
County, Indiana, commenced operations in November 1998, near the Louisville,
Kentucky, border. The 93,000 square foot casino is the largest riverboat casino
in the United States. In addition, Starwood Hotels owns and operates Caesars
Tahoe, a hotel/casino complex on the Nevada-California border adjacent to Lake
Tahoe, the Sheraton Casino & Hotel in Tunica County, Mississippi, and the Desert
Inn in Las Vegas, which is currently held for sale.
27
<PAGE> 29
INTERNATIONAL GAMING FACILITIES. Starwood Hotels owns a 50% interest in
Casino Windsor Limited, which operates a hotel/casino complex (owned by the
Province of Ontario) comprising a 100,000 square foot casino and approximately
400 rooms in Windsor, Ontario, directly across the river from Detroit, Michigan.
Starwood Hotels also operates a casino at the Sheraton Halifax Hotel & Casino in
Halifax, Nova Scotia, and operates the Sheraton Casino Sydney (which is a
stand-alone casino) in Sydney, Cape Breton, Nova Scotia. In addition, Starwood
Hotels operates the Caesars Gauteng in Kempton Park, Johannesburg, South Africa,
Caesars Manila in Manila, Philippines, and Caesars Palace at Sea, located on two
cruise ships while they are in international waters.
EXTERNAL GROWTH
During the first quarter of 1998, in addition to the ITT Merger and the
Westin Merger, Starwood Hotels acquired four full-service, luxury hotel
properties located in Aspen, Colorado; New York City, New York; Washington,
D.C.; and Houston, Texas for a total purchase price of approximately $348
million consisting of $164 million in cash and 3.7 million Units (valued at
approximately $184 million). In May 1998, Starwood Hotels acquired the 242-room
Danbury Hilton in Danbury, Connecticut for approximately $20 million in cash. In
August 1998, Starwood Hotels acquired a 95% non-controlling interest in the
760-room Westin Maui in Maui, Hawaii, for approximately $132 million in cash.
INTERNAL GROWTH
The following tables summarize average occupancy rates, ADR and REVPAR on a
year-to-year basis for the Company's 151 comparable owned, leased and
consolidated joint venture hotel properties for the year ended December 31, 1998
(excluding two hotels held for sale at December 31, 1998, 11 hotels under
significant renovation during 1998 and seven hotels under renovation during
1997).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------ PERCENTAGE
1998 1997 CHANGE
-------- -------- ----------
<S> <C> <C> <C>
WORLDWIDE
ALL HOTELS
Number of hotels....................................... 151 151
Number of rooms........................................ 48,612 48,612
REVPAR................................................. $101.15 $ 94.04 7.6%
ADR.................................................... $143.11 $133.86 6.9%
Occupancy.............................................. 70.7% 70.3% 0.4%
SHERATON(1)
Number of hotels....................................... 83 83
Number of rooms........................................ 27,833 27,833
REVPAR................................................. $109.50 $102.15 7.2%
ADR.................................................... $155.50 $145.55 6.8%
Occupancy.............................................. 70.4% 70.2% 0.2%
WESTIN
Number of hotels....................................... 26 26
Number of rooms........................................ 10,345 10,345
REVPAR................................................. $ 95.93 $ 88.51 8.4%
ADR.................................................... $133.05 $124.64 6.7%
Occupancy.............................................. 72.1% 71.0% 1.1%
OTHER(2)
Number of hotels....................................... 42 42
Number of rooms........................................ 10,434 10,434
REVPAR................................................. $ 84.26 $ 78.14 7.8%
ADR.................................................... $120.42 $112.13 7.4%
Occupancy.............................................. 70.0% 69.7% 0.3%
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------ PERCENTAGE
1998 1997 CHANGE
-------- -------- ----------
<S> <C> <C> <C>
NORTH AMERICA
ALL HOTELS
Number of hotels....................................... 104 104
Number of rooms........................................ 35,237 35,237
REVPAR................................................. $ 97.72 $ 90.53 7.9%
ADR.................................................... $137.99 $128.37 7.5%
Occupancy.............................................. 70.8% 70.5% 0.3%
SHERATON(1)
Number of hotels....................................... 40 40
Number of rooms........................................ 15,460 15,460
REVPAR................................................. $108.37 $100.78 7.5%
ADR.................................................... $153.85 $142.97 7.6%
Occupancy.............................................. 70.4% 70.5% (0.1)%
WESTIN
Number of hotels....................................... 22 22
Number of rooms........................................ 9,343 9,343
REVPAR................................................. $ 94.87 $ 87.15 8.9%
ADR.................................................... $131.00 $121.85 7.5%
Occupancy.............................................. 72.4% 71.5% 0.9%
OTHER(2)
Number of hotels....................................... 42 42
Number of rooms........................................ 10,434 10,434
REVPAR................................................. $ 84.26 $ 78.14 7.8%
ADR.................................................... $120.42 $112.13 7.4%
Occupancy.............................................. 70.0% 69.7% 0.3%
INTERNATIONAL
ALL HOTELS
Number of hotels....................................... 47 47
Number of rooms........................................ 13,375 13,375
REVPAR................................................. $110.46 $103.59 6.6%
ADR.................................................... $157.09 $149.03 5.4%
Occupancy.............................................. 70.3% 69.5% 0.8%
SHERATON(1)
Number of hotels....................................... 43 43
Number of rooms........................................ 12,373 12,373
REVPAR................................................. $110.98 $103.96 6.8%
ADR.................................................... $157.67 $149.00 5.8%
Occupancy.............................................. 70.4% 69.8% 0.6%
WESTIN
Number of hotels....................................... 4 4
Number of rooms........................................ 1,002 1,002
REVPAR................................................. $104.78 $ 99.70 5.1%
ADR.................................................... $150.83 $149.25 1.1%
Occupancy.............................................. 69.5% 66.8% 2.7%
</TABLE>
- ---------------
(1) Includes Sheraton, The Luxury Collection, St. Regis, Ciga and Four Points
branded properties.
(2) Represents non-proprietary branded properties.
29
<PAGE> 31
ITEM 3. LEGAL PROCEEDINGS.
There are various lawsuits pending against the Company, some of which
involve claims for substantial amounts. However, the Company does not consider
its ultimate liability with respect to these actions to be material in relation
to the consolidated financial condition or operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANTS
See Part III, Item 10, of this Joint Annual Report for information
regarding the executive officers of the Registrants, which information is
incorporated herein by reference.
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The Units are traded on the NYSE and the Pacific Exchange under the symbol
"HOT." The Class A Shares are all currently held by the Corporation and have
never been traded.
The following table sets forth, for the fiscal periods indicated, the high
and low sale prices per Unit on the NYSE Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1998
Fourth quarter.............................................. $31.38 $18.75
Third quarter............................................... $49.19 $29.19
Second quarter.............................................. $54.38 $44.44
First quarter............................................... $57.88 $49.50
1997
Fourth quarter.............................................. $60.38 $52.13
Third quarter............................................... $57.44 $41.56
Second quarter.............................................. $42.81 $34.25
First quarter............................................... $45.88 $34.50
</TABLE>
HOLDERS
As of March 25, 1999, there were approximately 37,500 holders of record of
Units and one holder of record (the Corporation) of the Class A Shares.
30
<PAGE> 32
DISTRIBUTIONS MADE/DECLARED
The following table sets forth certain information with respect to
distributions made by the Trust to holders of Units during the years ended
December 31, 1997 and 1998:
<TABLE>
<CAPTION>
DISTRIBUTIONS RETURN OF CAPITAL
MADE GAAP Basis (a)
------------- -----------------
<S> <C> <C>
1998
Fourth quarter.............................................. $0.15(b) --
Third quarter............................................... $0.52 $0.52
Second quarter.............................................. $0.52 --
First quarter............................................... $0.52 --
1997
Fourth quarter.............................................. $0.48(c) $0.23
Third quarter............................................... $0.48 $0.48
Second quarter.............................................. $0.39 $0.01
First quarter............................................... $0.39 $0.21
</TABLE>
- ---------------
(a) Represents distributions per Unit in excess of net income per Unit on a
generally accepted accounting principles ("GAAP") basis, and is not the same
as return of capital on a tax basis. The net income per Unit used to
calculate the return of capital GAAP basis represents the results of the
Corporation and the Trust for 1997 and the results of the Company for 1998.
(b) The Trust declared a distribution for the fourth quarter of 1998 to
shareholders of record on December 31, 1998. The distribution was paid in
January 1999.
(c) 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.
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.
As a consequence of the Restructuring, holders of Class B Shares are now
entitled, subject to certain conditions, to receive a non-cumulative annual
dividend, at an initial rate of $0.60 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. Unless dividends for the then current quarterly dividend period
have been paid on the Class B Shares, the Trust is not permitted to pay a
dividend on the Class A Shares (except in certain circumstances). Under the
terms of the Company's 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.
CONVERSION OF SECURITIES; SALE OF UNREGISTERED SECURITIES
During 1998, the Trust consented to the exchange of approximately 1.3
million shares of Class B Exchangeable Preferred Shares ("Class B EPS") by
certain stockholders for an equal number of shares of Class A Exchangeable
Preferred Shares ("Class A EPS"); stockholders thereafter exchanged
approximately 3.2 million shares of Class A EPS for an equal number of Units.
During 1998, the Company exchanged approximately 1.5 million Partnership
Units held by third parties for Units on a one-for-one basis.
In January 1998, Starwood Hotels completed the acquisition of four
full-service, luxury properties located in Aspen, Colorado; New York, New York;
Washington, D.C., and Houston, Texas for total consideration of approximately
$348 million, consisting of $164 million in cash and 3.7 million Units, valued
for purposes of these transactions at approximately $184 million. These Units
were issued to New Remington Partners, Savannah Limited Partnership, N.Y.
Overnight Partners, L.P. and D.C. Overnight Partners, L.P. The Units were issued
without registration in reliance upon the exemption provided by Section 4(2) of
the Securities Act of 1933, as amended.
31
<PAGE> 33
ITEM 6. SELECTED FINANCIAL DATA.
The following financial and operating data should be read in conjunction
with the information set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of the Company and related notes thereto appearing elsewhere in this
Joint Annual Report. The historical information represents the historical
information for ITT up to the date of the ITT Merger, because the ITT Merger was
treated as a reverse purchase for accounting purposes. This financial and
operating data do not include the results of the discontinued lines of business,
which include Educational Services and ITT World Directories ("WD").
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996 1995 1994
------- ------ ------ ------- -------
(IN MILLIONS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues...................................... $ 4,710 $2,974 $2,931 $ 2,838 $ 1,385
Income (loss) from continuing operations...... $ 141 $ (270) $ 226 $ 161 $ 44
Basic earnings (loss) per Unit from continuing
operations.................................. $ 0.68 $(2.14) $ 1.81 $ 1.27 $ 0.35
OPERATING DATA
Cash from continuing operations............... $ 224 $ 73 $ 420 $ 444 $ 164
Cash from/(used for) investing activities..... $ 1,915 $ 361 $ (595) $(2,606) $(1,450)
Cash from/(used for) financing activities..... $(2,050) $ (426) $ 250 $ 2,024 $ 610
Aggregate cash dividend distributions......... $ 324(1) $ -- $ -- $ -- $ --
Cash dividend per Unit........................ $ 1.71 $ -- $ -- $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------
1998 1997 1996 1995 1994
------- ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets..................................... $16,101 $8,525 $8,922 $8,225 $4,873
Long-term debt, net of current maturities,
including capital leases and redeemable Class B
EPS............................................ $ 8,260 $1,070 $1,989 $1,729 $ 599
</TABLE>
- ---------------
(1) Excludes $3.0 million of dividends paid to ITT stockholders in connection
with the ITT Merger.
32
<PAGE> 34
UNAUDITED CONDENSED COMBINED CONSOLIDATED
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
The following unaudited condensed combined consolidated pro forma statement
of income for the year ended December 31, 1998 gives effect as of January 1,
1998 to the ITT Merger, the acquisition of Westin and certain actual and planned
asset dispositions. The pro forma information is based upon historical
information as described in the notes to the combined consolidated financial
statements 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 year ended
December 31, 1998.
The Company 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 Units to ITT
stockholders and survived the ITT Merger, Starwood Hotels is considered the
acquired company for accounting purposes because the former ITT stockholders
held a majority of the outstanding Units after the ITT Merger was consummated.
Because the ITT Merger was accounted for using reverse purchase accounting,
the historical statement of income for the year ended December 31, 1998 includes
the accounts of the Trust and the Corporation for the period from the closing of
the ITT Merger on February 23, 1998 through December 31, 1998, and the accounts
of ITT for the twelve months ended December 31, 1998.
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------
STARWOOD DESERT
HISTORICAL HOTELS(A) INN(B) OTHERS PRO FORMA
---------- --------- ------ ------ ---------
(IN MILLIONS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
REVENUES
Hotels:
Owned, leased and consolidated joint venture
hotels........................................... $2,983 $241 $ -- $ -- $3,224
Management and franchise fees....................... 234 6 -- -- 240
Unconsolidated joint ventures and other............. 116 14 -- -- 130
Gaming................................................ 1,377 2 (116) -- 1,263
------ ---- ----- ---- ------
4,710 263 (116) -- 4,857
------ ---- ----- ---- ------
COSTS AND EXPENSES
Hotels:
Owned, leased and consolidated joint venture
hotels........................................... 2,030 176 -- -- 2,206
Other............................................... 120 5 -- -- 125
Gaming................................................ 1,103 2 (120) -- 985
Selling, general and administrative................... 96 6 -- (42)(h)(i) 60
Restructuring and other special charges............... 204 -- -- -- 204
Depreciation and amortization......................... 556 43 (14) 13(g) 598
------ ---- ----- ---- ------
4,109 232 (134) (29) 4,178
------ ---- ----- ---- ------
601 31 18 29 679
Interest expense, net................................. (613) (25) -- (39)(c) (588)
70(d)
3(e)
16(f)
Gain on sale of real estate........................... 55 -- -- -- 55
Miscellaneous income, net............................. -- -- 3 -- 3
------ ---- ----- ---- ------
43 6 21 79 149
Income tax benefit (expense).......................... 108 (2) (6) (32) 68
Minority equity....................................... (10) 1 -- -- (9)
------ ---- ----- ---- ------
Income from continuing operations..................... $ 141 $ 5 $ 15 $ 47 $ 208
====== ==== ===== ==== ======
Basic earnings per Unit:
Income from continuing operations................... $ 0.68 $ 1.04
====== ======
Diluted earnings per Unit:
Income from continuing operations................... $ 0.67 $ 1.03
====== ======
Weighted average number of Units...................... 185 185
====== ======
Weighted average number of Units assuming dilution.... 187 187
====== ======
</TABLE>
The accompanying notes to the unaudited financial statements are an integral
part of the above pro forma statement.
33
<PAGE> 35
NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED
PRO FORMA STATEMENT OF INCOME
(a) Represents the 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.
(b) Represents the elimination of Desert Inn from continuing operations. The
Company has announced its intention to sell the Desert Inn and, as a result,
has excluded its results from continuing operations.
(c) Represents 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 cash portion of the purchase price of the
shares of ITT common stock acquired from the ITT stockholders; (ii) the $312
million in 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.
(d) 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 WD for gross proceeds of $2.1
billion to VNU International B.V. ("VNU") in February 1998; the sale of
ITT's interest in WBIS+, Channel 31 in New York City, to Paxson
Communications Corporation ("Paxson") 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 purchased one-half of ITT's remaining 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 Educational Services for net proceeds of $304 million in
June 1998. The planned asset dispositions include the sale of ITT's
remaining interest in MSG (which is expected to close in April 1999), the
sale of the Company's remaining 35% interest in Educational Services through
a registered public offering of its shares (which occurred in February 1999)
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 $722 million. The Company believes that the planned
dispositions are probable as required by Regulation S-X, Rule 11-01(a).
(e) 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 Units on February 24, 1998
as if such offering had taken place on January 1, 1998.
(f) 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 on deferred loan fees
recognized for the period of 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 (c) above).
(g) 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.
(h) 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.
(i) 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.
34
<PAGE> 36
UNAUDITED PRO FORMA FUNDS FROM OPERATIONS
Management believes that funds from operations ("FFO") (as defined by the
National Association of Real Estate Investment Trusts)(1) is one measure of
financial performance of an equity REIT such as the Trust. Because ITT was never
an equity REIT, it did not calculate FFO. Accordingly, set forth below is pro
forma FFO for the year ended December 31, 1998 (see the unaudited condensed
combined consolidated pro forma statement of income and the notes thereto for an
explanation of the pro forma adjustments).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
PRO FORMA
(IN MILLIONS)
-----------------
<S> <C>
Income from continuing operations before minority
interest.................................................. $217
Minority interest in consolidated joint ventures............ (19)
Depreciation and amortization............................... 598
Deferred taxes.............................................. (68)
Gain on sale of real estate................................. (55)
Preopening costs............................................ 41
Restructuring and other special charges..................... 204
Interest rate swap and treasury lock settlement............. 40
Other non-recurring items(2)................................ 21
----
Funds from Operations....................................... $979
====
</TABLE>
- ---------------
(1) Management and industry analysts generally consider FFO to be one measure of
the financial performance of an equity REIT that provides a relevant basis
for comparison among REITs, and FFO is presented to assist investors in
analyzing the performance of the Company. FFO is defined as income (computed
in accordance with GAAP), excluding gains (losses) from debt restructuring
and sales of property, real estate related depreciation and amortization
(excluding amortization of financing costs) and other non-recurring items.
FFO does not represent cash generated from operating activities in
accordance with GAAP and is not necessarily indicative of cash available to
fund cash needs. FFO should not be considered an alternative to net income
as an indication of the Company's financial performance or as an alternative
to cash flows from operating activities as a measure of liquidity.
(2) Other non-recurring items consist primarily of costs associated with the
vesting of certain restricted stock awards.
35
<PAGE> 37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
To facilitate a meaningful comparison between periods, this Management's
Discussion and Analysis of Financial Condition and Results of Operations focuses
on pro forma information for the periods covered, which the Company's management
believes provides the most meaningful comparability among periods presented. The
historical information excludes the results of the Desert Inn in Las Vegas,
Nevada which is held for sale, preopening costs and certain non-recurring items
and therefore differs from the historical financial information found elsewhere
in this Joint Annual Report. For information regarding the foregoing adjustments
to historical financial information, see the notes to the unaudited condensed
combined consolidated pro forma statement of income included in this Joint
Annual Report. The pro forma information reflects the ITT Merger, the Westin
Merger and certain actual and planned asset dispositions as if they had occurred
on January 1, 1997. The pro forma data, therefore, includes the historical
results of Starwood Hotels and Westin prior to the ITT Merger and certain pro
forma adjustments as more fully described in the notes to the unaudited
condensed combined consolidated pro forma statement of income. In addition, the
following pro forma data for the year ended December 31, 1997 reflects the 44
hotel properties acquired by Starwood Hotels in 1997 and two hotel properties
acquired by Westin in 1997 (the "1997 Acquisitions"), the sale, by ITT, of five
hotel properties during 1997 (the "1997 Dispositions") and the sale, by the
Company, of 12 hotel properties during 1998 (the "1998 Dispositions") as if all
such transactions had occurred on January 1, 1997. The pro forma data is not
necessarily indicative of the results that would have been achieved had such
transactions actually occurred on January 1, 1997, nor are they necessarily
indicative of the Company's future results. Year-to-year comparisons of the
Company's historical information are, in management's view, less relevant to an
understanding of Starwood Hotels due to the significance of the ITT Merger and
the Westin Merger.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
HISTORICAL PRO FORMA
---------------- ---------------
1998 1997(1) 1998 1997
------ ------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
REVENUE
Hotel:
Owned, leased and consolidated joint venture hotels(2)... $2,852 $1,465 $3,050 $2,847
Management and franchise fees............................ 239 174 245 222
Unconsolidated joint ventures and other(3)............... 162 57 176 91
Gaming..................................................... 1,263 1,123 1,263 1,123
------ ------ ------ ------
Total revenue.................................... $4,516 $2,819 $4,734 $4,283
====== ====== ====== ======
COSTS AND EXPENSES
Hotel:
Owned, leased and consolidated joint venture hotels(2)... $1,944 $1,045 $2,092 $2,022
Other.................................................... 120 91 125 98
Gaming..................................................... 945 868 945 868
Selling, general and administrative........................ 72 66 34 106
------ ------ ------ ------
Total costs and expenses......................... $3,081 $2,070 $3,196 $3,094
====== ====== ====== ======
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
HISTORICAL PRO FORMA
---------------- ---------------
1998 1997(1) 1998 1997
------ ------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
EBITDA(4)(5)
Hotel:
Owned, leased and consolidated joint venture hotels...... $ 908 $ 420 $ 958 $ 825
Management and franchise fees............................ 239 174 245 222
Other.................................................... 42 (34) 51 (7)
Gaming..................................................... 318 255 318 255
Selling, general and administrative........................ (72) (66) (34) (106)
------ ------ ------ ------
Same-store EBITDA................................ 1,435 749 1,538 1,189
EBITDA from 1998 Dispositions.................... -- -- 15 --
------ ------ ------ ------
EBITDA........................................... $1,435 $ 749 $1,553 $1,189
====== ====== ====== ======
</TABLE>
- ---------------
(1) Represents the historical results of ITT, excluding Starwood Hotels and
Westin.
(2) Reflects the Company's share of revenues and expenses from consolidated
joint ventures.
(3) Includes unconsolidated joint ventures, interest income, and miscellaneous
income.
(4) EBITDA is defined as income before minority interest, interest expense,
income tax expense and depreciation and amortization expense. Non-recurring
items and gains and losses from sales of real estate and investments are
also excluded from EBITDA as these items do not impact operating results on
a recurring basis. Management considers EBITDA to be one measure of the cash
flows from operations of the Company before debt service that provides a
relevant basis for comparison, and EBITDA is presented to assist investors
in analyzing the performance of the Company. This information should not be
considered as an alternative to any measure of performance as promulgated
under GAAP, nor should it be considered as an indicator of the overall
financial performance of the Company. The Company's calculation of EBITDA
may be different from the calculation used by other companies and,
therefore, comparability may be limited.
37
<PAGE> 39
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH
YEAR ENDED DECEMBER 31, 1997
CONTINUING OPERATIONS
Revenue
PRO FORMA. On a pro forma basis, revenue for the Company's owned, leased
and consolidated joint venture hotels increased 7.1% to approximately $3.1
billion for the year ended December 31, 1998 when compared to the corresponding
period of 1997. The increase in hotel revenue at these 171 owned, leased and
consolidated joint venture hotels resulted from an increase in REVPAR of 6.8% to
$99 for the year ended December 31, 1998 when compared to the corresponding
period of 1997. The increase in REVPAR reflected an increase in ADR of 7.6% to
$143 for the year ended December 31, 1998 when compared to the corresponding
1997 period and a decrease of 0.5 percentage points in average occupancy rates
to 69% for the year ended December 31, 1998. REVPAR at the Company's 52
international majority owned and leased hotels for the year ended December 31,
1998 grew by 7.6% when compared to the corresponding period of 1997. REVPAR at
owned, leased and consolidated joint venture hotels in North America for the
year ended December 31, 1998 increased by 6.3% when compared to the
corresponding period of 1997.
Management and franchise fees earned by Starwood Hotels increased 10.4% to
$245 million for the year ended December 31, 1998 when compared to the
corresponding period of 1997. The increase resulted from stronger performance at
the Company's managed and franchised hotels, the addition of 33 hotels to the
management and franchise system, and termination fees related to the termination
of certain management and franchise agreements.
Income from unconsolidated joint ventures and other income increased to
$176 million for the year ended December 31, 1998 from $91 million in the same
period in 1997. The increase resulted primarily from an increase in earnings
from unconsolidated joint ventures and the gains on sale of certain non-real
estate investments.
Gaming revenue, which excludes the results of the Desert Inn, which is held
for disposition, increased 12.5% to $1.3 billion for the year ended December 31,
1998 when compared to the corresponding period of 1997. The increase in revenue
from the opening of an additional 1,130 rooms and 110,000 square feet of
convention space at Caesars Palace and the addition of 620 rooms and 30,000
square feet of casino space at Caesars Atlantic City was partially offset by the
adverse impact of recent declines in the Asian financial markets on high-end
baccarat play.
HISTORICAL. On a historical basis, revenue for owned, leased and
consolidated joint venture hotels increased to $2.9 billion for the year ended
December 31, 1998 from $1.5 billion in the corresponding period of 1997. Since
the ITT Merger is accounted for as a reverse purchase and the reflected
historical amounts accordingly are those of ITT, the increase in hotel revenue
was due primarily to the inclusion, beginning February 23, 1998 (the date of the
ITT Merger), of the results of approximately 120 hotels owned by Starwood Hotels
as of the date of the ITT Merger, including hotels acquired as a result of the
Westin Merger.
Management and franchise fees increased 37.4% to $239 million for the year
ended December 31, 1998 when compared to the same period of 1997. The increase
resulted primarily from the inclusion of approximately 50 hotels managed by
Starwood Hotels and Westin and approximately 30 hotels franchised by Westin as
of the date of the ITT Merger.
Income from unconsolidated joint ventures and other income increased to
$162 million for the year ended December 31, 1998 from $57 million in the
corresponding period of 1997. The increase was due primarily to the inclusion,
beginning February 23, 1998, of investments in unconsolidated joint venture
hotels owned by Starwood Hotels and Westin as of the date of the ITT Merger.
Because Starwood Hotels was not in the gaming business to any material
extent prior to the acquisition of ITT, its historical gaming revenue is the
same as its pro forma gaming revenue described above.
38
<PAGE> 40
Costs and Expenses
PRO FORMA. Pro forma costs and expenses for owned, leased and consolidated
joint venture hotels increased 3.5% for the year ended December 31, 1998 to $2.1
billion when compared to the corresponding period of 1997. The increase in costs
and expenses is due primarily to the re-opening of hotels in 1998 that were
closed for renovations in 1997.
Gaming costs and expenses for the year ended December 31, 1998 increased
8.9% to $945 million when compared to the same period in 1997. The increase is
due to the opening of the additional rooms and convention space discussed above.
Selling, general and administrative expenses decreased to $34 million in
the year ended December 31, 1998 from $106 million in the corresponding period
of 1997. The decrease is primarily due to savings associated with the ITT Merger
and Westin Merger that resulted in the ITT World Headquarters closure in New
York and significant reduction in the Westin office in Seattle, Washington.
HISTORICAL. Historical costs and expenses for owned, leased and
consolidated hotels increased to $1.9 billion for the year ended December 31,
1998 from $1.0 billion in the corresponding period in 1997. The increase was due
primarily to the reverse purchase accounting treatment and the inclusion,
beginning February 23, 1998, of the results of approximately 120 hotels leased
and consolidated by Starwood Hotels (including Westin).
Because Starwood Hotels was not in the gaming business to any material
extent prior to the acquisition of ITT, its historical costs and expenses are
the same as its pro forma gaming costs and expenses described above.
Selling, general and administrative expenses increased 9.1% to $72 million
for the year ended December 31, 1998 when compared to the same period in 1997.
Selling, general and administrative expenses for 1998 exclude a non-recurring
charge of approximately $30 million primarily associated with the vesting,
during 1998, of certain restricted stock previously granted to the President and
Chief Operating Officer of the Corporation.
EBITDA
PRO FORMA. The Company's pro forma EBITDA increased 29.4% to $1.5 billion
in the year ended December 31, 1998 when compared to the corresponding period of
1997. The increase was primarily due to the improved results at the Company's
owned, leased and consolidated joint venture hotels. EBITDA at these hotels
increased by $133 million to $958 million in the year ended December 31, 1998
when compared to the corresponding period of 1997. The pro forma EBITDA
improvement at these hotels of approximately 16% in the year ended December 31,
1998 was due primarily to the increase in ADR discussed above. Pro forma EBITDA
margins for these hotels increased 2.4 percentage points to 31.4% in the year
ended December 31, 1998 when compared to 1997. Starwood Hotels believes that the
improvement in the pro forma EBITDA margin is attributable in part to the
continued implementation of cost containment steps and the Company's ability to
realize purchasing synergies as a result of the ITT Merger and the Westin
Merger.
Gaming EBITDA, which excludes the Desert Inn and preopening costs, for the
year ended December 31, 1998 was $318 million compared to $255 million in 1997.
The increase in gaming EBITDA resulted from positive results at Caesars Palace
and Caesars Atlantic City. Pro forma EBITDA at Caesars Palace was $129 million
for the year ended December 31, 1998 compared to $107 million in 1997, as the
addition of 1,130 rooms and 110,000 square feet of meeting space had a positive
effect on all areas of the casino and hotel operations. Pro forma EBITDA at
Caesars Atlantic City was $129 million for the year ended December 31, 1998
compared to $100 million in 1997, as the addition of 620 new rooms and 30,000
square feet of casino space had a positive effect on all areas of this
property's casino and hotel operations.
HISTORICAL. On a historical basis, the Company's EBITDA increased $686
million to $1.4 billion in the year ended December 31, 1998 when compared to
1997, due primarily to the reverse purchase accounting treatment of the ITT
Merger and the inclusion, beginning February 23, 1998, of results of
approximately 120
39
<PAGE> 41
hotels owned, leased and consolidated by Starwood Hotels (including Westin) as
of the date of the ITT Merger.
Depreciation and Amortization
Depreciation and amortization has not been presented on a pro forma basis
because management believes that such a presentation would not be informative
due to the many adjustments and assumptions that would need to be made for such
calculations.
On a historical basis, depreciation and amortization expense increased to
$556 million in the year ended December 31, 1998 when compared to $281 million
in 1997. The increase was primarily due to depreciation expense, beginning
February 23, 1998, with the inclusion of approximately 120 hotels owned, leased
and consolidated by Starwood Hotels (including Westin) prior to the ITT Merger,
the amortization of goodwill related to the ITT Merger and the commencement of
depreciation on certain newly completed hotel and gaming projects.
Net Interest Expense
Net interest expense has not been presented on a pro forma basis because
management believes that such a presentation would not be informative due to the
many adjustments and assumptions that would need to be made for such
calculations.
On a historical basis, interest expense for the year ended December 31,
1998, which is net of interest income of $26 million and excludes a
non-recurring charge recognized in connection with the settlement of certain
forward interest swap agreements of $40 million (see notes to the combined
consolidated financial statements of this Joint Annual Report), increased to
$573 million as compared to $94 million in 1997. The increase relates primarily
to the debt incurred to finance the ITT Merger and Westin Merger.
RESTRUCTURING AND OTHER SPECIAL CHARGES
During 1998, the Company recorded pretax charges totaling approximately
$204 million relating to restructuring and other special charges. The charges
represent a portion of the restructuring and other special charges announced by
the Company in August 1998.
The 1998 restructuring and other special charges consist of the following
(in millions):
<TABLE>
<CAPTION>
NON-CASH CASH EXPENDITURES
CHARGES EXPENDITURES ACCRUED TOTAL
-------- ------------ ------------ -----
<S> <C> <C> <C> <C>
Write-down of assets............................. $115 $-- $ -- $115
ITT Merger-related costs......................... 10 59 43 112
Adjustment to ITT 1997 other special charges..... -- -- (23) (23)
---- --- ---- ----
Total.................................. $125 $59 $ 20 $204
==== === ==== ====
</TABLE>
WRITE-DOWN OF ASSETS. The restructuring and other special charges for the
write-down of assets include an investment in a hotel in Kuala Lampur, Malaysia;
a mortgage note receivable secured by a hotel in Paris, France; an investment in
a shared services center established by ITT in 1997 which was closed by the
Company following the ITT Merger; and certain receivable balances in the
Company's gaming division primarily related to Asian customers. Substantially
all of these assets were ITT assets and were written down primarily as a result
of certain worldwide economic conditions indicating a reduced value for these
assets.
ITT MERGER-RELATED COSTS. The restructuring and other special charges
include costs related to the ITT Merger consisting primarily of severance
payments and relocation costs for ITT employees and certain costs to integrate
the companies, including costs to integrate the Company's frequent guest
programs and to close down duplicate facilities. The Company expects to pay out
the remaining balance of $43 million during 1999.
ADJUSTMENT TO ITT 1997 OTHER SPECIAL CHARGES. During the fourth quarter of
1998, the Company reversed approximately $23 million related to a liability set
up during 1997 by ITT for tax reimbursements that
40
<PAGE> 42
will not be paid due to modifications of contractual agreements with certain
former employees. The remaining balance of $62 million will be paid out in 1999
subject to resolution of certain contract terms.
1998 OTHER SPECIAL CHARGES. In addition, during 1998, the Company recorded
a non-recurring charge to selling, general and administrative expense of
approximately $30 million primarily associated with the vesting, during the
quarter, of certain restricted stock granted earlier in the year to the new
President and Chief Executive Officer of the Corporation. Also during 1998, the
Company recorded a $40 million non-recurring charge to interest expense
associated with the settlement of certain forward interest swap agreements.
DISPOSITIONS
The Desert Inn, the gaming property held for disposition, experienced a $4
million EBITDA loss in the year ended December 31, 1998 compared to an EBITDA
loss of $30 million in 1997. The improved performance was due to a normalized
hold percentage in baccarat (which percentage in 1997 was negative) and a
significantly higher ADR due to improvements made to the property in 1997. These
improvements were offset by the Asian economic crisis which negatively impacted
results at the Desert Inn by significantly reducing the amount of high-end
baccarat volume.
DISCONTINUED OPERATIONS
Results from discontinued operations were a loss of $8 million for the year
ended December 31, 1998 compared to net income of $25 million in 1997. The
decrease in net income results from the disposition on February 19, 1998, of WD,
the subsidiary through which ITT conducted its telephone directories publishing
business. Gains for the year ended December 31, 1998, resulting from the
disposition of WD and the sale of shares of Educational Services, were $1.1
billion, net of $661 million of taxes and minority interest.
MADISON SQUARE GARDEN
In June 1998, MSG redeemed one-half of ITT's interest in MSG for $94
million. In March 1999, Cablevision agreed to purchase, or to cause MSG to
redeem, ITT's remaining 7.81% interest in MSG for net proceeds of $87 million.
This disposition is expected to close in April 1999.
SEASONALITY AND DIVERSIFICATION
The hotel and gaming industries are seasonal in nature; however, the
periods during which the Company's properties experience higher hotel revenue or
gaming activities vary from property to property and depend principally upon
location. Although the Company's revenue historically has been lower in the
first quarter than in the second, third or fourth quarters, the acquisitions of
Westin and ITT and future acquisitions may affect seasonal fluctuations in
revenue and cash flow.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH
YEAR ENDED DECEMBER 31, 1996
The following discussion of the year ended December 31, 1997 compared with
the year ended December 31, 1996 includes the historical results of ITT only,
because the ITT Merger was treated as a reverse purchase for accounting
purposes.
CONTINUING OPERATIONS
REVENUE. Revenues for owned, leased and consolidated joint venture hotels
increased 7.6% to $1.6 billion for the year ended December 31, 1997 when
compared to the corresponding period of 1996. The increase relates primarily to
strong gains in ADR and the full year impact of certain acquisitions made during
1996 totaling approximately $371 million.
41
<PAGE> 43
Management and franchise fees increased 5.5% to $174 million for the year
ended December 31, 1997 when compared to the same period of 1996. The increase
resulted from improved results at managed hotels and fees earned from management
and franchise contracts added during 1997.
Gaming revenues decreased 5.7% to $1.2 billion for the year ended December
31, 1997 when compared to the corresponding period of 1996. The decrease was
primarily a result of the ongoing construction activity at both Caesars Palace
in Las Vegas, Nevada and Caesars Atlantic City in Atlantic City, New Jersey.
COSTS AND EXPENSES. Costs and expenses for owned, leased and consolidated
hotels increased 5.4% to $1.1 billion for the year ended December 31, 1997 when
compared to the corresponding period in 1996. The increase primarily reflects
the costs of the hotel properties acquired during 1996.
Gaming costs and expenses increased 2.5% to $1.0 billion for the year ended
December 31, 1997 when compared to the corresponding period of 1996.
Selling, general and administrative expenses decreased 13.2% to $66 million
for the year ended December 31, 1997 when compared to the same period in 1996.
The decrease resulted primarily from the reduction in personnel at the ITT
headquarters in New York in May 1997.
EBITDA. The Company's EBITDA, excluding non-recurring charges and the
results of the Desert Inn, which was held for sale, increased 8.0% to $807
million in the year ended December 31, 1997 when compared to 1996. The increase
was primarily due to the improved results at the Company's owned, leased and
consolidated joint venture hotels. The improvement at these hotels reflects
significant increases in ADR, an increase in EBITDA margins from 26% in 1996 to
28% in 1997 and the full year results of hotel properties acquired during 1996.
Including preopening costs of $19 million related to the openings of the
new towers at Caesars Palace and Caesars Atlantic City, a reserve for bad debts
of $21 million related to the economic crisis in Asia and a charge of $6 million
related to the restructuring of the gaming headquarters operations, gaming
EBITDA declined 22.7% to $225 million for the year ended December 31, 1997 when
compared to the corresponding period of 1996. The decline in EBITDA was
primarily related to the significant construction activity at Caesars Palace,
which was completed by year-end, and in Caesars Atlantic City, which completed
construction of a new tower.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased to $281 million in the year ended December 31, 1997 when compared to
$261 million in 1996. The increase was primarily due to the commencement of
depreciation on certain newly completed hotel and gaming projects and the
acquired hotel properties discussed above.
NET INTEREST EXPENSE. Interest expense for the year ended December 31,
1997, net of interest income, decreased to $94 million when compared to $96
million in 1996. The decrease was due principally to the lower average debt
balance as well as slightly lower overall interest rates.
RESTRUCTURING AND OTHER SPECIAL CHARGES
As a result of the ITT Merger, ITT recorded the following special charges
in 1997: (1) conversion of the accounting for ITT's stock option plan to
variable accounting due to limited stock appreciation rights subject to exercise
and related charges for tax reimbursements to employees of $431 million, and (2)
other costs including legal fees, investment banking fees and asset write-offs
totaling $169 million which are included in miscellaneous expense, net. The
employee-related costs and the restructuring charges are included as a component
of operating income in the accompanying financial statements, while the other
costs are included in miscellaneous expense, net.
Additionally, during 1997, ITT recorded pretax charges totaling $260
million ($169 million after tax) to restructure and rationalize operations at
its World Headquarters and the headquarters of its field operations. Of the
total pretax charge, approximately $196 million represented severance and other
related employee termination costs associated with the elimination of nearly 370
positions worldwide. The balance of the
42
<PAGE> 44
restructuring charge ($64 million pretax) related primarily to asset write-offs,
lease commitments and termination penalties.
At December 31, 1998, the Company has remaining accruals related to these
restructuring and other special charges of approximately $163 million primarily
related to remaining lease commitments which expire through 2006, the settlement
of certain employee benefits scheduled to be completed in the first quarter of
2000 and the tax reimbursements to certain former employees discussed
previously.
DISPOSITIONS
The Desert Inn, the gaming property held for disposition, experienced a $37
million EBITDA loss in the year ended December 31, 1997 due to a negative win
percentage in baccarat and construction disruption. The EBITDA loss includes a
$7 million charge for preopening costs.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES
The Company's capital expenditures for the year ended December 31, 1998
(excluding the acquisition of properties and including conversion costs),
totaled $832 million. Starwood Hotels incurs capital expenditures for upgrading
and ongoing maintenance of acquired and existing hotels to the Company's
standards.
CASH FLOW FROM OPERATING ACTIVITIES
Cash flow from operating activities is the principal source of cash to be
used to fund the Company's operating expenses, interest expense, capital
expenditures and distribution payments by the Trust. Starwood Hotels anticipates
that cash flow provided by operating activities will be sufficient to service
short- and long-term indebtedness, fund maintenance requirements and capital
expenditures and meet operating cash requirements, including distributions to
shareholders by the Trust. During the first quarter of 1998, the Trust paid a
distribution of $0.48 per Unit for the quarter ended December 31, 1997. During
each of the second, third and fourth quarters of 1998, the Trust paid a
distribution of $0.52 per Unit for the quarters ended March 31, June 30, and
September 30, 1998, respectively. In connection with the Restructuring, Starwood
Hotels has reduced the annual dividend to be paid by the Trust to $0.60 per
Unit. The dividend may increase after 1999 pursuant to a formula, and may not be
paid under certain circumstances. Accordingly, during the first quarter of 1999,
the Trust paid a distribution of $0.15 per Unit for the quarter ended December
31, 1998.
CASH FLOW FROM INVESTING AND FINANCING ACTIVITIES
In addition to cash flow from operating activities, Starwood Hotels intends
to finance the acquisition of additional hotel properties, hotel renovations and
capital improvements and provide for general corporate purposes through the
Company's credit facilities described below, through dispositions of certain
non-core assets and, when market conditions warrant, through the issuance of
additional equity or debt securities. Since the ITT and Westin transactions were
completed in early 1998 through the date of this filing, Starwood Hotels has
completed over $3.2 billion of non-core asset divestitures, the proceeds of
which were used primarily to reduce existing debt. Management expects to
complete approximately $450 million of additional divestitures by year-end 1999,
the proceeds of which will also be used primarily to retire debt.
As a result of the Restructuring, Starwood Hotels will pay significantly
more in federal income taxes, and will have the ability to retain significantly
more earnings than was previously the case. Starwood Hotels anticipates that its
enhanced ability to retain earnings will allow it to utilize cash flow from
operating activities to fund both maintenance, capital expenditures and
acquisitions.
LOANS AND CREDIT FACILITIES. On February 23, 1998, Starwood Hotels
obtained two credit facilities ($5.6 billion in total) with Lehman Brothers,
Bankers Trust Company and The Chase Manhattan Bank to fund the cash portion of
the ITT Merger consideration, to refinance a portion of the Company's existing
indebtedness
43
<PAGE> 45
and to provide funds for general corporate purposes. These facilities are
comprised of the Senior Credit Facility and the Senior Secured Notes Facility.
Following is a summary of the Company's debt portfolio as of December 31,
1998:
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING AT
AMOUNT OF DECEMBER 31, INTEREST RATE AT AVERAGE
FACILITY 1998 INTEREST TERMS DECEMBER 31, 1998 MATURITY
--------- --------------- -------------- ----------------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
FLOATING RATE DEBT
Senior Credit Facility:
One-Year Term Loan.......... $1,000 $ 542 LIBOR+1.25% 6.31% 0.1 years(1)
Five-Year Term Loan......... 1,000 1,000 LIBOR+1.25% 6.31% 4.2 years
Revolving Credit Facility... 1,100 814 LIBOR+1.25% 6.31% 4.2 years
Senior Secured Notes Facility:
Tranche One Loans........... 2,500 2,500 LIBOR+3.25% 8.31% 4.2 years
Tranche Two Loans........... 1,000 1,000 LIBOR+2.75% 7.81% 4.2 years
Mortgage and other............ 502 Various 6.29% 4.4 years
Starwood Hotels interest rate
swaps....................... (1,031) 6.30% --
-------
Total/Average....... $ 5,327 7.53% 3.8 years
======= ==== ==========
FIXED RATE DEBT
ITT public debt............... $ 2,000 6.79% 8.6 years
Caesars public debt........... 150 8.88% 3.6 years
Mortgage and other............ 297 8.23% 17.4 years
Starwood Hotels interest rate
swaps....................... 1,031 7.33% --
-------
Total/Average....... $ 3,478 7.16% 9.4 years
======= ==== ==========
TOTAL DEBT
Total Debt and Average
Terms....................... $ 8,805 7.39% 5.4 years
======= ==== ==========
</TABLE>
- ---------------
(1) A portion of the Senior Credit Facility that was scheduled to mature on
February 23, 1999, in the aggregate amount of $542 million, was refinanced
primarily with the proceeds from a commercial mortgage backed security
transaction ("CMBS Loan") that was completed in February 1999. The CMBS Loan
matures on February 1, 2009, is secured by 11 hotel assets and bears
interest at a blended rate of 6.98%.
Starwood Hotels has a substantial amount of indebtedness. Based upon the
current level of operations, management believes that the Company's cash flow
from operations, together with available borrowings under the Senior Credit
Facility, will be adequate to meet the Company's anticipated requirements for
working capital, capital expenditures, marketing and advertising expenditures,
program and other discretionary investments, interest payments and scheduled
principal payments for the foreseeable future, including at least the next three
years. There can be no assurance, however, that the Company's business will
continue to generate cash flow at or above current levels or that currently
anticipated improvements will be achieved. If Starwood Hotels is unable to
generate sufficient cash flow from operations in the future to service the
Company's debt, the Company may be required to sell assets, reduce capital
expenditures, refinance all or a portion of its existing debt or obtain
additional financing. The Company's ability to make scheduled principal
payments, to pay interest on or to refinance the Company's indebtedness depends
on its future performance and financial results, which, to a certain extent, are
subject to general conditions in or affecting the hotel and gaming industries
and to general economic, political, financial, competitive, legislative and
regulatory factors beyond the Company's control. There can be no assurance that
sufficient funds will be available to enable Starwood Hotels to service its
indebtedness or to make necessary capital expenditures, marketing and
advertising expenditures and program and other discretionary investments.
44
<PAGE> 46
STOCK SALES AND REPURCHASES
At December 31, 1997, ITT had approximately 180 million shares outstanding.
On February 23, 1998, Starwood Hotels completed the ITT Merger. Each
outstanding share of ITT Common Stock, other than those that were converted into
cash pursuant to a cash election by the holder (and other than shares owned
directly or indirectly by ITT or Starwood Hotels, which shares were canceled),
was converted into 1.543 Units. Pursuant to cash election procedures,
approximately 35 million (pre-reverse acquisition) shares of ITT Common Stock,
representing approximately 30% of the outstanding shares prior to the ITT
Merger, were converted into $85 in cash per share. In addition, each share of
ITT Common Stock was converted into additional cash consideration in the amount
of $0.37493151.
Pursuant to a Purchase Agreement dated as of October 10, 1997, the
Corporation and the Trust sold to UBS Ltd. ("UBS") 2.185 million Units (the "UBS
Shares") at a cash price of $57.25 per Unit, and paid to Warburg Dillon Read
LLC, an affiliate of UBS, a placement fee equal to 2.5% of the gross proceeds to
Starwood Hotels from such sale of shares. Concurrently therewith, Starwood
Hotels entered into an agreement that provided for a settlement payment to be
made, in the form of Units or cash, by Starwood Hotels to another affiliate of
UBS, or by that affiliate to Starwood Hotels, based on the market price of the
Units over a specified "unwind" period, as compared to a specified "forward
price." Starwood Hotels settled its obligation under this agreement on September
22, 1998, by repurchasing the UBS Shares for approximately $130 million in cash.
As a result of this settlement, Units outstanding were reduced by approximately
2.185 million.
On February 24, 1998, the Corporation and the Trust sold an aggregate of
4.641 million Units to Merrill Lynch International, NMS Services, Inc., Lehman
Brothers Inc. and certain of their affiliates for a cash purchase price of
$52.798 per Unit, which reflected a 2% discount from the last reported sale
price of the Units on the date of purchase. Concurrently with these sales, the
Trust and the Corporation entered into agreements pursuant to which each of
these purchasers or their respective affiliates agreed to sell, as directed by
the Trust and the Corporation, in an underwritten fixed price offering or other
specified methods, a sufficient number of Units to achieve net sales proceeds
equal to the aggregate market value of the Units purchased in February 1998,
plus a forward accretion component, minus an adjustment for dividends paid on
the purchased Units. Additional Units were required to be delivered by Starwood
Hotels as security in the event the market prices of the Units dropped below
certain specified levels. In October 1998, Starwood Hotels settled its
obligations under these agreements by repurchasing all the Units issued to these
purchasers for an aggregate of approximately $255 million in cash. As a result
of this settlement, Units outstanding were reduced by approximately 7.379
million (4.641 million original Units issued and 2.738 million Units previously
issued as security).
In 1998, the Board of Directors of the Company approved the repurchase of
up to $1 billion of the Units (the "Share Repurchase Program"). Pursuant to the
Share Repurchase Program, Starwood Hotels repurchased approximately 10.1 million
Units in the open market at an average purchase price of $36.70 per Unit during
the year ended December 31, 1998.
In the third quarter of 1998, Starwood Hotels sold put options for an
aggregate of one million Units to BT Alex. Brown Incorporated for an aggregate
cash price of $1.8 million. Each such option entitles the holder to sell to the
Company, at the option's expiration date, a specified number of Units at a
specified strike price. These options have expiration dates through March 1999;
the strike prices range from $30.24 to $32.95. In the first quarter of 1999, the
Company settled certain of its put options by purchasing 500,000 outstanding
Units at an average strike price of $32.04.
During 1998, the Trust consented to the exchange of 1.3 million shares of
Class B EPS into an equal number of shares of Class A EPS; certain shareholders
thereafter exchanged 3.2 million shares of Class A EPS for an equal number of
Units.
45
<PAGE> 47
OTHER MATTERS
YEAR 2000
Many computer systems were originally designed to recognize calendar years
by the last two digits in the date code field. Beginning with dates in the year
2000, these date code fields need to accept four-digit entries to distinguish
twenty-first century dates from twentieth century dates. As a result, the
computerized systems, which include information technology and non-information
technology systems, and applications used by the Company need to be reviewed,
evaluated and modified or replaced, if necessary, to ensure all such financial,
information and operational systems are Year 2000 Compliant.
STATE OF READINESS. Starwood Hotels is addressing the Year 2000 Compliance
issue by separately focusing on the Company's central facilities, which include
all of its non-operating facilities, and on the Company's gaming and hotel
properties.
Starwood Hotels has identified the critical central facility business
applications that may be affected by the Year 2000, such as the reservation
system application, including the frequent stay programs, and communication
system applications. The Company has conducted the discovery and assessment
stages on the reservations and communication system applications and assembled a
team to implement modifications or upgrades, as necessary, and to test results.
The majority of the Company's core business applications passed the final
testing, which was performed by internal personnel and independent third parties
in the second quarter of 1998. This testing process consisted of testing of the
internal code and conducting over 9,000 test cases on the applicable systems.
The specific testing included a three-step process comprised of baseline tests,
Year 2000 date tests and code enhancement tests.
Starwood Hotels is in the process of communicating with others with whom it
does significant business to determine their Year 2000 Compliance. During 1998,
Starwood Hotels and an independent third-party reservation information service
provider with whom the Company has a material relationship began testing to
ensure the compatibility of the Company's reservation system with the service
provider's reservation services. Starwood Hotels and this service provider
expect to complete their compatibility validation testing in April 1999.
Starwood Hotels is also assessing its hardware components at its central
facilities, all of which are expected to be modified or upgraded, as necessary,
to ensure Year 2000 Compliance by the third quarter of 1999.
An independent third party performed an inventory and assessment of all of
the Company's computerized systems and applications for its gaming operations in
1998. This inventory and assessment determined the resources needed, necessary
modifications or upgrades, vendor Year 2000 Compliance, remediation plan and the
time frame for the gaming operations to become Year 2000 Compliant.
Starwood Hotels has completed the initial assessment of the applications
and hardware at the Company's owned and managed hotel properties. In the third
quarter of 1998, validation tools and resources were deployed to the hotel
properties. The validation tools consisted of asset management tools for
analysis of all applications and data checking tools for testing and patch
application purposes. The domestic Year 2000 team, which is scheduled to visit
each domestic hotel property, is comprised of independent consultants and five
individuals from Starwood Hotels that are dedicated to the Year 2000 project.
Each of the international properties has appointed internal personnel to address
Year 2000 Compliance and has access to such independent consultants, if
necessary. Once the test statistics for the hotel property applications and
hardware are collected, the information will be sent to an independent third
party for Year 2000 Compliance verification. Based on the results of the
compliance verification, Starwood Hotels expects to address remediation efforts
by the third quarter of 1999.
YEAR 2000 PROJECT COSTS. Starwood Hotels estimates that total costs for
the Year 2000 Compliance review, evaluation, assessment and remediation efforts
for the central facilities and owned hotel and gaming properties should not
exceed $30 million, although there can be no assurance that actual costs will
not exceed this amount. Of this amount, $4 million had been expended as of
December 31, 1998.
46
<PAGE> 48
STARWOOD HOTELS YEAR 2000 RISKS. Since all major computerized central
facilities reservation systems and applications have been tested and
reservations for the year 2000 have been accepted, Starwood Hotels believes that
it has addressed all significant risks related to the Company's reservation
function. The remaining risks relate to the non-critical business applications,
support hardware for the central facilities and embedded systems at the
properties owned or managed by the Company. A failure of certain of these
systems to become Year 2000 Compliant could disrupt the timeliness or the
accuracy of management information provided by the central facilities.
There can be no assurance that the efforts related to the gaming and hotel
properties will be sufficient to make these properties' computerized systems and
applications Year 2000 Compliant in a timely manner or that the allocated
resources will be sufficient. A failure to become Year 2000 Compliant could
affect the integrity of the gaming and hotel property guest check-in, billing
and accounting functions. Certain physical hotel property machinery and
equipment could also fail resulting in safety risks and customer
dissatisfaction. Additionally, failure of the gaming properties' systems to
become Year 2000 Compliant could result in the inefficient processing of
operational gaming information and the malfunction of computerized gaming
machines.
Starwood Hotels has asked substantially all of its significant vendors and
service providers to provide reasonable assurances as to those parties' Year
2000 state of readiness. Risk assessments and contingency plans, where required,
will be finalized in the first six months of 1999. To the extent that vendors
and service providers do not provide satisfactory evidence that their products
and services are Year 2000 Compliant, the Company will seek to obtain the
necessary products and services from alternative sources. There can be no
assurance, however, that Year 2000 remediation by vendors and service providers
will be completed timely or that qualified replacement vendors and service
providers will be available, and any failure of such third parties' systems
could have a material adverse impact on the Company's computer systems and
operations.
CONTINGENCY PLAN. Starwood Hotels is in the process of developing its
contingency plan for the central facilities and the gaming and hotel properties
to provide for the most reasonably likely worst case scenarios regarding Year
2000 Compliance. This contingency plan is expected to be completed in September
1999.
REVENUE RECOGNITION
Emerging Issues Task Force ("EITF") 97-2, Application of SFAS No. 94 and
Accounting Principles Board ("APB") Opinion No. 16 to Physician Practice
Management Entities and Certain Other Entities with Contractual Management
Arrangements, addresses the circumstances in which a management entity may
include the revenues and expenses of a managed entity in its financial
statements. As a result of EITF 97-2, the Company changed its accounting policy
for its managed hotels beginning in the fourth quarter of 1998. As such,
revenues and expenses of non-owned managed hotels are no longer included in the
Company's financial statements, and the results for all periods presented herein
reflect this change in accounting policy. Management fees earned by the Company
for the hotels are included in management and franchise fees in the accompanying
combined consolidated financial statements. Management and franchise fees are
generally based on a percentage of hotel room revenues. Application of EITF 97-2
for the years ended December 31, 1998, 1997 and 1996 reduced each of revenues
and operating expenses by approximately $4.2 billion, $2.8 billion and $2.8
billion, respectively. There was no impact on operating income, net income,
working capital, earnings per Unit or stockholders' equity as a result of this
change in accounting policy.
EUROPEAN UNION CURRENCY CONVERSIONS
On January 1, 1999, 11 of the 15 member countries of the European Union
(the "Participating Countries") established fixed conversion rates between their
existing sovereign currencies and the Euro. Following the introduction of the
Euro, the legacy currencies of the Participating Countries will remain legal
tender during a transition period ending on January 1, 2002. During the
transition period, both the legacy currency and the Euro will be legal tender in
the respective Participating Countries. During the transition period, currency
conversions will be computed by a triangulation with reference to conversion
rates between the respective currencies and the Euro. The Company currently
operates in 10 of the 11 Participating
47
<PAGE> 49
Countries. The effect on the Company of the adoption of the Euro by the
Participating Countries in which it operates is currently uncertain. However, it
is possible that the Euro adoption will result in increased competition within
the European market. In addition, a number of the Company's information systems
are not currently Euro compliant. The Company is currently evaluating and
updating its information systems to make them Euro compliant; however, there is
no assurance that the Company or third-party vendors of applications used by the
Company will successfully bring all of its systems into compliance. Failure of
the Company to do so could result in disruptions in the processing of
transactions in Euros or computed by reference to the Euro.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company seeks to reduce earnings and cash flow volatility associated
with changes in interest rates and foreign currency exchange rates by entering
into financial arrangements intended to provide a hedge against a portion of the
risks associated with such volatility. The Company continues to have exposure to
such risks to the extent they are not hedged.
Interest rate swap agreements are the primary instruments used to manage
interest rate fluctuation affecting the Company's variable rate debt. The
Company currently has five outstanding interest rate swap agreements under which
the Company pays a fixed interest rate and receives variable interest rates. The
following table sets forth the scheduled maturities and the total fair value of
the Company's debt portfolio:
<TABLE>
<CAPTION>
TOTAL FAIR
AT DECEMBER 31, TOTAL AT VALUE AT
------------------------------------------------- DECEMBER 31, DECEMBER 31,
1999 2000 2001 2002 2003 THEREAFTER 1998 1998
---- ---- ---- ------ ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Fixed rate (in millions).............. $ 13 $704 $ 32 $ 156 $ 254 $1,288 $2,447 $2,366
Average interest rate................. 7.18%
Floating rate (in millions)........... $681 $206 $219 $ 624 $4,580 $ 48 $6,358 $6,358
Average interest rate................. 7.32%
INTEREST RATE SWAPS
Variable to fixed (in millions)....... $1,031 $1,031 $1,031
Average pay rate...................... 6.08%
Average receive rate.................. LIBOR
</TABLE>
Foreign currency forward transactions are used by the Company to hedge
exposure to foreign currency exchange rate fluctuations. As of December 31,
1998, the British pound and French franc were the principal currencies hedged by
the Company. Changes in the value of forward foreign exchange contracts
designated as hedges of foreign currency denominated assets and liabilities are
classified in the same manner as changes in the underlying assets and
liabilities. At December 31, 1998, the notional amount of the Company's open
forward foreign exchange contracts protecting the value of the Company's foreign
currency denominated assets and liabilities was approximately $54.9 million. A
hypothetical 10% change in currency exchange rates would result in an increase
or decrease of approximately $5 million to the fair value of the forward foreign
exchange contracts at December 31, 1998, which would be offset by an opposite
effect on the related hedged positions.
The Company enters into a derivative financial arrangement only to the
extent it meets the objectives described above, and the Company does not engage
in such transactions for speculative purposes.
See "Derivative Financial Instruments" and "Equity Put Options" in the
notes to financial statements filed as part of this Joint Annual Report and
incorporated herein by reference for further description of derivative financial
instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by this Item are
included in Item 14 of this Joint Annual Report and are incorporated herein by
reference.
48
<PAGE> 50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS, TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANTS.
DIRECTORS OF THE CORPORATION
The Board of Directors of the Corporation currently comprises nine members,
each of whom is elected for a three-year term. The following table sets forth,
for each of the members of the Corporation's Board of Directors as of the date
of this Joint Annual Report, the class of Directors to which such Director has
been elected and certain other information regarding such Director.
DIRECTORS WHOSE TERMS EXPIRE AT THE 2001 ANNUAL MEETING
<TABLE>
<CAPTION>
NAME (AGE) PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DIRECTOR SINCE
- ---------- -------------------------------------------- ---------------
<S> <C> <C>
Earle F. Jones (72).................. Chairman of the Board of Directors of the September 1985
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.
Daniel W. Yih (39)................... General partner of Chilmark Partners, L.P. August 1995
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).
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
NAME (AGE) PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DIRECTOR SINCE
- ---------- -------------------------------------------- ---------------
<S> <C> <C>
DIRECTORS WHOSE TERMS EXPIRE AT THE 2000 ANNUAL MEETING
Juergen Bartels (58)................. Chief Executive Officer of Starwood Hotels' January 1998
Hotel Group since March 1998. From May 1995
to March 1998, Mr. Bartels was the Chairman
and Chief Executive Officer of Westin
Worldwide. Prior to joining Westin
Worldwide, 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.
Jonathan D. Eilian (31).............. Senior Managing Director, Managing Director August 1995
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.
Richard D. Nanula (38)............... President and Chief Operating Officer of the June 1998
Corporation and President of the Trust since
January 1999. Mr. Nanula joined the
Corporation as its President and Chief
Executive Officer in June 1998 and served in
such capacity until January 1999. 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.
</TABLE>
50
<PAGE> 52
<TABLE>
<CAPTION>
NAME (AGE) PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DIRECTOR SINCE
- ---------- -------------------------------------------- ---------------
<S> <C> <C>
Barry S. Sternlicht (38)............. Chairman (since September 1997) and Chief December 1994
Executive Officer (since January 1999) of
the Corporation. Mr. Sternlicht has served
as Chairman and Chief Executive Officer of
the Trust since January 1995. 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 Trustees of
Starwood Financial Trust (a specialized real
estate finance company organized as a REIT)
and a Director of U.S. Franchise Systems.
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.
DIRECTORS WHOSE TERMS EXPIRE AT THE 1999 ANNUAL MEETING
Brenda C. Barnes (45)................ Director of Sears, Roebuck & Company, the April 1998
New York Times Company, Avon Products, Inc.,
LucasArts Entertainment Company 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.
Michael A. Leven (61)................ Chairman of the Board, President and Chief August 1995
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.
</TABLE>
51
<PAGE> 53
<TABLE>
<CAPTION>
NAME (AGE) PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DIRECTOR SINCE
- ---------- -------------------------------------------- ---------------
<S> <C> <C>
Daniel H. Stern (37)................. President of Reservoir Capital Group, November 1997
L.L.C., a New York-based investment
management firm, since July 1997. Mr. Stern
was a Trustee of the Trust from 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.
</TABLE>
TRUSTEES OF THE TRUST
The Board of Trustees currently comprises seven members, each of whom was
elected for a three-year term. The following table sets forth, for each of the
members of the Board of Trustees as of the date of this Joint Annual Report, the
class of Trustees to which such Trustee has been elected and certain other
information regarding the Trustees and executive officers of the Trust.
TRUSTEES WHOSE TERMS EXPIRE AT THE 2001 ANNUAL MEETING
<TABLE>
<CAPTION>
NAME (AGE) PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DIRECTOR SINCE
- ---------- -------------------------------------------- ---------------
<S> <C> <C>
Madison F. Grose (45)................ Managing Director or Senior Managing December 1994
Director and General Counsel or Co-General
Counsel of Starwood Capital (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.
George J. Mitchell (65).............. Special Counsel to the law firm of Verner, November 1997
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 Disney, 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.
</TABLE>
52
<PAGE> 54
<TABLE>
<CAPTION>
NAME (AGE) PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DIRECTOR SINCE
- ---------- -------------------------------------------- ---------------
<S> <C> <C>
TRUSTEES WHOSE TERMS EXPIRE AT THE 2000 ANNUAL MEETING
Jean-Marc Chapus (39)................ Managing Director and Portfolio Manager of November 1997
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.
Bruce W. Duncan (47)................. Chairman, President and Chief Executive August 1995
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 April 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.
</TABLE>
53
<PAGE> 55
<TABLE>
<CAPTION>
NAME (AGE) PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DIRECTOR SINCE
- ---------- -------------------------------------------- ---------------
<S> <C> <C>
Barry S. Sternlicht (38)............. Chairman (since September 1997) and Chief December 1994
Executive Officer (since January 1999) of
the Corporation. Mr. Sternlicht has served
as Chairman and Chief Executive Officer of
the Trust since January 1995. 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 Trustees of
Starwood Financial Trust (a specialized real
estate finance company organized as a REIT)
and a Director of U.S. Franchise Systems.
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.
TRUSTEES WHOSE TERMS EXPIRE AT THE 1999 ANNUAL MEETING
Stephen R. Quazzo (39)............... Managing Director, Chief Executive Officer August 1995
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.
Raymond S. Troubh (72)............... Financial consultant in New York City and a April 1998
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.
</TABLE>
54
<PAGE> 56
EXECUTIVE OFFICERS OF THE REGISTRANTS
The following table includes certain information with respect to each of
Starwood Hotels' current executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE CORPORATION
---- --- --------------------------------
<S> <C> <C>
Barry S. Sternlicht.................. 38 Chairman, Chief Executive Officer and a Director of the
Corporation and Chairman, Chief Executive Officer and
a Trustee of the Trust
Richard D. Nanula.................... 38 President, Chief Operating Officer and a Director of the
Corporation and President of the Trust
Susan R. Bolger...................... 45 Executive Vice President of Human Resources of the
Corporation and Vice President of the Trust
Ronald C. Brown...................... 44 Executive Vice President and Chief Financial Officer of
the Corporation and Vice President, Chief Financial
Officer and Chief Accounting Officer of the Trust
Steven R. Goldman.................... 36 Executive Vice President, Acquisitions and Development
of the Corporation and Vice President of the Trust
Thomas C. Janson, Jr. ............... 43 Executive Vice President, General Counsel and Secretary
of the Corporation and Vice President, General Counsel
and Assistant Secretary of the Trust
</TABLE>
BARRY S. STERNLICHT. Mr. Sternlicht has been Chairman (since September
1997) and Chief Executive Officer (since January 1999) of the Corporation. Mr.
Sternlicht has served as Chairman and Chief Executive Officer of the Trust since
January 1995. 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 Trustees of
Starwood Financial Trust (a specialized real estate finance company organized as
a REIT) and a Director of U.S. Franchise Systems.
RICHARD D. NANULA. Mr. Nanula has been President and Chief Operating
Officer of the Corporation and President of the Trust since January 1999. Mr.
Nanula joined the Corporation as its President and Chief Executive Officer in
June 1998, and served in such capacity until January 1999. Prior to joining the
Corporation, Mr. Nanula was the Chief Financial Officer of 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.
SUSAN R. BOLGER. Ms. Bolger has been Executive Vice President of Human
Resources of the Corporation since March 1998 and Vice President of the Trust
since January 1999 and was Senior Vice President of Human Resources of the
Corporation from September 1996 to March 1998. From November 1994 to September
1996, she was Corporate Vice President of Human Resources for Wyndham Hotels and
Resorts; prior to that time she was Vice President for Human Resources for Arrow
Industries, a division of ConAgra.
RONALD C. BROWN. Mr. Brown has been Vice President, Chief Financial
Officer and Chief Accounting Officer of the Trust since January 1999 and
Executive Vice President and Chief Financial Officer of the Corporation since
March 1998 and was Senior Vice President and Chief Financial Officer of the
Trust from July 1995 through March 1998. Prior to joining the Trust, Mr. Brown
was President of Sonoran Hotel Advisors, L.L.C., a hotel REIT advisory firm,
from August 1994 to July 1995. From December 1990 to August 1994, Mr. Brown held
various positions with Doubletree Corporation, a hotel operating company,
including Chief Financial Officer and President. From March 1988 to April 1992,
Mr. Brown was Chief Financial Officer for Canadian Pacific Hotels Corporation, a
hotel operating company. Mr. Brown is also a Director of Phoenix Children's
Hospital.
STEVEN R. GOLDMAN. Mr. Goldman has been a Vice President of the Trust and
the Executive Vice President, Acquisitions and Development, of the Corporation
since January 1999 and was Executive Vice President of the Trust from March 1998
to January 1999. Mr. Goldman was Senior Vice President of the
55
<PAGE> 57
Trust from September 1996 through March 1998 and Senior Vice President of the
Corporation from March 1995 to September 1996. Mr. Goldman was a Vice President
of Starwood Capital, specializing in hotel acquisitions and hotel asset
management from August 1993 to February 1995. From 1990 to 1993, he was Senior
Development Manager of Disney Development Company, the real estate investment
development and management division of Disney.
THOMAS C. JANSON, JR. Mr. Janson joined the Corporation as Executive Vice
President, General Counsel and Secretary in October 1998 and became Vice
President, General Counsel and Assistant Secretary of the Trust in January 1999.
Prior to joining the Corporation, Mr. Janson practiced law as a partner with
Skadden, Arps, Slate, Meagher & Flom LLP for more than five years.
The executive officers of Starwood Hotels serve at the pleasure of the
Board of Directors or the Board of Trustees, as applicable. There is no family
relationship among any of the Directors, Trustees or executive officers of the
Corporation or the Trust.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Directors, Trustees and
executive officers of Starwood Hotels, and persons who own more than 10 percent
of the outstanding Units, to file with the SEC (and provide a copy to Starwood
Hotels) certain reports relating to their ownership of Units 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 during the fiscal year ended December
31, 1998, and written representations that no other reports were required, all
Section 16(a) filing requirements applicable to its Directors, Trustees,
executive officers and greater than 10 percent beneficial owners were complied
with for the most recent fiscal year.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by Item 11 is incorporated by reference from the
information under the following captions in the Proxy Statement: "Summary of
Cash and Certain Other Compensation," "Executive Compensation," "Option Grants,"
"Option Exercises and Holdings," "Compensation of Directors and Trustees,"
"Employment and Compensation Agreements with Executive Officers," "Compensation
Committee Interlocks and Insider Participation" and "Certain Relationships and
Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by Item 12 is incorporated by reference from the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by Item 13 is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Joint Annual
Report:
1. The financial statements and financial statements schedules listed
in the Index to Financial Statements and Financial Statements Schedules
following the signature pages hereof.
56
<PAGE> 58
2. Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
2.1 Formation Agreement, dated as of November 11, 1994, among
the Trust, the Corporation, Starwood Capital and the
Starwood Partners (incorporated by reference to Exhibit 2 to
the Trust's and the Corporation's Joint Current Report on
Form 8-K dated November 16, 1994). (The SEC file numbers of
all filings made by the Corporation and the Trust pursuant
to the Securities Act of 1934, as amended, and referenced
herein are: 1-7959 (the Corporation) and 1-6828 (the
Trust)).
2.2 Form of Amendment No. 1 to Formation Agreement, dated as of
July 1995, among the Trust, the Corporation and the Starwood
Partners (incorporated by reference to Exhibit 10.23 to the
Trust's and the Corporation's Joint Registration Statement
on Form S-2 filed with the SEC on June 29, 1995
(Registration Nos. 33-59155 and 33-59155-01)).
2.3 Transaction Agreement, dated as of September 8, 1997, by and
among the Trust, the Corporation, Realty Partnership,
Operating Partnership, WHWE L.L.C., Woodstar Investor
Partnership ("Woodstar"), Nomura Asset Capital Corporation,
Juergen Bartels, Westin Worldwide, W&S Lauderdale Corp., W&S
Seattle Corp., Westin St. John Hotel Company, Inc., W&S
Denver Corp., W&S Atlanta Corp. and W&S Hotel L.L.C.
(incorporated by reference to Exhibit 2 to the Trust's and
the Corporation's Joint Current Report on Form 8-K dated
September 9, 1997, as amended by the Form 8-K/A dated
December 18, 1997).
2.4 Amended and Restated Agreement and Plan of Merger, dated as
of November 12, 1997, by and among the Corporation, the
Trust, Chess Acquisition Corp. ("Chess") and ITT
(incorporated by reference to Exhibit 2.1 to the Trust's and
the Corporation's Joint Current Report on Form 8-K dated
November 13, 1997).
2.5 Agreement and Plan of Restructuring dated as of September
16, 1998, and amended as of November 30, 1998, among the
Corporation, ST Acquisition Trust ("ST Trust") and the Trust
(incorporated by reference to Annex A to the Trust's and the
Corporation's Joint Proxy Statement dated December 3, 1998
(the "1998 Proxy Statement")).
2.6 Form of Stock Purchase Agreement, dated as of February 23,
1998, between the Trust and the Corporation (incorporated by
reference to Exhibit 10.4 to the Trust's and the
Corporation's Joint Annual Report on Form 10-K for the year
ended December 31, 1997 (the "1997 Form 10-K")).
3.1 Amended and Restated Declaration of Trust of the Trust,
amended and restated as of January 6, 1999 (incorporated by
reference to Exhibit 1 to the Trust's Registration Statement
on Form 8-A filed on December 21, 1998 (the "Trust Form
8-A"), except that the following changes were made on
January 6, 1999, upon the filing by the Trust and ST Trust
of the Articles of Merger of ST Trust into the Trust (the
"Articles of Merger") with, and the acceptance thereof for
record by, the State Department of Assessments and Taxation
of the State of Maryland (the "SDAT"): Section 6.14
specifies January 6, 1999 as the date of the Intercompany
Agreement; Section 6.19.1 specifies January 6, 1999 as the
date of the acceptance for record by the SDAT of the
Articles of Merger; and the definition of "Intercompany
Agreement" in Section 6.19.2 specifies January 6, 1999 as
the date of the Intercompany Agreement).
3.2 Charter of the Corporation, amended and restated as of
February 1, 1995, as amended through March 26, 1999.(2)
3.3 Bylaws of the Trust, as amended through November 19, 1998
(incorporated by reference to Exhibit 2 to the Trust Form
8-A).
3.4 Bylaws of the Corporation, as amended through March 15, 1999
(incorporated by reference to Exhibit 3 to the Trust's and
the Corporation's Joint Current Report on Form 8-K dated
March 15, 1999 (the "March 15 Form 8-K")).
4.1 Amended and Restated Intercompany Agreement dated as of
January 6, 1999, between the Corporation and the Trust
(incorporated by reference to Exhibit 3 to the Trust Form
8-A, except that on January 6, 1999, the Intercompany
Agreement was executed and dated as of January 6, 1999).
4.2 Rights Agreement dated as of March 15, 1999 between the
Corporation and Chase Mellon Shareholder Services, L.L.C.,
as Rights Agent (incorporated by reference to Exhibit 4 to
the March 15 Form 8-K).
4.3 Amended and Restated Indenture dated as of November 15,
1995, as Amended and Restated as of December 15, 1995
between ITT Corporation (formerly known as ITT Destinations,
Inc.) and the First National Bank of Chicago, as trustee
(incorporated by reference to Exhibit 4.A.IV to the First
Amendment to ITT's Registration Statement on Form S-3, filed
November 13, 1996).
</TABLE>
57
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
4.4 First Indenture Supplement dated as of December 31, 1998
among ITT, the Corporation and the Bank of New York
(incorporated by reference to Exhibit 4.1 to the Trust's and
the Corporation's Joint Current Report on Form 8-K filed
January 8, 1999).
4.5 The Registrants hereby agree to file with the Commission a
copy of any instrument, including indentures, defining the
rights of long-term debt holders of the Registrants and
their consolidated subsidiaries upon the request of the
Commission.
10.1 Third Amended and Restated Limited Partnership Agreement for
Realty Partnership, dated January 6, 1999, among the Trust
and the limited partners of Realty Partnership.(2)
10.2 Third Amended and Restated Limited Partnership Agreement for
Operating Partnership, dated January 6, 1999, among the
Corporation and the limited partners of Operating
Partnership.(2)
10.3 Form of Amended and Restated Lease Agreement, entered into
as of January 1, 1993, between the Trust as Lessor and the
Corporation (or a subsidiary) as Lessee (incorporated by
reference to Exhibit 10.19 to the Trust's and the
Corporation's Joint Annual Report on Form 10-K for the year
ended December 31, 1992).
10.4 Amended and Restated Employment Agreement, dated as of
February 17, 1998, between the Trust and Barry S.
Sternlicht, together with an amendment, dated as of March
11, 1998 (incorporated by reference to Exhibit 10.5 to the
1997 Form 10-K).(1)
10.5 Non-Qualified Stock Option Agreement, dated as of February
17, 1998, between the Trust and Barry S. Sternlicht
(incorporated by reference to Exhibit 10.6 to the 1997 Form
10-K).(1)
10.6 Amended and Restated Employment Agreement, dated April 15,
1998, between the Corporation and Richard D. Nanula
(incorporated by reference to Exhibit 10.1 to the Trust's
and the Corporation's Joint Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1998 (the "1998 Form
10-Q2")).(1)
10.7 Employment Agreement, dated March 2, 1998, between the
Corporation and Susan R. Bolger (incorporated by reference
to Exhibit 10.7 to the 1997 Form 10-K).(1)
10.8 Employment Agreement, dated March 25, 1998, between the
Corporation and Ronald C. Brown (incorporated by reference
to Exhibit 10.8 to the 1997 Form 10-K).(1)
10.9 Employment Agreement, dated October 1, 1998, between the
Corporation and Thomas C. Janson, Jr.(1)(2)
10.10 Indemnification Agreement dated as of August 24, 1998
between the Corporation and Thomas C. Janson, Jr., as
amended by Amendment Nos. 1 and 2 thereto (incorporated by
reference to Exhibit 10.1 to the Trust's and the
Corporation's Joint Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1998, as amended by the
Form 10-Q/A filed November 30, 1998 (as so amended, the
"1998 Form 10-Q3")).
10.11 Employment Agreement, dated March 25, 1998, between the
Corporation and Juergen Bartels (incorporated by reference
to Exhibit 10.9 to the 1997 Form 10-K).(1)
10.12 Employment Agreement, dated March 25, 1998, between the
Trust and Steven R. Goldman (incorporated by reference to
the Exhibit 10.11 to the 1997 Form 10-K).(1)
10.13 Employment Agreement, dated June 27, 1996, between the
Corporation and Eric A. Danziger (incorporated by reference
to Exhibit 10.4 to the Trust's and the Corporation's Joint
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1996 (the "1996 Form 10-Q2")).(1)
10.14 Starwood Hotels & Resorts 1995 Long-Term Incentive Plan
(Amended and Restated as of December 3, 1998) (incorporated
by reference to Annex D to the 1998 Proxy Statement).(1)
10.15 Starwood Hotels & Resorts Worldwide, Inc., 1995 Long-Term
Incentive Plan (Amended and Restated as of December 3, 1998)
(incorporated by reference to Annex E to the 1998 Proxy
Statement).(1)
10.16 Incentive and Non-Qualified Share Option Plan (1986) of the
Trust (incorporated by reference to Exhibit 10.8 to the
Trust's and the Corporation's Joint Annual Report on Form
10-K for the year ended August 31, 1986 (the "1986 Form
10-K")).(1)
10.17 Corporation Stock Non-Qualified Stock Option Plan (1986) of
the Trust (incorporated by reference to Exhibit 10.9 to the
1986 Form 10-K).(1)
10.18 Stock Option Plan (1986) of the Corporation (incorporated by
reference to Exhibit 10.10 to the 1986 Form 10-K).(1)
</TABLE>
58
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
10.19 Trust Shares Option Plan (1986) of the Corporation
(incorporated by reference to Exhibit 10.11 to the 1986 Form
10-K).(1)
10.20 Form of Indemnification Agreement and Amendment No. 1 to
Indemnification Agreement between the Trust and each of its
Trustees and executive officers (incorporated by reference
to Exhibit 10.7 to the Trust's and the Corporation's Joint
Annual Report on Form 10-K for the year ended December 31,
1995 (the "1995 Form 10-K")).(1)
10.21 Form of Indemnification Agreement and Amendment No. 1 to
Indemnification Agreement between the Corporation and each
of its Directors and executive officers (incorporated by
reference to Exhibit 10.8 to the 1995 Form 10-K).(1)
10.22 Form of Amendment No. 2 to Indemnification Agreement, dated
June 26, 1997, between the Trust and each of its Trustees
and executive officers (incorporated by reference to Exhibit
10.1 to the Trust's and the Corporation's Joint Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
1997 (the "1997 Form 10-Q2")).(1)
10.23 Form of Amendment No. 2 to Indemnification Agreement, dated
June 26, 1997, between the Corporation and each of its
Directors and executive officers (incorporated by reference
to Exhibit 10.2 to the 1997 Form 10-Q2).(1)
10.24 Form of Trademark License Agreement, dated as of December
10, 1997, between Starwood Capital and the Trust
(incorporated by reference to Exhibit 10.22 to the 1997
10-K).
10.25 Exchange Rights Agreement, dated as of January 1, 1995,
among the Trust, the Corporation, Realty Partnership,
Operating Partnership and the Starwood Partners
(incorporated by reference to Exhibit 2B to the Trust's and
the Corporation's Joint Current Report on Form 8-K dated
January 31, 1995 (the "Formation Form 8-K")).
10.26 Registration Rights Agreement, dated as of January 1, 1995,
among the Trust, the Corporation and Starwood Capital
(incorporated by reference to Exhibit 2C to the Formation
Form 8-K).
10.27 Exchange Rights Agreement, dated as of June 3, 1996, among
the Trust, the Corporation, Realty Partnership, Operating
Partnership, Philadelphia HIR Limited Partnership and
Philadelphia HSR Limited Partnership (incorporated by
reference to Exhibit 10.1 to the 1996 Form 10-Q2).
10.28 Registration Rights Agreement, dated as of June 3, 1996,
among the Trust, the Corporation and Philadelphia HSR
Limited Partnership (incorporated by reference to Exhibit
10.2 to the 1996 Form 10-Q2).
10.29 Asset Purchase Agreement, dated as of March 25, 1996,
between Hotels of Distinction, Inc., and Realty Partnership
(effective July 3, 1996) (incorporated by reference to
Exhibit 10.7 to the Trust's and the Corporation's Joint
Annual Report on Form 10-K for the year ended December 31,
1996, as amended by the Form 10-K/A dated April 25, 1997,
and by the Form 10-K/A dated December 18, 1997.
10.30 Contribution Agreement, dated as of January 15, 1997, by and
among HEI Hotels, L.L.C., Westport Management, L.L.C.,
Savior Limited Partnership, Judith Rushmore, Orna L.
Shulman, Murray Dow, Steve Mendell, Gary Mendell, Zapco
Communications, Inc., Westport Hospitality, Inc., the
Corporation and Operating Partnership (incorporated by
reference to Exhibit 10.3 to the Trust's and the
Corporation's Joint Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997 (the "1997 Form
10-Q1")).
10.31 Contribution Agreement, dated as of January 15, 1997, by and
among, inter alia, Realty Partnership, Operating
Partnership, the Trust, the Corporation, Prudential HEI
Joint Venture and Gary M. Mendell (incorporated by reference
to Exhibit 10.4 to the 1997 Form 10-Q1).
10.32 Units Exchange Rights Agreement, dated as of February 14,
1997, by and among, inter alia, the Trust, the Corporation,
Realty Partnership, Operating Partnership and the Starwood
Partners (incorporated by reference to Exhibit 10.34 to the
1997 Form 10-K).
10.33 Class A Exchange Rights Agreement, dated as of February 14,
1997, by and among, inter alia, the Trust, the Corporation,
Operating Partnership and the Starwood Partners
(incorporated by reference to Exhibit 10.35 to the 1997 Form
10-K).
10.34 Exchange Rights Agreement, dated as of March 11, 1997, among
the Corporation, the Trust, Realty Partnership, Operating
Partnership and the Hermitage, L.P. (incorporated by
reference to Exhibit 10.41 to the 1997 Form 10-K).
10.35 Registration Rights Agreement, dated as of March 11, 1997,
among the Corporation, the Trust, Realty Partnership,
Operating Partnership and the Hermitage, L.P. (incorporated
by reference to Exhibit 10.42 to the 1997 Form 10-K).
</TABLE>
59
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
10.36 Credit Agreement, dated as of September 10, 1997, between
Realty Partnership and the Trust and Bankers Trust Company
("BTC"), Lehman Brothers Holdings Inc. d/b/a Lehman Capital,
a division of Lehman Brothers Holdings Inc. ("Lehman
Capital"), BankBoston, N.A., and Bank of Montreal
(incorporated by reference to Exhibit 10.1 to the Trust's
and the Corporation's Joint Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1997, as
amended by the Form 10-Q/A dated November 10, 1997.
10.37 Exchange Rights Agreement, dated as of January 2, 1998,
among, inter alia, the Trust, Realty Partnership and
Woodstar (incorporated by reference to Exhibit 10.50 to the
1997 Form 10-K).
10.38 Exchange Rights Agreement, dated as of January 2, 1998,
among, inter alia, the Corporation, Operating Partnership
and Woodstar (incorporated by reference to Exhibit 10.51 to
the 1997 Form 10-K).
10.39 Registration Rights Agreement, dated as of January 2, 1998,
among, inter alia, the Trust, the Corporation, and Woodstar
(incorporated by reference to Exhibit 10.52 to the 1997 Form
10-K).
10.40 Stock Agreement and Registration Rights Agreement, each
dated as of January 15, 1998 by and among the Corporation,
the Trust and New Remington Partners (incorporated by
reference to Exhibit 10.54 to the 1997 Form 10-K).
10.41 Stock Agreement and Registration Rights Agreement, each
dated as of January 15, 1998, by and among the Corporation,
the Trust and Savannah Limited Partnership (incorporated by
reference to Exhibit 10.56 to the 1997 Form 10-K).
10.42 Stock Agreement and Registration Rights Agreement, each
dated as of January 15, 1998, by and among the Corporation,
the Trust and N.Y. Overnight Partners, L.P. (incorporated by
reference to Exhibit 10.58 to the 1997 Form 10-K).
10.43 Stock Agreement and Registration Rights Agreement, each
dated as of January 15, 1998, by and among the Corporation,
the Trust and D.C. Overnight Partners, L.P. (incorporated by
reference to Exhibit 10.60 to the 1997 Form 10-K).
10.44 Credit Agreement, dated as of February 23, 1998, among the
Trust, Realty Partnership, the Corporation, Chess (and ITT
as its successor by merger), certain additional borrowers,
various lenders, BTC and Chase Bank, as Administrative
Agents, and Lehman Commercial Paper Inc. ("Lehman Paper")
and Bank of Montreal, as Syndication Agents (incorporated by
reference to Exhibit 10.1 to the Trust's and the
Corporation's Joint Current Report on Form 8-K dated
February 23, 1998 (the "ITT Form 8-K")).
10.45 First Amendment to the Credit Agreement, dated as of March
3, 1998, among the Trust, Realty Partnership, the
Corporation, ITT, the lenders party to the Credit Agreement,
BTC and Chase Bank, as Administrative Agents, and Lehman
Paper and Bank of Montreal, as Syndication Agents, and the
new lenders (incorporated by reference to Exhibit 10.2 to
the ITT Form 8-K).
10.46 Second Amendment to the Credit Agreement, dated as of April
30, 1998, among the Trust, Realty Partnership, the
Corporation, ITT, the lenders party to the Credit Agreement,
BTC and Chase Bank, as Administrative Agents, and Lehman
Paper and Bank of Montreal, as Syndication Agents
(incorporated by reference to Exhibit 10.2 to the 1998 Form
10-Q2).
10.47 Third Amendment to the Credit Agreement, dated as of June
15, 1998, among the Trust, Realty Partnership, the
Corporation, ITT, the lenders party to the Credit Agreement,
BTC and Chase Bank, as Administrative Agents, and Lehman
Paper and Bank of Montreal, as Syndication Agents
(incorporated by reference to Exhibit 10.3 to the 1998 Form
10-Q2).
10.48 Fourth Amendment to the Credit Agreement, dated as of July
15, 1998, among the Trust, Realty Partnership, the
Corporation, ITT, the lenders party to the Credit Agreement,
BTC and Chase Bank, as Administrative Agents, and Lehman
Paper and Bank of Montreal, as Syndication Agents
(incorporated by reference to Exhibit 10.4 to the 1998 Form
10-Q2).
10.49 Fifth Amendment to the Credit Agreement, dated as of August
26, 1998, among the Trust, Realty Partnership, the
Corporation, ITT, the lenders party to the Credit Agreement,
BTC and Chase Bank, as Administrative Agents, and Lehman
Paper and Bank of Montreal, as Syndication Agents
(incorporated by reference to Exhibit 10.2 to the 1998 Form
10-Q3).
10.50 Sixth Amendment to the Credit Agreement, dated as of
December 15, 1998, among the Trust, Realty Partnership, the
Corporation, ITT, the lenders party to the Credit Agreement,
BTC and Chase Bank, as Administrative Agents, and Lehman
Paper and Bank of Montreal, as Syndication Agents.(2)
</TABLE>
60
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
10.51 Seventh Amendment to the Credit Agreement, dated as of
February, 1999, among the Trust, Realty Partnership, the
Corporation, ITT, the lenders party to the Credit Agreement,
BTC and Chase Bank, as Administrative Agents, and Lehman
Paper and Bank of Montreal, as Syndication Agents.(2)
10.52 Pledge and Security Agreement, dated as of February 23,
1998, executed and delivered by the Trust, the Corporation
and the other Pledgors party thereto, in favor of BTC as
Collateral Agent (incorporated by reference to Exhibit 10.63
to the 1997 Form 10-K).
10.53 Senior Secured Increasing Rate Note Agreement, dated as of
February 23, 1998, by and among the Corporation, the Trust,
the Guarantors named therein and the Lenders named therein
(incorporated by reference to Exhibit 10.3 to the ITT Form
8-K).
10.54 Amended and Restated Senior Secured Note Agreement dated
August 27, 1998 among the Corporation, the Trust, the
guarantors listed therein, the lenders listed therein,
Lehman Paper, as Arranger and Administrative Agent, and Alex
Brown and Chase Securities Inc., as Syndication Agents
(incorporated by reference to Exhibit 10.3 to the 1998 Form
10-Q3).
10.55 Loan Agreement, dated as of February 23, 1998, between the
Trust and the Corporation, together with Promissory Note
executed in connection therewith, by the Corporation to the
order of the Trust, in the principal amount of
$3,282,000,000 (incorporated by reference to Exhibit 10.65
to the 1997 Form 10-K).
10.56 Loan Agreement, dated as of February 23, 1998, between the
Trust and the Corporation, together with Promissory Note
executed in connection therewith, by the Corporation to the
order of the Trust, in the principal amount of $100,000,000
(incorporated by reference to Exhibit 10.66 to the 1997 Form
10-K).
10.57 Loan Agreement, dated as of February 23, 1998, between the
Trust and the Corporation, together with Promissory Note
executed in connection therewith, by the Corporation to the
order of the Trust, in the principal amount of $50,000,000
(incorporated by reference to Exhibit 10.67 to the 1997 Form
10-K).
10.58 Loan Agreement, dated as of January 27, 1999, among the
Borrowers named therein, as Borrowers, Starwood Operator I
LLC, as Operator, and Lehman Capital.(2)
10.59 Aircraft Dry Lease Agreement entered into as of February 6,
1998, between Star Flight, L.L.C. and ITT Flight Operation,
Inc., as amended by First Amendment thereto, dated as of
August 25, 1998 (incorporated by reference to Exhibit 10.4
to the 1998 Form 10-Q3).
12.1 Calculation of Ratio of Earnings to Total Fixed Charges.(2)
21.1 Subsidiaries of the Registrants.(2)
23.1 Consent of Arthur Andersen LLP.(2)
27.1 Financial Data Schedule for the Corporation for the twelve
months ended December 31, 1998.(2)
27.2 Financial Data Schedule for the Trust for the twelve months
ended December 31, 1998.(2)
27.3 Restated Financial Data Schedule for the Corporation for the
nine months ended September 30, 1998.(2)
27.4 Restated Financial Data Schedule for the Trust for the nine
months ended September 30, 1998.(2)
27.5 Restated Financial Data Schedule for the Corporation for the
six months ended June 30, 1998.(2)
27.6 Restated Financial Data Schedule for the Trust for the six
months ended June 30, 1998.(2)
27.7 Restated Financial Data Schedule for the Corporation for the
three months ended March 31, 1998.(2)
27.8 Restated Financial Data Schedule for the Trust for the three
months ended March 31, 1998.(2)
27.9 Restated Financial Data Schedule for the Corporation for the
twelve months ended December 31, 1997.(2)
27.10 Restated Financial Data Schedule for the Corporation for the
nine months ended September 30, 1997.(2)
27.11 Restated Financial Data Schedule for the Corporation for the
six months ended June 30, 1997.(2)
</TABLE>
61
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
27.12 Restated Financial Data Schedule for the Corporation for the
three months ended March 31, 1997.(2)
27.13 Restated Financial Data Schedule for the Corporation for the
twelve months ended December 31, 1996.(2)
</TABLE>
- ---------------
(1) Management contract or compensatory plan or arrangement required to be filed
as an exhibit hereto pursuant to Item 14(c) of Form 10-K.
(2) Filed herewith.
(b) Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K during the fourth
quarter of 1998.
62
<PAGE> 64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
STARWOOD HOTELS & RESORTS
WORLDWIDE, INC.
By: /s/ BARRY S. STERNLICHT
------------------------------------
Barry S. Sternlicht
Chairman and Chief Executive Officer
Date: March 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BARRY S. STERNLICHT Chairman, Chief Executive Officer March 29, 1999
- --------------------------------------------------- and Director (Principal Executive
Barry S. Sternlicht Officer)
/s/ RONALD C. BROWN Executive Vice President and March 29, 1999
- --------------------------------------------------- Chief Financial Officer
Ronald C. Brown (Principal Financial and
Accounting Officer)
/s/ BRENDA C. BARNES Director March 29, 1999
- ---------------------------------------------------
Brenda C. Barnes
/s/ JUERGEN BARTELS Director March 29, 1999
- ---------------------------------------------------
Juergen Bartels
/s/ JONATHAN D. EILIAN Director March 29, 1999
- ---------------------------------------------------
Jonathan D. Eilian
/s/ EARLE F. JONES Director March 29, 1999
- ---------------------------------------------------
Earle F. Jones
/s/ MICHAEL A. LEVEN Director March 29, 1999
- ---------------------------------------------------
Michael A. Leven
/s/ RICHARD D. NANULA Director March 29, 1999
- ---------------------------------------------------
Richard D. Nanula
/s/ DANIEL H. STERN Director March 29, 1999
- ---------------------------------------------------
Daniel H. Stern
Director March , 1999
- ---------------------------------------------------
Daniel W. Yih
</TABLE>
63
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
STARWOOD HOTELS & RESORTS
By: /s/ BARRY S. STERNLICHT
------------------------------------
Barry S. Sternlicht
Chairman and Chief Executive Officer
Date: March 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BARRY S. STERNLICHT Chairman, Chief Executive Officer March 29, 1999
- --------------------------------------------------- and Trustee (Principal Executive
Barry S. Sternlicht Officer)
/s/ RONALD C. BROWN Executive Vice President and March 29, 1999
- --------------------------------------------------- Chief Financial Officer
Ronald C. Brown (Principal Financial and
Accounting Officer)
/s/ JEAN-MARC CHAPUS Trustee March 29, 1999
- ---------------------------------------------------
Jean-Marc Chapus
/s/ BRUCE W. DUNCAN Trustee March 29, 1999
- ---------------------------------------------------
Bruce W. Duncan
/s/ MADISON F. GROSE Trustee March 29, 1999
- ---------------------------------------------------
Madison F. Grose
/s/ GEORGE J. MITCHELL Trustee March 29, 1999
- ---------------------------------------------------
George J. Mitchell
/s/ STEPHEN R. QUAZZO Trustee March 29, 1999
- ---------------------------------------------------
Stephen R. Quazzo
/s/ RAYMOND S. TROUBH Trustee March 29, 1999
- ---------------------------------------------------
Raymond S. Troubh
</TABLE>
64
<PAGE> 66
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.................... F-2
STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS
WORLDWIDE, INC.:
Combined Consolidated Balance Sheets as of December 31,
1998 and 1997......................................... F-3
Combined Consolidated Statements of Operations for the
Years Ended December 31, 1998, 1997 and 1996.......... F-4
Combined Consolidated Statements of Comprehensive
Income for the Years Ended December 31, 1998, 1997 and
1996.................................................. F-5
Combined Consolidated Statements of Equity for the
Years Ended December 31, 1998, 1997 and 1996.......... F-6
Combined Consolidated Statements of Cash Flows for the
Years Ended December 31, 1998, 1997 and 1996.......... F-7
STARWOOD HOTELS & RESORTS:
Consolidated Balance Sheet as of December 31, 1998..... F-8
Consolidated Statement of Operations for the Period
from February 23, 1998 to December 31, 1998........... F-9
Consolidated Statement of Cash Flows for the Period
from February 23, 1998 to December 31, 1998........... F-10
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.:
Consolidated Balance Sheets as of December 31, 1998 and
1997.................................................. F-11
Consolidated Statements of Operations for the Years
Ended December 31, 1998, 1997 and 1996................ F-12
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1998, 1997 and 1996.......... F-13
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996................ F-14
NOTES TO FINANCIAL STATEMENTS............................... F-15
SCHEDULES:
Schedule II -- Valuation and Qualifying Accounts....... S-1
Schedule III -- Real Estate and Accumulated
Depreciation.......................................... S-2
Schedule IV -- Mortgage Loans on Real Estate........... S-7
</TABLE>
F-1
<PAGE> 67
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Starwood Hotels & Resorts and Starwood Hotels & Resorts Worldwide, Inc.:
We have audited the accompanying combined consolidated balance sheets of
Starwood Hotels & Resorts (a Maryland real estate investment trust) and its
subsidiaries (the "Trust") and Starwood Hotels & Resorts Worldwide, Inc. (a
Maryland corporation) and its subsidiaries (the "Corporation," collectively with
the Trust, the "Company") as of December 31, 1998 and 1997 and the consolidated
balance sheet of the Trust as of December 31, 1998 and the consolidated balance
sheets of the Corporation as of December 31, 1998 and 1997, and the related
combined consolidated statements of operations, comprehensive income, equity,
and cash flows for each of the three years ended December 31, 1998 of the
Company and the consolidated statements of operations, comprehensive income, and
cash flows for the period from February 23, 1998 to December 31, 1998 of the
Trust and for each of the three years in the period ended December 31, 1998 for
the Corporation as set forth in the accompanying Index to Financial Statements
and Schedules. These financial statements and schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the separate and combined financial statements referred to
above present fairly, in all material respects, the financial position of the
Company, the Trust, and the Corporation at December 31, 1998, and the Company
and the Corporation at December 31, 1997, and the results of the Company's and
the Corporation's operations and cash flows for each of the three years in the
period ended December 31, 1998 and the Trust's operations and cash flows for its
respective period ended December 31, 1998 in conformity with generally accepted
accounting principles.
As explained in the Notes to the financial statements, effective January 1,
1997, the Corporation changed its method of accounting for start-up costs.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the Index to
Financial Statements and Schedules are presented for purposes of complying with
the Securities and Exchange Commission's rules and are not a part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
New York, New York
February 3, 1999
F-2
<PAGE> 68
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
COMBINED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 290 $ 201
Accounts receivable, net of allowance for doubtful
accounts of $74 and $112............................... 607 424
Inventories............................................... 73 63
Prepaid expenses and other................................ 107 105
------- ------
Total current assets.............................. 1,077 793
Investments................................................. 384 368
Plant, property and equipment, net.......................... 9,850 4,832
Goodwill and intangible assets, net......................... 3,698 1,257
Other assets................................................ 647 731
Net assets held for sale.................................... 409 471
Net assets of discontinued operations....................... 36 73
------- ------
$16,101 $8,525
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 284 $ 273
Accrued expenses.......................................... 889 1,078
Short-term borrowings and current maturities of long-term
debt................................................... 694 898
Other current liabilities................................. 207 161
------- ------
Total current liabilities......................... 2,074 2,410
Long-term debt.............................................. 8,111 1,070
Deferred income taxes....................................... 609 97
Other liabilities........................................... 415 423
Net liabilities of discontinued operations.................. -- 1,600
Minority interest........................................... 509 181
------- ------
11,718 5,781
------- ------
Equity put options.......................................... 32 --
------- ------
Class B exchangeable preferred shares, at redemption
value..................................................... 149 --
------- ------
Commitments and contingencies
Stockholders' equity:
Class A exchangeable preferred shares..................... -- --
Corporation common stock; $0.01 par value; authorized
1,050,000,000 and 308,600,000 shares; outstanding
175,574,135 and 126,653,880 shares at December 31, 1998
and 1997, respectively................................. 2 1
Trust common shares of beneficial interest; $0.01 par
value; authorized 1,200,000,000 and 308,600,000 shares;
outstanding 175,574,135 and 126,653,880 shares at
December 31, 1998 and 1997, respectively............... 2 1
Additional paid-in capital................................ 4,363 2,934
Cumulative translation and marketable securities
adjustments............................................ (120) (135)
Accumulated deficit....................................... (45) (57)
------- ------
Total stockholders' equity........................ 4,202 2,744
------- ------
$16,101 $8,525
======= ======
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statements.
F-3
<PAGE> 69
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
REVENUES
Hotels:
Owned, leased and consolidated joint venture hotels....... $2,983 $1,550 $1,440
Management and franchise fees............................. 234 174 165
Unconsolidated joint ventures and other................... 116 38 41
Gaming...................................................... 1,377 1,212 1,285
------ ------ ------
4,710 2,974 2,931
------ ------ ------
COSTS AND EXPENSES
Hotels:
Owned, leased and consolidated joint venture hotels....... 2,030 1,116 1,059
Other..................................................... 120 69 72
Gaming...................................................... 1,103 1,019 994
Selling, general and administrative......................... 96 66 76
Restructuring and other special charges..................... 204 691 --
Depreciation and amortization............................... 556 281 261
------ ------ ------
4,109 3,242 2,462
------ ------ ------
601 (268) 469
Interest expense, net of interest income of $26, $19 and
$68....................................................... (613) (94) (96)
Gain on sale of real estate and investments................. 55 432 42
Miscellaneous expense, net.................................. -- (172) (9)
------ ------ ------
43 (102) 406
Income tax benefit (expense)................................ 108 (159) (173)
Minority equity............................................. (10) (9) (7)
------ ------ ------
Income (loss) from continuing operations.................... 141 (270) 226
Discontinued operations:
Net income (loss) from operations, net of taxes and
minority interest....................................... (8) 25 23
Gain on sale of Educational Services, Inc. shares, net of
taxes and minority interest of $103..................... 150 -- --
Gain on disposition of World Directories, net of taxes of
$558.................................................... 972 -- --
Extraordinary item, net of taxes............................ -- (42) --
Cumulative effect of accounting change, net of taxes........ -- (11) --
------ ------ ------
Net income (loss)......................................... $1,255 $ (298) $ 249
====== ====== ======
EARNINGS PER UNIT -- BASIC
Income (loss) from continuing operations.................... $ 0.68 $(2.14) $ 1.81
Discontinued operations..................................... 6.02 0.20 0.18
Extraordinary item.......................................... -- (0.33) --
Cumulative effect of accounting change...................... -- (0.09) --
------ ------ ------
Net income (loss)......................................... $ 6.70 $(2.36) $ 1.99
====== ====== ======
EARNINGS PER UNIT -- DILUTED
Income (loss) from continuing operations.................... $ 0.67 $(2.14) $ 1.78
Discontinued operations..................................... 5.96 0.20 0.18
Extraordinary item.......................................... -- (0.33) --
Cumulative effect of accounting change...................... -- (0.09) --
------ ------ ------
Net income (loss)......................................... $ 6.63 $(2.36) $ 1.96
====== ====== ======
Weighted average number of Units............................ 185 126 125
====== ====== ======
Weighted average number of Units assuming dilution.......... 187 126 127
====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statements.
F-4
<PAGE> 70
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
COMBINED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
------ ----- ----
<S> <C> <C> <C>
Net income (loss)........................................... $1,255 $(298) $249
Other comprehensive income:
Foreign currency translation adjustments --
Foreign currency translation arising during the period.... (18) (133) (2)
Reclassification adjustment for losses included in net
income (loss).......................................... 32 -- --
Unrealized gains (losses) on securities --
Unrealized holding gains (losses) arising during the
period................................................. 1 176 (62)
Reclassification adjustment for gains included in net
income (loss).......................................... -- (114) --
------ ----- ----
15 (71) (64)
------ ----- ----
Comprehensive income (loss)................................. $1,270 $(369) $185
====== ===== ====
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statements.
F-5
<PAGE> 71
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
COMBINED CONSOLIDATED STATEMENTS OF EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
CUMULATIVE
FORWARD TRANSLATION
EQUITY AND
CONTRACTS CLASS B EPS CLASS A EPS UNITS(1) ADDITIONAL MARKETABLE
AND EQUITY --------------- --------------- -------------- PAID-IN SECURITIES
PUT OPTIONS SHARES AMOUNT SHARES AMOUNT UNITS AMOUNT CAPITAL ADJUSTMENTS
----------- ------ ------ ------ ------ ----- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995..... $ -- -- $ -- -- $-- 127 $2 $ 2,942 $ --
Net income..................... -- -- -- -- -- -- -- -- --
Stock option transactions...... -- -- -- -- -- -- -- 10 --
Common stock repurchases....... -- -- -- -- -- (1) -- (57) --
Foreign currency translation... -- -- -- -- -- -- -- -- (2)
Unrealized loss on securities,
net.......................... -- -- -- -- -- -- -- -- (62)
----- -- ---- -- --- --- -- ------- -----
Balance at December 31, 1996..... -- -- -- -- -- 126 2 2,895 (64)
Net loss....................... -- -- -- -- -- -- -- -- --
Stock option transactions...... -- -- -- -- -- 1 -- 39 --
Foreign currency translation... -- -- -- -- -- -- -- -- (133)
Unrealized gain on securities,
net.......................... -- -- -- -- -- -- -- -- 62
----- -- ---- -- --- --- -- ------- -----
Balance at December 31, 1997..... -- -- -- -- -- 127 2 2,934 (135)
Net income..................... -- -- -- -- -- -- -- -- --
ITT reverse purchase........... 125 5 212 6 -- 57 2 4,022 --
Cash dividend to ITT
stockholders................. -- -- -- -- -- -- -- (2,144) --
Stock option and restricted
stock award transactions..... -- -- -- -- -- 1 -- 31 --
Unit repurchases............... -- -- -- -- -- (10) -- (371) --
Issuance of forward equity
contracts.................... 245 -- -- -- -- 8 -- -- --
Settlement of forward equity
contracts.................... (370) -- -- -- -- (10) -- -- --
Issuance of equity put
options...................... 32 -- -- -- -- -- -- (30) --
Conversion and cancellation of
Class A EPS and Class B
EPS.......................... -- (1) (63) (2) -- 3 -- 50 --
Change in minority interest.... -- -- -- -- -- -- -- (129) --
Foreign currency translation... -- -- -- -- -- -- -- -- 14
Unrealized gain on securities,
net.......................... -- -- -- -- -- -- -- -- 1
Dividends declared............. -- -- -- -- -- -- -- -- --
----- -- ---- -- --- --- -- ------- -----
Balance at December 31, 1998..... $ 32 4 $149 4 $-- 176 $4 $ 4,363 $(120)
===== == ==== == === === == ======= =====
<CAPTION>
RETAINED
EARNINGS
(ACCUMULATED
DEFICIT)
------------
<S> <C>
Balance at December 31, 1995..... $ (8)
Net income..................... 249
Stock option transactions...... --
Common stock repurchases....... --
Foreign currency translation... --
Unrealized loss on securities,
net.......................... --
------
Balance at December 31, 1996..... 241
Net loss....................... (298)
Stock option transactions...... --
Foreign currency translation... --
Unrealized gain on securities,
net.......................... --
------
Balance at December 31, 1997..... (57)
Net income..................... 1,255
ITT reverse purchase........... --
Cash dividend to ITT
stockholders................. (890)
Stock option and restricted
stock award transactions..... --
Unit repurchases............... --
Issuance of forward equity
contracts.................... --
Settlement of forward equity
contracts.................... --
Issuance of equity put
options...................... --
Conversion and cancellation of
Class A EPS and Class B
EPS.......................... --
Change in minority interest.... --
Foreign currency translation... --
Unrealized gain on securities,
net.......................... --
Dividends declared............. (353)
------
Balance at December 31, 1998..... $ (45)
======
</TABLE>
- ---------------
(1) Represents common stock of ITT prior to the ITT Merger and the Corporation
common stock and Trust shares of beneficial interest subsequent to the ITT
Merger.
The accompanying notes to financial statements are an integral part of the above
statements.
F-6
<PAGE> 72
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 1,255 $ (298) $ 249
Exclude:
Discontinued operations --
Net (income) loss from operations.......................... 8 (25) (23)
Gain on disposition of World Directories and Educational
Services, Inc............................................ (1,122) -- --
Extraordinary item.......................................... -- 42 --
Cumulative effect of accounting change...................... -- 11 --
------- ------- -----
Income (loss) from continuing operations.................... 141 (270) 226
Adjustments to income (loss) from continuing operations:
Depreciation and amortization.............................. 556 281 261
Amortization of deferred loan costs........................ 22 -- --
Non-cash portion of restructuring and other special
charges.................................................. 140 -- --
Provision for doubtful receivables......................... 52 65 39
Minority equity in net income.............................. 10 9 7
Equity income, net of dividends received................... (16) (10) (6)
Gain on sale of real estate and investments -- pretax...... (55) (432) (42)
Changes in working capital:
Accounts receivable........................................ (61) (102) (102)
Inventories................................................ (4) (8) (11)
Accounts payable........................................... 25 (5) (33)
Accrued expenses........................................... (596) 630 6
Accrued and deferred income taxes........................... 11 (65) 41
Other, net.................................................. (1) (20) 34
------- ------- -----
Cash from continuing operations............................ 224 73 420
Cash used for discontinued operations...................... -- (9) (12)
------- ------- -----
Cash from operating activities............................. 224 64 408
------- ------- -----
INVESTING ACTIVITIES
Additions to plant, property and equipment.................. (832) (1,003) (528)
Proceeds from sale of real estate and investments........... 2,854 1,641 282
Collection of notes receivable.............................. 156 217 81
Acquisitions, net of acquired cash.......................... (60) (287) (364)
Employee benefit trust...................................... 143 (166) --
Other, net.................................................. (346) (41) (66)
------- ------- -----
Cash from (used for) investing activities.................. 1,915 361 (595)
------- ------- -----
FINANCING ACTIVITIES
Short-term debt, net........................................ 487 (153) 77
Long-term debt issued....................................... 4,154 145 454
Long-term debt issued by discontinued operations............ -- 546 --
Long-term debt repaid....................................... (2,790) (995) (303)
Settlement of forward equity contracts...................... (125) -- --
Cancellation of Class B EPS................................. (13) -- --
Stock option exercises...................................... 15 -- --
Dividends paid.............................................. (3,357) -- --
Unit repurchases............................................ (371) -- --
Other, net.................................................. (50) 31 22
------- ------- -----
Cash from (used for) financing activities.................. (2,050) (426) 250
------- ------- -----
Exchange rate effect on cash and cash equivalents........... -- (3) 1
------- ------- -----
Increase (decrease) in cash and cash equivalents............ 89 (4) 64
Cash and cash equivalents -- beginning of period............ 201 205 141
------- ------- -----
Cash and cash equivalents -- end of period.................. $ 290 $ 201 $ 205
======= ======= =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest................................................... $ 619 $ 73 $ 105
======= ======= =====
Income taxes, net of refunds............................... $ 68 $ 183 $ 108
======= ======= =====
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statements.
F-7
<PAGE> 73
STARWOOD HOTELS & RESORTS
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 12
Accounts receivable....................................... 24
Receivable, Corporation................................... 42
Prepaid expenses and other................................ 3
------
Total current assets.............................. 81
Investments, Corporation.................................... 1,057
Investments................................................. 86
Plant, property and equipment, net.......................... 4,411
Long-term receivables, net, Corporation..................... 2,583
Goodwill and intangible assets, net......................... 258
Other assets................................................ 152
Net assets held for sale.................................... 18
------
$8,646
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 6
Accrued expenses.......................................... 68
Short-term borrowings and current maturities of long-term
debt................................................... 1
------
Total current liabilities......................... 75
Long-term debt.............................................. 737
Minority interest........................................... 435
------
1,247
------
Equity put options and forward equity contracts............. 23
------
Class B exchangeable preferred shares, at redemption
value..................................................... 149
------
Commitments and contingencies
Stockholders' equity:
Class A exchangeable preferred shares..................... --
Trust common shares of beneficial interest; $0.01 par
value; authorized 1,200,000,000 shares; outstanding
175,574,135 shares..................................... 2
Additional paid-in capital................................ 7,178
Retained earnings......................................... 47
------
Total stockholders' equity........................ 7,227
------
$8,646
======
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
F-8
<PAGE> 74
STARWOOD HOTELS & RESORTS
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 23, 1998
TO DECEMBER 31, 1998
--------------------
<S> <C>
REVENUES
Hotels:
Owned, leased and consolidated joint venture hotels....... $ 1
Unconsolidated joint ventures and other................... 9
Rent and interest, Corporation.............................. 590
-----
600
-----
COSTS AND EXPENSES
Selling, general and administrative......................... 22
Depreciation and amortization............................... 131
-----
153
-----
447
Interest expense, net of interest income of $6.............. (24)
Income tax expense.......................................... (1)
Minority equity............................................. (27)
-----
Net income................................................ $ 395
=====
Basic net income per Unit................................... $2.05
=====
Diluted net income per Unit................................. $2.04
=====
Weighted average number of Units............................ 185
=====
Weighted average number of Units assuming dilution.......... 194
=====
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
F-9
<PAGE> 75
STARWOOD HOTELS & RESORTS
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 23, 1998
TO DECEMBER 31, 1998
--------------------
<S> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 395
Adjustments to net income:
Depreciation and amortization............................. 131
Minority equity in net income............................. 27
Equity income, net of dividends received.................. 2
Changes in working capital:
Accounts receivable....................................... (8)
Accounts payable.......................................... 1
Accrued expenses.......................................... (17)
Other, net.................................................. 72
-----
Cash from operating activities............................ 603
-----
INVESTING ACTIVITIES
Additions to plant, property and equipment.................. (177)
Proceeds from sale of real estate and investments........... 282
Acquisitions, net of acquired cash.......................... (13)
Notes receivable, Corporation............................... 488
Other, net.................................................. (325)
-----
Cash from investing activities............................ 255
-----
FINANCING ACTIVITIES
Short-term debt, net........................................ 1
Long-term debt issued....................................... 319
Long-term debt repaid....................................... (546)
Settlement of forward equity contracts...................... (88)
Cancellation of Class B EPS................................. (13)
Stock option exercises...................................... 11
Dividends paid.............................................. (278)
Unit repurchases............................................ (260)
Other, net.................................................. 8
-----
Cash used for financing activities........................ (846)
-----
Increase in cash and cash equivalents....................... 12
Cash and cash equivalents -- beginning of period............ --
-----
Cash and cash equivalents -- end of period.................. $ 12
=====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................. $ 21
=====
Income taxes.............................................. $ 1
=====
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statement.
F-10
<PAGE> 76
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 278 $ 201
Accounts receivable, net of allowance for doubtful
accounts of $74 and $112............................... 583 424
Inventories............................................... 73 63
Prepaid expenses and other................................ 104 105
------- ------
Total current assets.............................. 1,038 793
Investments, Trust.......................................... 77 --
Investments................................................. 298 368
Plant, property and equipment, net.......................... 5,439 4,832
Goodwill and intangible assets, net......................... 3,440 1,257
Other assets................................................ 495 731
Net assets held for sale.................................... 391 471
Net assets of discontinued operations....................... 36 73
------- ------
$11,214 $8,525
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 278 $ 273
Accrued expenses.......................................... 821 1,078
Short-term borrowings and current maturities of long-term
debt................................................... 693 898
Short-term borrowings and current maturities of long-term
debt, Trust............................................ 42 --
Other current liabilities................................. 207 161
------- ------
Total current liabilities......................... 2,041 2,410
Long-term debt.............................................. 7,374 1,070
Long-term debt, net, Trust.................................. 2,583 --
Deferred income taxes....................................... 609 97
Other liabilities........................................... 415 423
Net liabilities of discontinued operations.................. -- 1,600
Minority interest........................................... 1,208 181
------- ------
14,230 5,781
------- ------
Equity put options.......................................... 9 --
------- ------
Commitments and contingencies
Stockholders' equity (deficit):
Corporation common stock; $0.01 par value; authorized
1,050,000,000 shares; outstanding 175,574,135 shares... 2 1
Additional paid-in capital................................ (2,815) 2,935
Cumulative translation and marketable securities
adjustments............................................ (120) (135)
Accumulated deficit....................................... (92) (57)
------- ------
Total stockholders' equity (deficit).............. (3,025) 2,744
------- ------
$11,214 $8,525
======= ======
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statements.
F-11
<PAGE> 77
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
REVENUES
Hotels:
Owned, leased and consolidated joint venture hotels....... $2,982 $1,550 $1,440
Management and franchise fees............................. 234 174 165
Unconsolidated joint ventures and other................... 107 38 41
Gaming...................................................... 1,377 1,212 1,285
------ ------ ------
4,700 2,974 2,931
------ ------ ------
COSTS AND EXPENSES
Hotels:
Owned, leased and consolidated joint venture hotels....... 2,030 1,116 1,059
Rent and interest, Trust.................................. 590 -- --
Other..................................................... 120 69 72
Gaming...................................................... 1,103 1,019 994
Selling, general and administrative......................... 74 66 76
Restructuring and other special charges..................... 204 691 --
Depreciation and amortization............................... 425 281 261
------ ------ ------
4,546 3,242 2,462
------ ------ ------
154 (268) 469
Interest expense, net of interest income of $20, $19 and
$68....................................................... (589) (94) (96)
Gain on sale of real estate and investments................. 55 432 42
Miscellaneous expense, net.................................. -- (172) (9)
------ ------ ------
(380) (102) 406
Income tax benefit (expense)................................ 109 (159) (173)
Minority equity............................................. 17 (9) (7)
------ ------ ------
Income (loss) from continuing operations.................... (254) (270) 226
Discontinued operations:
Net income (loss) from operations, net of taxes and
minority interest...................................... (8) 25 23
Gain on sale of Educational Services, Inc. shares, net of
taxes and minority interest of $103.................... 150 -- --
Gain on disposition of World Directories, net of taxes of
$558................................................... 972 -- --
Extraordinary item, net of taxes............................ -- (42) --
Cumulative effect of accounting change, net of taxes........ -- (11) --
------ ------ ------
Net income (loss)......................................... $ 860 $ (298) $ 249
====== ====== ======
EARNINGS PER UNIT -- BASIC
Income (loss) from continuing operations.................... $(1.37) $(2.14) $ 1.81
Discontinued operations..................................... 6.02 0.20 0.18
Extraordinary item.......................................... -- (0.33) --
Cumulative effect of accounting change...................... -- (0.09) --
------ ------ ------
Net income (loss)......................................... $ 4.65 $(2.36) $ 1.99
====== ====== ======
EARNINGS PER UNIT -- DILUTED
Income (loss) from continuing operations.................... $(1.37) $(2.14) $ 1.78
Discontinued operations..................................... 6.02 0.20 0.18
Extraordinary item.......................................... -- (0.33) --
Cumulative effect of accounting change...................... -- (0.09) --
------ ------ ------
Net income (loss)......................................... $ 4.65 $(2.36) $ 1.96
====== ====== ======
Weighted average number of Units............................ 185 126 125
====== ====== ======
Weighted average number of Units assuming dilution.......... 185 126 127
====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statements.
F-12
<PAGE> 78
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
----- ------ -----
<S> <C> <C> <C>
Net income (loss)........................................... $860 $(298) $249
Other comprehensive income:
Foreign currency translation adjustments --
Foreign currency translation arising during the period.... (18) (133) (2)
Reclassification adjustment for losses included in net
income (loss).......................................... 32 -- --
Unrealized gains (losses) on securities --
Unrealized holding gains (losses) arising during the
period................................................. 1 176 (62)
Reclassification adjustment for gains included in net
income (loss).......................................... -- (114) --
---- ----- ----
15 (71) (64)
---- ----- ----
Comprehensive income (loss)................................. $875 $(369) $185
==== ===== ====
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statements.
F-13
<PAGE> 79
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 860 $ (298) $ 249
Exclude:
Discontinued operations --
Net (income) loss from operations.......................... 8 (25) (23)
Gain on disposition of World Directories and Educational
Services, Inc............................................ (1,122) -- --
Extraordinary item.......................................... -- 42 --
Cumulative effect of accounting change...................... -- 11 --
------- ------- -----
Income (loss) from continuing operations.................... (254) (270) 226
Adjustments to income (loss) from continuing operations:
Depreciation and amortization.............................. 425 281 261
Amortization of deferred loan costs........................ 22 -- --
Non-cash portion of restructuring and other special
charges.................................................. 140 -- --
Provision for doubtful receivables......................... 52 65 39
Minority equity in net income.............................. (17) 9 7
Equity income, net of dividends received................... (18) (10) (6)
Gain on sale of real estate and investments -- pretax...... (55) (432) (42)
Changes in working capital:
Accounts receivable........................................ (53) (102) (102)
Inventories................................................ (4) (8) (11)
Accounts payable........................................... 24 (5) (33)
Accrued expenses........................................... (593) 630 6
Accrued and deferred income taxes........................... 25 (65) 41
Other, net.................................................. (73) (20) 34
------- ------- -----
Cash from continuing operations............................ (379) 73 420
Cash used for discontinued operations...................... -- (9) (12)
------- ------- -----
Cash from (used for) operating activities.................. (379) 64 408
------- ------- -----
INVESTING ACTIVITIES
Additions to plant, property and equipment.................. (655) (1,003) (528)
Proceeds from sale of real estate and investments........... 2,572 1,641 282
Collection of note receivable............................... 156 217 81
Acquisitions, net of acquired cash.......................... (47) (287) (364)
Employee benefit trust...................................... 143 (166) --
Notes payable, Trust........................................ (488) -- --
Other, net.................................................. (21) (41) (66)
------- ------- -----
Cash from (used for) investing activities.................. 1,660 361 (595)
------- ------- -----
FINANCING ACTIVITIES
Short-term debt, net........................................ 486 (153) 77
Long-term debt issued....................................... 3,835 145 454
Long-term debt issued by discontinued operations............ -- 546 --
Long-term debt repaid....................................... (2,244) (995) (303)
Settlement of forward equity contracts...................... (37) -- --
Stock option exercises...................................... 4 -- --
Dividends paid.............................................. (3,079) -- --
Unit repurchases............................................ (111) -- --
Other, net.................................................. (58) 31 22
------- ------- -----
Cash from (used for) financing activities.................. (1,204) (426) 250
------- ------- -----
Exchange rate effect on cash and cash equivalents........... -- (3) 1
------- ------- -----
Increase (decrease) in cash and cash equivalents............ 77 (4) 64
Cash and cash equivalents -- beginning of period............ 201 205 141
------- ------- -----
Cash and cash equivalents -- end of period.................. $ 278 $ 201 $ 205
======= ======= =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest................................................... $ 598 $ 73 $ 105
======= ======= =====
Income taxes, net of refunds............................... $ 67 $ 183 $ 108
======= ======= =====
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statements.
F-14
<PAGE> 80
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying balance sheets as of December 31, 1998 include the
accounts of Starwood Hotels & Resorts and its subsidiaries (the "Trust") and
Starwood Hotels & Resorts Worldwide, Inc. and its subsidiaries (the
"Corporation" and, together with the Trust, "Starwood Hotels" or the "Company"),
inclusive of ITT Corporation and its subsidiaries ("ITT") (see Note 3). Because
the Company's acquisition of ITT (the "ITT Merger") was treated as a reverse
purchase for financial accounting purposes, the statements of operations,
comprehensive income, equity and cash flows for the year ended December 31, 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 December 31, 1998 and the
accounts of ITT for the year ended December 31, 1998. Additionally, the balance
sheet as of December 31, 1997 and the statements of operations, comprehensive
income, equity and cash flows for the years ended December 31, 1997 and 1996
represent the results of ITT.
The Trust was formed in 1969 and elected to be taxed as a real estate
investment trust ("REIT") under the Internal Revenue Code (the "Code"). In 1980,
the Trust formed the Corporation and made a distribution to the Trust's
shareholders of one share of common stock, par value $0.01 per share, of the
Corporation (a "Corporation Share") for each common share of beneficial
interest, par value $0.01 per share, of the Trust (a "Trust Share"). Until
January 6, 1999, the Trust Shares and Corporation Shares were paired on a
one-for-one basis and, pursuant to an agreement between the Trust and the
Corporation, could be held or transferred only in units ("Paired Shares")
consisting of one Trust Share and one Corporation Share.
At December 31, 1998, Starwood Hotels was a "paired share REIT" under the
grandfathering provisions of the Code. During 1998, Congress enacted tax
legislation that has the effect of eliminating this grandfathering for certain
interests in real property acquired after March 26, 1998. With respect to
certain interests in real property acquired after March 26, 1998, this new
legislation treats "grandfathered paired share REITs" as one entity for REIT
qualification purposes. In response to this legislation, the Company proposed a
restructuring of the Trust and the Corporation (the "Restructuring") which was
approved by the Company's shareholders on January 6, 1999. As a result of the
Restructuring, the Company is no longer a "grandfathered paired share REIT." In
addition, the Trust became a subsidiary of the Corporation, which holds all
outstanding shares of the new Class A shares of beneficial interest in the
Trust. Each outstanding Trust Share was converted into one share of the new
non-voting Class B Shares of beneficial interest in the Trust (a "Class B
Share"). The Class B Shares and the Corporation Shares are attached on a
one-for-one basis, and pursuant to an agreement between the Trust and the
Corporation, may be transferred only in units ("Units") consisting of one Class
B Share and one Corporation Share. The Restructuring will be accounted for as a
reorganization of two companies under common control. As such, there was no
revaluation of the assets and liabilities of the combining companies. The
Company expects to take a one-time charge during the first quarter of 1999,
primarily related to a deferred tax liability that will result from the
Restructuring.
The Company is one of the largest hotel and gaming companies in the world
and the Trust is one of the largest REITs in the United States. The Company's
principal lines of business are hotels and gaming. The hotel segment is
comprised of a worldwide hospitality network of approximately 690 full-service
hotels primarily serving three markets: luxury, upscale and mid-price. The
Company's hotel operations are represented on every continent and in nearly
every major world market. The Company's gaming operations are located in several
key domestic jurisdictions. The Company also operates various hotel/casino
ventures outside the United States.
Unless otherwise stated herein, all information with respect to Units
refers to Units since January 6, 1999 and to Paired Shares for periods before
January 6, 1999.
The Corporation, through its subsidiaries, is the general partner of, and
holds an aggregate 81.2% partnership interest in, SLC Operating Limited
Partnership (the "Operating Partnership") as of Decem-
F-15
<PAGE> 81
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ber 31, 1998. The Trust, through its subsidiaries, is the general partner of,
and owns an aggregate 92.3% partnership interest in, SLT Realty Limited
Partnership (the "Realty Partnership" and, together with the Operating
Partnership, the "Partnerships") as of December 31, 1998. The Realty Partnership
principally owns, directly or indirectly, fee, ground lease and mortgage loan
interests in hotel properties. The Operating Partnership, directly or
indirectly, principally leases hotel properties from the Realty Partnership and
also owns fee interests in other hotel properties and manages hotels for third
parties.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
INVENTORIES. Inventories, comprised principally of hotel and gaming
operating supplies, are generally valued at the lower of cost (first-in,
first-out) or market and potential losses from obsolete and slow-moving
inventories are provided for in the current period.
INVESTMENTS. Investments in partnerships and joint ventures are accounted
for using the equity method of accounting when the Company has a 20% to 50%
ownership interest or exercises control over the venture. If the Company's
interest exceeds 50% and the Company exercises control over the venture, the
results of the partnership or joint venture are consolidated herein. All other
investments are generally accounted for under the cost method.
Under the equity method of accounting, profits and losses are allocated in
accordance with the partnership or joint venture agreements. The Company's share
of income or losses before interest expense, depreciation expense and
extraordinary items is included in other hotel revenues in the accompanying
combined consolidated statements of operations. The Company's proportionate
share of interest expense and depreciation and amortization expense of such
joint ventures is included in interest expense and depreciation and amortization
expense, respectively, in the accompanying combined consolidated statements of
operations.
PLANT, PROPERTY AND EQUIPMENT. Plant, property and equipment, including
capitalized interest of $26 million, $35 million and $13 million in 1998, 1997
and 1996, respectively, applicable to major project expenditures, are recorded
at cost. Depreciation is provided on a straight-line basis over the estimated
useful economic lives of 15 to 40 years for buildings and improvements, 5 to 10
years for furniture, fixtures and equipment, and the lesser of the leasehold
term or 40 years for leasehold improvements. Gains or losses on the sale or
retirement of assets are included in income when the assets are sold provided
there is reasonable assurance of the collectibility of the sales price and any
future activities to be performed by the Company relating to the hotel assets
sold are insignificant.
The Company evaluates the carrying value of each of the Company's hotel and
gaming assets for impairment. For assets not held for sale, the expected
undiscounted future cash flows of the assets are compared to the net book value
of the assets. If the expected undiscounted future cash flows are less than the
net book value of the assets, the excess of the net book value over the
estimated fair value is charged to current earnings. When assets are identified
by management as held for sale, the Company discontinues depreciating the assets
and estimates the fair value of such assets. If, in management's opinion, the
fair value of the hotel or gaming assets which have been identified for sale is
less than the net book value of the assets, a loss reserve is established. Fair
value is determined based upon discounted cash flows of the hotel or gaming
assets at rates deemed reasonable for the type of property and prevailing market
conditions, appraisals and, if appropriate, current estimated net sales proceeds
from pending offers.
LONG-TERM RECEIVABLES. Long-term receivables consist primarily of secured
loans to owners of managed hotels and unconsolidated joint ventures and are
included in other assets in the accompanying combined consolidated balance
sheets. For adjustable rate loans, fair value approximates carrying value due to
the
F-16
<PAGE> 82
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
variable nature of the interest rates. For fixed rate loans, fair value is
determined based upon discounted cash flows from the note at rates deemed
reasonable for the type of note and prevailing market conditions, appraisals,
and if appropriate, current estimated net sales proceeds from pending offers to
buy the underlying properties. The carrying value approximates fair value due to
the interest rates being in line with market rates.
Management considers a loan to be impaired when it is probable that the
Company will be unable to collect all amounts due according to the contractual
terms of the loan. When a loan is considered to be impaired, the amount of the
impairment is measured based on the present value of expected future cash flows
discounted at the note's effective interest rate. Impairment losses are charged
to expense. Generally, cash receipts are first applied to reduce accrued and
unpaid interest and then to reduce principal.
GOODWILL AND INTANGIBLE ASSETS. Goodwill and intangible assets arose in
connection with acquisitions and management contracts, respectively, and are
amortized using the straight-line method over 8 to 40 years. Accumulated
amortization was $193 million and $100 million at December 31, 1998 and 1997,
respectively. The Company continually reviews the carrying value of goodwill and
intangible assets to assess recoverability from future operations using
undiscounted cash flows. Impairments would be recognized in operating results if
a permanent diminution in value is deemed to have occurred.
DERIVATIVE FINANCIAL INSTRUMENTS. The Company enters into interest rate
swap agreements to manage interest rate exposure. The differential to be paid or
received under these agreements is accrued consistent with the terms of the
agreements and is recognized in interest expense over the term of the related
debt using a method that approximates the effective interest method (the accrual
accounting method). The related amounts payable to or receivable from
counterparties are included in other liabilities or assets. The fair value of
the swap agreements and changes in the fair value as a result of changes in
market interest rates are not recognized in the financial statements.
The Company enters into foreign currency forward contracts and foreign
currency swaps as a means of hedging exposure to foreign currency fluctuations.
Foreign currency forward contracts and foreign currency swaps are accounted for
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52,
Foreign Currency Translation. Changes in the value of the derivative instruments
designated as hedges of foreign currency denominated assets and liabilities are
classified in the same manner as the classification of the changes in the
underlying assets and liabilities.
The Company does not enter into these derivative financial instruments for
speculative purposes and closely monitors the financial stability and credit
standing of its counterparties. When a derivative financial instrument is deemed
to no longer effectively correlate with its underlying assets or liabilities, it
is the Company's policy to mark to market these derivatives.
FOREIGN CURRENCY TRANSLATION. Balance sheet accounts are translated at the
exchange rates in effect at each year end and income and expense accounts are
translated at the average rates of exchange prevailing during the year. The
national currencies of foreign operations are generally the functional
currencies. Gains and losses from foreign currency translation and the effect of
exchange rate changes on intercompany transactions of a long-term investment
nature are generally included as a separate component of stockholders' equity in
accordance with SFAS No. 52. Gains and losses from foreign currency transactions
are reported currently in costs and expenses and were insignificant for all
periods presented.
INCOME TAX. The Trust has elected to be treated as a REIT under the
provisions of the Code beginning with the 1995 calendar year. As a result, the
Trust will not be subject to federal income tax on its taxable income at
corporate rates provided it distributes annually 100% of its taxable income to
its shareholders and complies with certain other requirements.
F-17
<PAGE> 83
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For the Corporation, under the asset and liability method of accounting for
income taxes, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets, including net operating
loss carryforwards, and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period when the new rate is enacted.
EARNINGS PER UNIT. The following is a reconciliation of basic earnings per
Unit to diluted earnings per Unit for income (loss) from continuing operations
(in millions, except per Unit data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1998 1997 1996
--------------------------- --------------------------- ---------------------------
EARNINGS UNITS PER UNIT EARNINGS UNITS PER UNIT EARNINGS UNITS PER UNIT
-------- ----- -------- -------- ----- -------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations.... $141 $(270) $226
Dividends on Class A and
Class B EPS.............. (16) -- --
---- ----- ----
Basic earnings (loss)...... $125 185 $0.68 $(270) 126 $(2.14) $226 125 $1.81
==== ===== ===== ====== ==== =====
Effect of dilutive
securities:
Unit options............. 2 -- 2
--- --- ---
Diluted earnings (loss).... $125 187 $0.67 $(270) 126 $(2.14) $226 127 $1.78
==== === ===== ===== === ====== ==== === =====
</TABLE>
Earnings per Unit for the years ended December 31, 1997 and 1996, as
previously reported by ITT, has been restated to give effect to the reverse
purchase accounting for the ITT Merger and to conform to the presentation
required by SFAS No. 128, Earnings Per Share.
Class A and Class B Exchangeable Preferred Shares ("EPS") of the Trust,
equity put options and forward equity contract security settlements were not
included in the computation of diluted earnings per Unit for the year ended
December 31, 1998 as the effects were anti-dilutive. There were no Class A EPS
and Class B EPS, equity put options or forward equity contract security
settlements outstanding in 1997.
REVENUE RECOGNITION. Generally, revenues are recognized when the services
have been rendered. The following is a description of the composition of
revenues for each of the Company's business segments:
Hotels. Owned hotel revenues represent revenue derived primarily from the
rental of rooms and food and beverage sales. Services are deemed to be rendered
at the date upon which a guest occupies a room and/or utilizes the hotel's
services. Ongoing credit evaluations are performed and potential credit losses
are expensed at the time the account receivable is estimated to be
uncollectible.
Emerging Issues Task Force ("EITF") 97-2, Application of SFAS No. 94 and
Accounting Principles Board ("APB") Opinion No. 16 to Physician Practice
Management Entities and Certain Other Entities with Contractual Management
Arrangements, addresses the circumstances in which a management entity may
include the revenues and expenses of a managed entity in its financial
statements. As a result of EITF 97-2, the Company changed its accounting policy
for its managed hotels beginning in the fourth quarter of 1998. As such,
revenues and expenses of non-owned managed hotels are no longer included in the
Company's financial statements, and the results for all periods presented herein
reflect this change in accounting policy. Management fees earned by the Company
for the hotels are included in management and franchise fees in the accompanying
combined consolidated financial statements. Management and franchise fees are
generally based on a percentage of hotel room revenues. Application of EITF 97-2
for the years ended December 31, 1998, 1997 and 1996 reduced each of revenues
and operating expenses by approximately $4.2 billion, $2.8
F-18
<PAGE> 84
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
billion and $2.8 billion, respectively. There was no impact on operating income,
net income, working capital, earnings per Unit or stockholders' equity as a
result of this change in accounting policy.
Gaming. Gaming revenues represent the net win from gaming wins and losses
as well as rooms, food, beverage and other revenues. Revenues exclude the retail
value of rooms, food, beverage, entertainment and other promotional allowances
provided on a complimentary basis to customers. The estimated retail value of
these promotional allowances was $197 million, $157 million and $161 million for
the years ended December 31, 1998, 1997 and 1996, respectively. The estimated
cost of such promotional allowances was $138 million, $100 million and $111
million for the years ended December 31, 1998, 1997 and 1996, respectively, and
has been included in costs and expenses in the accompanying combined
consolidated statements of operations.
Revenues and costs and expenses of the gaming operations, excluding King 8
Hotel & Casino, which was sold in June 1998, are comprised of the following for
the years ended December 31, 1998, 1997 and 1996 (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- --------------------
COSTS AND COSTS AND COSTS AND
REVENUES EXPENSES REVENUES EXPENSES REVENUES EXPENSES
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Casino............................. $1,001 $ 584 $ 953 $ 592 $1,032 $ 592
Rooms.............................. 127 43 71 25 70 25
Food and beverage.................. 115 102 77 71 79 71
Other operations................... 130 61 111 61 104 57
Selling, general and
administrative................... -- 229 -- 183 -- 213
Restructuring and other special
charges.......................... -- -- -- 6 -- --
Preopening costs................... -- 41 -- 28 -- 2
Depreciation and amortization...... -- 158 -- 83 -- 80
Provision for doubtful accounts.... -- 39 -- 59 -- 34
------ ------ ------ ------ ------ ------
Total.................... $1,373 $1,257 $1,212 $1,108 $1,285 $1,074
====== ====== ====== ====== ====== ======
</TABLE>
COMPREHENSIVE INCOME. SFAS No. 130, Reporting Comprehensive Income,
requires a separate statement to report the components of comprehensive income
for each period reported. Items to be included in comprehensive income include
foreign currency translation adjustments, unrealized gains and losses on certain
investments in debt and equity securities and minimum pension liability
adjustments. The Company adopted SFAS No. 130 on January 1, 1998 and, as such,
has included the required statements of comprehensive income in the accompanying
financial statements for the Company and the Corporation.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS. Certain reclassifications have been made to the prior
year financial statements to conform to the current year presentation.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS. In June 1998, SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, was issued.
This statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments
F-19
<PAGE> 85
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
embedded in other contracts) be recorded in the balance sheet as either an asset
or liability measured at its fair value. The statement requires that changes in
the fair value of the derivative be recognized currently in earnings unless
specific hedge accounting criteria are met. If specific hedge accounting
criteria are met, changes in the fair value of derivatives will either be offset
against the change in the fair value of the hedged assets, liabilities, or firm
commitments through earnings, or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The
Company expects to adopt SFAS No. 133 effective January 1, 2000. Management has
not yet quantified the impact of adopting SFAS No. 133 on the Company's
financial statements.
NOTE 3. ACQUISITIONS
ACQUISITION OF ITT. On February 23, 1998, pursuant to an Amended and
Restated Agreement and Plan of Merger, dated as of November 12, 1997 (the "ITT
Merger Agreement"), among the Corporation, Chess Acquisition Corp. ("Merger
Sub"), the Trust and ITT, the Company acquired ITT.
Pursuant to the terms of the ITT Merger Agreement, Merger Sub, a newly
formed Nevada corporation, was merged with and into ITT, whereupon the separate
corporate existence of Merger Sub ceased and ITT continued as the surviving
corporation. As a result of the ITT Merger, ITT was owned jointly by the Trust
and the Corporation. Immediately after the effective time of the ITT Merger, the
Corporation purchased all of the common stock, no par value, of ITT ("ITT Common
Stock") owned by the Trust for a combination of cash and notes. After such
purchase, ITT became a wholly owned subsidiary of the Corporation.
Under the terms of the ITT Merger Agreement, each outstanding share of ITT
Common Stock, together with the associated right to purchase shares of Series A
Participating Cumulative Preferred Stock of ITT (the rights and, together with
the ITT Common Stock, "ITT Shares"), other than those that were converted into
cash pursuant to a cash election by the holder (and other than ITT Shares owned
directly or indirectly by ITT or Starwood Hotels, which shares were canceled),
was converted into 1.543 Units. Pursuant to cash election procedures,
approximately 35 million ITT Shares, representing approximately 30% of the
outstanding ITT Shares, were converted into $85 in cash per share. In addition,
each ITT Share was converted into additional cash consideration in the amount of
$0.37493151, which amount represents the interest that would have accrued
(without compounding) on $85 at an annual rate of 7% during the period from and
including January 31, 1998 to but excluding the date of the closing of the ITT
Merger (February 23, 1998). The aggregate value of the ITT acquisition in cash,
Units and assumed debt was approximately $14.6 billion.
The Company accounted for the ITT Merger as a reverse purchase in
accordance with APB 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 Units 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 Units immediately after the ITT Merger was
consummated. The fair market value of the Units outstanding and available upon
conversion of the Partnership units held by Starwood Hotels' stockholders prior
to the ITT Merger and the Partnerships' unit holders, respectively (using the
stock price of $54.31 per Unit, based on the average of the high and low prices
per Unit of Starwood Hotels as reported on the New York Stock Exchange (the
"NYSE") on November 12, 1997), is used as the valuation basis for the
combination. The fair market value of the Units outstanding on February 23, 1998
(the ITT Merger closing date) immediately prior to giving effect to the ITT
Merger in excess of the net book value of the assets and liabilities of Starwood
Hotels has been allocated to plant, property and equipment and goodwill. The
goodwill is being amortized over a 40-year period. The Company has completed a
valuation of the assets acquired and liabilities assumed and has allocated the
excess of fair market value of the assets and liabilities based on that
valuation. The calculation of the excess of the fair
F-20
<PAGE> 86
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
market value of the Units over the book value of the Company's assets and
liabilities at February 23, 1998 is as follows (in millions):
<TABLE>
<S> <C>
Total Units and Partnership units outstanding prior to the
ITT Merger................................................ 80
Fair market value of the Company's Units using the stock
price of $54.31 (based on the average of the high and low
prices per Unit of Starwood Hotels as reported on the NYSE
on November 12, 1997)..................................... $ 4,361
Book value of the Company's combined consolidated equity.... (1,775)
Transaction-related fees and expenses....................... 37
Minority interest related to the Partnerships............... (152)
-------
Excess of fair market value of Units over the book value of
net assets................................................ $ 2,471
=======
</TABLE>
Because the acquisition of ITT is treated as a reverse purchase for
financial accounting purposes, the statements of operations, comprehensive
income and cash flows for the year ended December 31, 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 December 31, 1998 and the accounts of ITT
for the entire year ending December 31, 1998. Historical stockholders' equity of
the Company prior to the ITT Merger has been 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 Units and per share
amounts have been restated to reflect the impact of the reverse acquisition at
the conversion factor of 1.543 Units for each ITT Share acquired.
ACQUISITION OF WESTIN. On January 2, 1998, pursuant to a Transaction
Agreement dated as of September 8, 1997 (the "Transaction Agreement"), among
WHWE L.L.C., Woodstar Investor Partnership, Nomura Asset Capital Corporation,
Juergen Bartels, Westin Hotels & Resorts Worldwide, Inc. ("Westin Worldwide"),
W&S Lauderdale Corp. ("Lauderdale"), W&S Seattle Corp. ("Seattle"), Westin St.
John Hotel Company, Inc. ("St. John"), W&S Denver Corp. ("Denver"), W&S Atlanta
Corp. ("Atlanta" and, together with Westin Worldwide, Lauderdale, Seattle, St.
John and Denver, "Westin"), W&S Hotel L.L.C., the Trust, the Corporation and the
Partnerships, Starwood Hotels acquired Westin.
Pursuant to the terms of the Transaction Agreement,
(i) Westin Worldwide merged into the Trust (the "Westin Merger"). In
connection with the Westin Merger, all the issued and outstanding shares of
capital stock of Westin Worldwide (other than shares held by Westin
Worldwide and its subsidiaries or by the Company) were converted into an
aggregate of 6,285,783 Class A EPS and 5,294,783 Class B EPS and cash in
the amount of $177.9 million;
(ii) The stockholders of Lauderdale, Seattle and Denver contributed
all the outstanding shares of such companies to the Realty Partnership. In
exchange for such contribution and after giving effect to the deemed
exchange of certain units, the Realty Partnership issued to such
stockholders an aggregate of 470,309 limited partnership units of the
Realty Partnership and the Trust issued to such stockholders an aggregate
of 127,534 shares of Class B EPS. In addition, in connection with the
foregoing share contribution, the Realty Partnership assumed, repaid or
refinanced the indebtedness of Lauderdale, Seattle and Denver and assumed
$84.2 million of indebtedness incurred by the members of W&S Hotel L.L.C.
prior to such contributions; and
(iii) The stockholders of Atlanta and St. John contributed all the
outstanding shares of such companies to the Operating Partnership. In
exchange for such contribution and after giving effect to the deemed
exchange of certain units, the Operating Partnership issued to such
stockholders an aggregate of 312,741 limited partnership units of the
Operating Partnership and the Trust issued to such stockholders
F-21
<PAGE> 87
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
an aggregate of 80,415 shares of Class B EPS. In addition, in connection
with the foregoing share contributions, the Operating Partnership assumed,
repaid or refinanced indebtedness of Atlanta and St. John and assumed $3.4
million of indebtedness incurred by the members of W&S Hotel L.L.C. prior
to such contributions.
The aggregate principal amount of debt assumed or incurred by the Company
pursuant to the Westin Transaction Agreement was approximately $1.0 billion. The
Company accounted for the acquisition of Westin as a purchase in accordance with
APB No. 16. As such, the carrying values of the assets acquired and liabilities
assumed were recorded at fair market value resulting in goodwill and identified
intangibles of $1.1 billion.
The shares of Class A and Class B EPS and the limited partnership interests
issued in connection with the Westin Merger and the contribution of Seattle,
Lauderdale, Denver, St. John and Atlanta to the Partnerships are directly or
indirectly exchangeable on a one-for-one basis (subject to certain adjustments)
for Units (subject to the right of the Company to elect to pay cash in lieu of
issuing such shares). The limited partnership interests also are exchangeable on
a one-for-one basis for shares of Class B EPS. The shares of Class B EPS have a
liquidation preference of $38.50 per share and provide the holders with the
right, from and after the fifth anniversary of the closing date of the Westin
Merger, to require the Trust to redeem such shares at a price of $38.50.
OTHER HOTEL ACQUISITIONS. In May 1998, the Company acquired the 242-room
Danbury Hilton Hotel in Danbury, Connecticut for approximately $20 million in
cash.
In January 1998, the Company completed the acquisition of four
full-service, luxury properties located in Aspen, Colorado; New York, New York;
Washington, D.C.; and Houston, Texas for a total consideration of approximately
$348 million, consisting of $164 million in cash and 3.7 million Units, valued
for purposes of this transaction, at approximately $184 million.
UNAUDITED PRO FORMA RESULTS. The following unaudited pro forma information
reflects the ITT Merger, the acquisition of Westin and certain asset sales as if
they occurred on January 1, 1997 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 (in millions, except per Unit
data):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1998 1997
------ ------
<S> <C> <C>
Revenues.................................................... $4,857 $4,303
Income (loss) from continuing operations.................... $ 208 $ (283)
Net income (loss)........................................... $1,322 $ (311)
Basic income (loss) from continuing operations per Unit..... $ 1.04 $(1.52)
Diluted income (loss) from continuing operations per Unit... $ 1.03 $(1.52)
</TABLE>
NOTE 4. DISPOSITIONS
In January 1999, the Company sold the International Golf Club in Bolton,
Massachusetts for $25 million in net proceeds and will recognize a gain of $6
million in first quarter 1999.
The Company disposed of the following eight properties in May 1998 for a
total of approximately $245 million in cash: the 229-room Embassy Suites Phoenix
Airport in Phoenix, Arizona; the 224-room Tempe Embassy Suites in Tempe,
Arizona; the 198-room Palm Desert Embassy Suites in Palm Desert, California; the
233-room Embassy Suites Hotel in Atlanta, Georgia; the 297-room St. Louis
Embassy Suites in St. Louis, Missouri; the 308-room Doubletree Guest Suites in
Dallas-Ft. Worth International Airport, Texas; the 254-
F-22
<PAGE> 88
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
room Doubletree Guest Suites Cypress Creek in Ft. Lauderdale, Florida; and the
155-room Doubletree Guest Suites in Lexington, Kentucky. There was no gain or
loss recognized in connection with these dispositions as the fair market value
of the assets approximated the net book value at the time of the disposition.
In May 1998, the Company sold a Gulfstream V corporate aircraft for
approximately $39 million in cash. A gain of $2 million was recognized in
connection with this disposition.
During 1998, the Company sold four additional properties, including one
gaming property. No gain or loss was recognized in connection with these
dispositions.
In June 1997, ITT sold a 38.5% ownership interest in Madison Square Garden,
L.P. ("MSG") to Cablevision Systems Corporation ("Cablevision") for
approximately $500 million and recorded a pretax gain of approximately $200
million. ITT also had two "put" options each allowing ITT to require Cablevision
or MSG to purchase one-half of ITT's then continuing interest in MSG for $75
million. In addition, ITT contributed to MSG an ITT-owned aircraft which MSG had
used for the New York Knickerbockers basketball team and the New York Rangers
hockey team. In consideration of the aircraft contribution, Cablevision agreed
to increase the exercise price of each of ITT's "put" options by $19 million.
The Company exercised one "put" option in April 1998 for total consideration of
approximately $94 million, and the remaining "put" option is exercisable in June
1999.
During 1997, ITT sold its interest in the capital stock of Alcatel Alsthom.
Total proceeds from these sales were approximately $830 million, resulting in a
pretax gain of $183 million.
NOTE 5. DISCONTINUED OPERATIONS
ITT EDUCATIONAL SERVICES, INC. In June 1998, the Company sold
approximately 13.0 million shares of ITT Educational Services, Inc.
("Educational Services") in a public offering for net proceeds of approximately
$304 million. The Company recorded a gain of $253 million before income taxes
and minority interest of $103 million. Subsequent to this sale, the Company was
a minority holder in Educational Services and, as such, accounted for its
remaining interest under the equity method by recording its proportionate share
of net losses totaling $1 million for the period from June 1, 1998 to December
31, 1998. At December 31, 1998, the assets and liabilities of Educational
Services are included in net assets of discontinued operations in the
accompanying financial statements. Summary financial information of Educational
Services is as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
---- ----
<S> <C> <C>
BALANCE SHEET DATA
Total assets................................................ $36 $144
Total liabilities........................................... -- (71)
--- ----
Net assets of discontinued operations....................... $36 $ 73
=== ====
</TABLE>
F-23
<PAGE> 89
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
FIVE MONTHS DECEMBER 31,
ENDED ------------
MAY 31, 1998 1997 1996
----------------- ---- ----
<S> <C> <C> <C>
INCOME STATEMENT DATA
Revenues.................................................... $114 $262 $232
Operating income............................................ $ 12 $ 27 $ 21
Interest income............................................. $ 2 $ 5 $ 4
Miscellaneous expense, net.................................. $ -- $ -- $ 1
Income tax expense.......................................... $ 6 $ 13 $ 10
Minority equity............................................. $ 1 $ 3 $ 2
Earnings from discontinued operations....................... $ 7 $ 16 $ 12
</TABLE>
In February 1999, the Company completed the sale of its remaining interest
in Educational Services, selling 8.0 million shares of common stock of
Educational Services in an underwritten public offering at a price per share of
$34.00. Concurrently, Educational Services repurchased the Company's remaining
1.5 million shares of Educational Services common stock at $32.73 per share.
Starwood Hotels received aggregate net proceeds of approximately $310 million
from these transactions, which were used to repay a portion of the Company's
outstanding debt. The Company will recognize a gain of $268 million, before
taxes and minority interest, on the sale in the first quarter of 1999.
ITT WORLD DIRECTORIES. In February 1998, the Company disposed of ITT World
Directories ("WD"), the subsidiary through which ITT conducted its telephone
directories publishing business, to VNU International B.V., a leading
international publishing and information company based in the Netherlands, for
gross consideration of $2.1 billion. The Company recorded a gain of $1,530
million before income taxes of $558 million on the disposition. Interest expense
and debt related to the disposition of WD was allocated to discontinued
operations. The assets and liabilities of WD are included in net liabilities of
discontinued operations in the accompanying financial statements as of December
31, 1997. Summary financial information of WD is as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
BALANCE SHEET DATA
Total assets................................................ $ 562
Total liabilities........................................... (829)
Allocated debt of ITT....................................... (1,333)
-------
Net liabilities of discontinued operations.................. $(1,600)
=======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD FROM DECEMBER 31,
JANUARY 1, 1998 TO ------------
FEBRUARY 19, 1998 1997 1996
------------------ ---- ----
<S> <C> <C> <C>
INCOME STATEMENT DATA
Revenues.................................................... $ 8 $586 $647
Operating income (loss)..................................... $ (8) $192 $208
Interest expense, net....................................... $ 14 $130 $138
Miscellaneous expense, net.................................. $ -- $ 7 $ 1
Income tax (benefit) expense................................ $ (7) $ 25 $ 27
Minority equity............................................. $ (1) $ 21 $ 31
Earnings (losses) from discontinued operations.............. $(14) $ 9 $ 11
</TABLE>
F-24
<PAGE> 90
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1997, ITT changed its method of accounting for
start-up costs on major hospitality and gaming projects to expense these costs
as incurred. Prior to 1997, the Company capitalized these costs and amortized
them over a three-year period. ITT's 1997 results include a charge of $17
million before income taxes of $6 million as the cumulative effect of this
accounting change. In connection with the ITT Merger, the Company elected to
follow ITT's accounting treatment for start-up costs and, as such, is expensing
start-up costs as incurred.
NOTE 7. EXTRAORDINARY ITEM
During 1997, ITT announced the tender offer for $546 million of debt
securities of a subsidiary company. The tender offer was financed through
short-term bank facilities. The tender offer resulted in ITT paying a tender
premium of $42 million after tax ($78 million pretax) which was recorded in 1997
as an extraordinary loss on the early retirement of debt.
NOTE 8. RESTRUCTURING AND OTHER SPECIAL CHARGES
During 1998, the Company recorded pretax charges totaling approximately
$204 million relating to restructuring and other special charges. The charges
represent a portion of the restructuring and other special charges announced by
the Company in August 1998.
The 1998 restructuring and other special charges consist of the following
(in millions):
<TABLE>
<CAPTION>
NON-CASH CASH EXPENDITURES
CHARGES EXPENDITURES ACCRUED TOTAL
-------- ------------ ------------ -----
<S> <C> <C> <C> <C>
Write-down of assets............................. $115 $-- $ -- $115
ITT Merger-related costs......................... 10 59 43 112
Adjustment to ITT 1997 other special charges..... -- -- (23) (23)
---- --- ---- ----
Total.................................. $125 $59 $ 20 $204
==== === ==== ====
</TABLE>
WRITE-DOWN OF ASSETS. The restructuring and other special charges for the
write-down of assets include an investment in a hotel in Kuala Lampur, Malaysia;
a mortgage note receivable secured by a hotel in Paris, France; an investment in
a shared services center established by ITT in 1997 which was closed by the
Company following the ITT Merger; and certain receivable balances in the
Company's gaming division primarily related to Asian customers. Substantially
all of these assets were ITT assets and were written down primarily as a result
of certain worldwide economic conditions indicating a reduced value for these
assets.
ITT MERGER-RELATED COSTS. The restructuring and other special charges
include costs related to the ITT Merger consisting primarily of severance
payments and relocation costs for ITT employees and certain costs to integrate
the companies, including costs to integrate the Company's frequent guest
programs and to close down duplicate facilities. The Company expects to pay out
the remaining balance of $43 million during 1999.
ADJUSTMENT TO ITT 1997 OTHER SPECIAL CHARGES. During the fourth quarter of
1998, the Company reversed approximately $23 million in special charges related
to a liability set up during 1997 by ITT for tax reimbursements that will not be
paid due to modifications of contractual agreements with certain former
employees. The remaining balance of $62 million will be paid out in 1999 subject
to resolution of certain contract terms.
1998 OTHER SPECIAL CHARGES. In addition, during the third quarter of 1998,
the Company recorded a non-recurring charge to selling, general and
administrative expense of approximately $30 million primarily associated with
the vesting, during the quarter, of certain restricted stock granted earlier in
the year to the new
F-25
<PAGE> 91
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
President and Chief Executive Officer of the Corporation. Also during 1998, the
Company recorded a $40 million non-recurring charge to interest expense
associated with the settlement of certain forward interest swap agreements (see
Note 22).
ITT 1997 RESTRUCTURING AND OTHER SPECIAL CHARGES. As a result of the ITT
Merger, ITT recorded the following special charges in 1997: (1) conversion of
the accounting for ITT's stock option plan to variable accounting due to limited
stock appreciation rights subject to exercise and related charges for tax
reimbursements to employees of $431 million, and (2) other costs including legal
fees, investment banking fees and asset write-offs totaling $169 million which
are included in miscellaneous expense, net. The employee-related costs and the
restructuring charges are included as a component of operating income in the
accompanying financial statements, while the other costs are included in
miscellaneous expense, net.
Additionally, during 1997, ITT recorded pretax charges totaling $260
million ($169 million after tax) to restructure and rationalize operations at
its World Headquarters and the headquarters of its field operations. Of the
total pretax charge, approximately $196 million represented severance and other
related employee termination costs associated with the elimination of nearly 370
positions worldwide. The balance of the restructuring charge ($64 million
pretax) related primarily to asset write-offs, lease commitments and termination
penalties.
At December 31, 1998, the Company has remaining accruals related to these
restructuring and other special charges of approximately $163 million primarily
related to remaining lease commitments which expire through 2006, the settlement
of certain employee benefits scheduled to be completed in the first quarter of
2000 and the tax reimbursements to certain former employees discussed
previously.
NOTE 9. INVESTMENTS
Investments consisted of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
---- ----
<S> <C> <C>
Equity in WBIS+............................................. $ -- $119
Equity in and advances to hotel partnerships and joint
ventures.................................................. 366 230
Other investments at cost................................... 18 19
---- ----
$384 $368
==== ====
</TABLE>
Equity in earnings of unconsolidated subsidiaries accounted for on the
equity basis were $30 million, $14 million and $8 million in 1998, 1997 and
1996, respectively.
In January 1999, Starwood Hotels purchased a 25% interest in the Moriah
Hotels ("Moriah") in Israel for approximately $20 million. This investment will
be accounted for under the equity method of accounting. Moriah currently owns
five hotels which will be managed by Starwood Hotels: the 292-room Moriah Plaza
Jerusalem, the 215-room Moriah Plaza Dead Sea, the 306-room Moriah Plaza Eilat,
the 265-room Moriah Plaza Tel Aviv and the 265-room Moriah Plaza Tiberias.
In July 1998, the Company acquired a 95% non-controlling interest in the
760-room Westin Maui in Maui, Hawaii for approximately $132 million.
In March 1998, the Company and Dow Jones & Company, Inc. sold WBIS+,
Channel 31 in New York City, to Paxson Communications Corporation for a total
cash purchase price of approximately $258 million; approximately $128 million
was received by the Company, resulting in a pretax gain of $6 million.
F-26
<PAGE> 92
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The fair market value of investments is based on the market prices for the
last day of the period if the investment trades on quoted exchanges. For
non-traded investments, fair value is estimated based on the underlying value of
the investment. The carrying value of other investments approximates fair value
based on market prices and the value of the underlying collateral.
NOTE 10. PLANT, PROPERTY AND EQUIPMENT
Plant, property and equipment consisted of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- ------
<S> <C> <C>
Land and improvements....................................... $ 1,682 $1,178
Buildings and improvements.................................. 7,422 2,823
Furniture, fixtures and equipment........................... 1,640 1,009
Construction work in process................................ 247 599
------- ------
10,991 5,609
Less accumulated depreciation and amortization.............. (1,141) (777)
------- ------
$ 9,850 $4,832
======= ======
</TABLE>
NOTE 11. NET ASSETS HELD FOR SALE
At December 31, 1998, the Company's hotel portfolio included two hotel
properties held for sale: the 155-room Tyee Hotel in Olympia, Washington and the
259-room Four Points Hotel in Wichita, Kansas. These properties were included in
net assets held for sale in the accompanying balance sheets.
In 1997, ITT announced its intention to sell one of its gaming properties,
the Desert Inn Resort & Casino in Las Vegas, Nevada, and its investment in MSG.
For financial reporting purposes, the assets and liabilities attributable to
this property and investment have been included in net assets held for sale as
of December 31, 1998 and 1997. In March 1999, the Company entered into an
agreement to dispose of its remaining interest in MSG for net proceeds of $87
million.
There can be no assurance that these sales will occur or, if they occur, as
to the timing of such sales. Management will evaluate its alternatives in the
event a decision is made to change its current intention to sell these
properties.
NOTE 12. OTHER ASSETS
Other assets include long-term receivables of $282 million and $281 million
at December 31, 1998 and 1997, respectively, which are net of allowance for
doubtful accounts of $33 million and $57 million, respectively. These long-term
receivables exclude current maturities of $42 million and $28 million,
respectively, which are included in accounts receivable. Total unsecured and
secured long-term receivables totaled $156 million and $201 million,
respectively, as of December 31, 1998 and $279 million and $87 million,
respectively, as of December 31, 1997.
NOTE 13. ACCRUED EXPENSES
Accrued expenses include accrued restructuring and other special charges of
$172 million and $674 million, salaries, wages and benefits of $160 million and
$83 million and accrued interest of $59 million and $36 million as of December
31, 1998 and 1997, respectively. The remaining balance of $498 million and $285
million as of December 31, 1998 and 1997, respectively, represents other accrued
expenses including, but not limited to, legal costs and insurance.
F-27
<PAGE> 93
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14. INCOME TAXES
As discussed in Note 2, the trust is not currently subject to income taxes.
Accordingly, the following income tax data from continuing operations of the
Corporation is as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
Pretax income (loss)
U.S. ..................................................... $(517) $(255) $310
Foreign................................................... 137 153 96
----- ----- ----
$(380) $(102) $406
===== ===== ====
Provision (benefit) for income tax
Current:
U.S. federal.............................................. $ 27 $ 201 $ 96
State and local........................................... 4 15 11
Foreign................................................... 54 57 29
----- ----- ----
85 273 136
----- ----- ----
Deferred:
U.S. federal.............................................. (211) (143) 22
Foreign and other......................................... 17 29 15
----- ----- ----
(194) (114) 37
----- ----- ----
$(109) $ 159 $173
===== ===== ====
</TABLE>
No provision was made for U.S. taxes payable on undistributed foreign
earnings amounting to approximately $194 million since these amounts are
permanently reinvested.
Deferred income taxes represent the tax effect of the differences between
the book and tax bases of assets and liabilities. Deferred tax assets
(liabilities) include the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1998 1997
------------------ ------------------
U.S. FOREIGN U.S. FOREIGN
FEDERAL & OTHER FEDERAL & OTHER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Plant, property and equipment........................... $(224) $(111) $(183) $(91)
Allowances for doubtful accounts and other reserves..... 57 -- 58 --
Employee benefits....................................... 66 -- 38 --
Deferred gain........................................... (517) -- -- --
Net operating loss carryforwards........................ 211 -- -- --
Transaction costs....................................... 18 -- 159 --
Other................................................... 2 (2) (9) (5)
----- ----- ----- ----
(387) (113) 63 (96)
Less valuation allowance................................ (109) -- (64) --
----- ----- ----- ----
Deferred income taxes................................... $(496) $(113) $ (1) $(96)
===== ===== ===== ====
</TABLE>
At December 31, 1998, the Corporation has net operating loss carryforwards
of approximately $534 million for federal income tax purposes. Such
carryforwards, which may provide future tax benefits, expire in 2018.
F-28
<PAGE> 94
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the tax provision of the Corporation at the U.S.
statutory rate to the provision for income tax as reported is as follows (in
millions):
<TABLE>
<CAPTION>
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Tax provision (benefit) at U.S. statutory rate.............. $(133) $(36) $142
Tax on repatriation of foreign earnings..................... (5) 21 1
Non-deductible goodwill..................................... 29 10 10
Foreign tax rate differential............................... 9 (1) 6
U.S. state and local income taxes........................... 5 24 8
Transaction costs........................................... (21) 89 --
Deferred asset valuation allowance.......................... -- 64 --
Other....................................................... 7 (12) 6
----- ---- ----
Provision (benefit) for income tax.......................... $(109) $159 $173
===== ==== ====
</TABLE>
NOTE 15. DEBT
Short-term borrowings and long-term debt consisted of the following (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------ -------
<S> <C> <C>
Short-term borrowings, including $1 billion asset sale
bridge.................................................... $ 657 $ 258
Long-term debt.............................................. 8,148 3,043
------ -------
8,805 3,301
Less net debt allocated to discontinued operations.......... -- (1,333)
------ -------
$8,805 $ 1,968
====== =======
</TABLE>
The weighted average interest rate for short-term borrowings was 5.87% and
6.71% at December 31, 1998 and 1997, respectively, and their fair values
approximated carrying value given their short-term nature. This average is
composed of interest rates on both U.S. dollar and non-U.S. dollar denominated
indebtedness.
Long-term debt including capital leases consisted of the following (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------ -------
<S> <C> <C>
$3.1 Billion Facility:
$1 billion five-year term loan............................ $1,000 $ --
$1.1 billion five-year revolver........................... 814 --
IRN Facility I.............................................. 2,500 --
IRN Facility II............................................. 1,000 --
Revolving credit agreement (6.16% weighted average)......... -- 600
6.25% notes due 2000........................................ 699 699
6.75% notes due 2003........................................ 250 250
6.75% notes due 2005........................................ 449 449
7.375% debentures due 2015.................................. 448 448
7.75% debentures due 2025................................... 148 148
8.875% senior subordinated notes due 2002................... 150 150
6.3%-10.0% domestic loans due 1999-2013..................... 481 44
4.75%-18.45% foreign loans due 1999-2009.................... 209 255
------ -------
8,148 3,043
Less indebtedness classified in net liabilities of
discontinued operations................................... -- (1,333)
Less current maturities..................................... (37) (640)
------ -------
$8,111 $ 1,070
====== =======
</TABLE>
F-29
<PAGE> 95
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate long-term debt maturities for each of the years ending December
31 are as follows (in millions):
<TABLE>
<CAPTION>
LONG-TERM CAPITAL
DEBT LEASES TOTAL
--------- ------- ------
<S> <C> <C> <C>
1999........................................................ $ 24 $14 $ 38
2000........................................................ 899 12 911
2001........................................................ 243 9 252
2002........................................................ 777 3 780
2003........................................................ 4,833 1 4,834
Thereafter.................................................. 1,336 -- 1,336
------ --- ------
8,112 39 8,151
Less amounts representing interest.......................... -- (3) (3)
------ --- ------
$8,112 $36 $8,148
====== === ======
</TABLE>
On February 23, 1998, the Company obtained two credit facilities ($5.6
billion in total) with Lehman Commercial Paper Inc., Bankers Trust Company and
The Chase Manhattan Bank to fund the cash portion of the ITT Merger
consideration, to refinance a portion of the Company's existing indebtedness
(including indebtedness outstanding under the $2.2 billion credit facility
entered into in connection with the Westin Merger) and to provide funds for
general corporate purposes. These facilities are comprised of a $3.1 billion
senior secured credit facility (the "$3.1 Billion Facility") and a $2.5 billion,
five-year secured increasing rate notes facility (the "IRN Facility I").
The $3.1 Billion Facility has three tranches: a $1.0 billion, one-year term
loan; a $1.0 billion, five-year term loan; and a $1.1 billion, five-year
revolving credit facility. The Corporation, the Trust and certain of their
respective direct and indirect subsidiaries may be designated as borrowers or
co-borrowers under all or a portion of the $3.1 Billion Facility. The interest
rate for the $3.1 Billion Facility was one-, two- or three-month LIBOR, at the
Company's option, plus a margin of 125 basis points at December 31, 1998. The
margin is determined pursuant to a pricing "grid" with rates based on the
Company's leverage and/or senior unsecured debt rating. Quarterly amortization
of the five-year term loan begins in the third year, with total amortization of
10%, 20% and 70% of the principal amount over the third, fourth and fifth year,
respectively. Repayment of amounts borrowed under the $3.1 Billion Facility is
guaranteed by the Trust, the Corporation and substantially all their respective
significant subsidiaries (including the Partnerships) other than gaming and
foreign subsidiaries and joint venture entities (the "Guarantor Subsidiaries"),
to the extent such entities are not borrowers or co-borrowers, and is secured by
a pledge of all the capital stock, partnership interests and other equity
interests of the Guarantor Subsidiaries.
The IRN Facility I consists of a single drawdown, increasing rate,
non-amortizing five-year term loan for $2.5 billion. The Corporation is the
borrower under the IRN Facility I; the Trust and all Guarantor Subsidiaries are
guarantors of the IRN Facility I. The IRN Facility I is secured equally and
ratably by all the collateral securing the $3.1 Billion Facility and is pari
passu in right of payment with all other senior indebtedness of the borrower and
the Guarantor Subsidiaries, including the $3.1 Billion Facility. Amounts
borrowed under the IRN Facility I bore interest at one-, two- or three-month
LIBOR plus 325 basis points at December 31, 1998, with the interest rate
increasing by 50 basis points every three months thereafter, up to a maximum
rate of one-, two- or three-month LIBOR plus 375 basis points.
In September 1998, the Company entered into a new $1 billion, five-year
term borrowing facility ("IRN Facility II" and, together with IRN Facility I,
the "IRN Facilities"). IRN Facility II bears interest at one-, two- or
three-month LIBOR plus 275 basis points at December 31, 1998. The Corporation is
the borrower under the IRN Facility II; the Trust and all Guarantor Subsidiaries
are guarantors of the IRN Facility II. The
F-30
<PAGE> 96
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
IRN Facility II is secured equally and ratably by all the collateral securing
the $3.1 Billion Facility and is pari passu in right of payment with all other
senior indebtedness of the borrower and the Guarantor Subsidiaries, including
the $3.1 Billion Facility.
The Company maintains lines of credit under which bank loans and other
short-term debt are drawn. In addition, smaller credit lines are maintained by
the Company's foreign subsidiaries. The Company had approximately $390 million
of available borrowing capacity under the revolving credit agreements as of
December 31, 1998.
The Company is subject to certain restrictive debt covenants under its
short-term borrowing and long-term debt obligations including defined financial
covenants, escrow account funding requirements for capital purchases and tax
payments, limitations on capital expenditures and on the Company's right to
incur further debt, and restrictions on transactions with affiliates and related
persons. The Company was in compliance with all of the short-term borrowing and
long-term debt obligation covenants at December 31, 1998.
In January 1999, the Company completed a $542 million long-term financing
(the "Mortgage Loan"), secured by mortgages on a portfolio of 11 hotels. The
Mortgage Loan bears interest at a blended rate of 6.98%. The Mortgage Loan is
due in February 2009 and the proceeds from the Mortgage Loan were used to pay
down the one-year term loan under the $3.1 Billion Facility.
For adjustable rate debt, fair value approximates carrying value due to the
variable nature of the interest rates. For fixed rate debt, fair value is
determined based upon discounted cash flows for the debt at rates deemed
reasonable for the type of debt and prevailing market conditions and, if
appropriate, the length to maturity for the debt. The estimated fair value of
long-term debt at December 31, 1998 and 1997 was $8.7 billion and $3.0 billion,
respectively, and was determined based on quoted market prices and/or discounted
cash flows using the Company's incremental borrowing rates for similar
arrangements.
NOTE 16. EMPLOYEE BENEFIT PLANS
PENSION AND POSTRETIREMENT BENEFIT PLANS. The Company and its subsidiaries
sponsor numerous pension plans. The ITT plans are funded with trustees, except
in some countries outside the U.S. where funding is not required. The ITT plan's
assets are comprised of a broad range of domestic and foreign equity securities,
fixed income investments, and real estate. The Westin Supplemental Executive
Retirement Plan is a non-contributory, non-qualified plan that provides benefits
for certain executives. The plan is unfunded apart from general assets of the
Company.
The Company also sponsors multiple non-pension postretirement benefit
plans. The ITT plans provide health care and life insurance benefits for certain
eligible retired employees. The Company has prefunded a portion of the health
care and life insurance obligations through trust funds where such prefunding
can be accomplished on a tax effective basis. The Westin plan covers certain
eligible retired employees. The plan provides medical and dental benefits, and
is a contributory plan, with retiree contributions adjusted annually. The plan
also contains other cost-sharing features such as deductibles and coinsurance.
The Company funds the health plan on a pay-as-you-go basis.
The following table sets forth the benefit obligation, fair value of plan
assets, and the funded status of the Company's pension and other benefit plans,
amounts recognized in the Company's combined consolidated balance sheets at
December 31, 1998 and 1997, and the principal weighted average assumptions
inherent in their determination (amounts are in millions).
F-31
<PAGE> 97
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOREIGN PENSION
PENSION BENEFITS BENEFITS OTHER BENEFITS
---------------- --------------- --------------
1998 1997 1998 1997 1998 1997
------ ------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year...... $278 $232 $ 152 $150 $ 27 $ 30
Service cost............................... 17 16 6 11 1 1
Interest cost.............................. 19 19 5 9 2 2
Actuarial loss............................. 47 19 4 89 8 1
Divestitures............................... (1) -- (72) -- -- --
Curtailments............................... (68) -- (1) -- -- (4)
Settlements................................ -- -- (2) (3) -- (2)
Effect of foreign exchange rates........... -- -- 1 (12) -- --
Special termination benefits............... 6 -- -- -- -- --
Benefits paid.............................. (9) (8) (13) (92) (2) (1)
---- ---- ----- ---- ---- ----
Benefit obligation at end of year............ $289 $278 $ 80 $152 $ 36 $ 27
==== ==== ===== ==== ==== ====
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of $227 $183 $ 152 $143 $ 19 $ 23
year.......................................
Actual return on plan assets............... 12 45 4 18 1 4
Employer contribution...................... 13 7 11 97 2 (4)
Divestitures............................... (3) -- (107) -- -- --
401(h) transfer............................ -- -- -- -- -- 1
Settlements................................ -- -- (2) -- -- (4)
Effect of foreign exchange rates........... -- -- 2 (14) -- --
Benefits paid.............................. (9) (8) (13) (92) (2) (1)
---- ---- ----- ---- ---- ----
Fair value of plan assets at end of year..... $240 $227 $ 47 $152 $ 20 $ 19
==== ==== ===== ==== ==== ====
Funded status................................ $(49) $(51) $ (33) $ -- $(16) $ (8)
Unrecognized net actuarial (gain)loss...... (12) (18) 8 (26) (1) (12)
Unrecognized prior service cost............ -- 17 2 2 (2) (3)
Unrecognized net transition obligation..... -- (1) (1) (1) -- --
---- ---- ----- ---- ---- ----
Accrued benefit cost......................... $(61) $(53) $ (24) $(25) $(19) $(23)
==== ==== ===== ==== ==== ====
Amounts recognized in the combined
consolidated balance sheet consist of:
Prepaid benefit cost....................... $ 3 $ 3 $ 6 $ 11 $ -- $ --
Accrued benefit cost....................... (64) (56) (30) (36) (19) (23)
Additional minimum liability............... (2) -- -- -- -- --
Adjustment for purchase accounting......... -- -- -- -- -- 3
Accumulated other comprehensive income..... 2 -- -- -- -- --
---- ---- ----- ---- ---- ----
Net amount recognized at end of year......... $(61) $(53) $ (24) $(25) $(19) $(20)
==== ==== ===== ==== ==== ====
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER
31
Discount rate................................ 6.50% 7.25% 5.88% 6.67% 6.50% 7.25%
Expected return on plan assets............... 9.75% 9.75% 7.00% 7.82% 9.75% 9.75%
Rate of compensation increase................ 5.00% 5.00% 3.20% 4.12% 4.50% 4.50%
</TABLE>
F-32
<PAGE> 98
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For measurement purposes, a 6.80% to 7.00% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 1998. The rate
was assumed to decrease gradually to 5.00% for 2001 for the ITT plans, and 2007
for the Westin plan, and remain at that level thereafter.
<TABLE>
<CAPTION>
FOREIGN PENSION
PENSION BENEFITS BENEFITS OTHER BENEFITS
------------------ ------------------ ------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost.................................. $ 17 $ 16 $ 15 $ 6 $ 11 $ 11 $ 1 $ 1 $ 1
Interest cost................................. 19 19 16 5 9 9 2 2 2
Expected return on plan assets................ (18) (16) (15) (5) (11) (10) (2) (2) (2)
Amortization of:
Prior service cost.......................... 1 2 2 -- -- -- -- -- --
Actuarial (gain) loss....................... 1 -- -- -- -- -- -- (1) (1)
---- ---- ---- --- ---- ---- --- --- ---
SFAS 87 cost/SFAS 106 cost.................... 20 21 18 6 9 10 1 -- --
---- ---- ---- --- ---- ---- --- --- ---
SFAS 88 charges:
Special termination benefit charge
(credit).................................. (1) -- -- -- -- -- -- -- --
Curtailment charge (credit)................. 2 -- -- (1) -- -- -- (3) --
Settlement charge (credit).................. -- -- -- 5 (3) 2 -- 1 --
---- ---- ---- --- ---- ---- --- --- ---
Net periodic benefit cost..................... $ 21 $ 21 $ 18 $10 $ 6 $ 12 $ 1 $(2) $--
==== ==== ==== === ==== ==== === === ===
</TABLE>
<TABLE>
<CAPTION>
FOREIGN PENSION
PENSION BENEFITS BENEFITS
---------------- ----------------
1998 1997 1998 1997
----- ----- ---- ----
<S> <C> <C> <C> <C>
Plans with ABO exceeding assets at end of year:
ABO...................................................... $33 $26 $29 $34
PBO...................................................... $-- $-- $32 $37
Fair value of plan assets................................ $-- $-- $-- $ 2
</TABLE>
Educational Services was spun off from the ITT Corporation Salaried
Retirement Plan in June 1998 resulting in a release of future pension
obligations. WD was spun off from the Salaried Plan in February 1998 resulting
in a release of all pension obligations along with approximately $110 million of
plan assets. The curtailment and special termination benefit amounts resulting
from these two spin-offs, as well as the charges triggered by the change in
control provisions, are presented in accordance with SFAS No. 88, Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Terminated Benefits.
Effective February 23, 1999 all future accruals of defined benefits will be
eliminated under the ITT Corporation Salaried Retirement Plan and the ITT
Sheraton Corporation Pension Plan for Hourly Employees. The Westin Hotel Company
Supplemental Executive Retirement Plan was closed to future participation on
October 1, 1998, and all future accruals of defined benefits will be eliminated
effective February 23, 1999. The Caesars World Inc. Executive Security Plan
future accruals for all but a few employees will be eliminated effective
February 23, 1999. Curtailment accounting was done at September 30, 1998, based
on beginning of year estimates for all plans except the ITT Corporation Salaried
Retirement Plan, which was remeasured as of September 30, 1998.
The postretirement medical and life plans will also be frozen February 23,
1999, with certain protections for "grandfathered" groups. Gains and losses
associated with these changes are expected to be relatively small.
F-33
<PAGE> 99
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects (in
millions):
<TABLE>
<CAPTION>
1% 1%
INCREASE DECREASE
-------- --------
<S> <C> <C>
Effect on total of service and interest cost components..... $-- $--
Effect on the postretirement benefit obligation............. $1 $(1)
</TABLE>
DEFINED CONTRIBUTION PLANS. The Company sponsors numerous 401(k) plans,
which are voluntary defined contribution plans allowing participation by
domestic employees that meet certain age and service requirements. Each
participant may contribute on a pretax basis between 1% and 16% of his or her
compensation to the plans. The plans also contain additional provisions for
matching and/or profit sharing contributions, both of which are based on a
portion of a participant's eligible compensation. The amount of expense for
matching and profit sharing contributions totaled $15.3 million in 1998, $10
million in 1997 and $10 million in 1996.
NOTE 17. LEASES AND RENTALS
At December 31, 1998, the Trust owned equity interests in 102 hotels, of
which 90 properties were owned and 12 were held pursuant to long-term leases.
All of the Trust's hotels are leased to the Corporation as of December 31,
1998. The leases between the Trust and the Corporation are generally long-term
and provide for annual base, or minimum rents, plus contingent, or percentage
rents based on the gross revenues of the properties and are accounted for as
operating leases. The leases are "triple-net" in that the lessee is generally
responsible for paying all operating expenses of the properties, including
maintenance, insurance and real property taxes. The lessee is also generally
responsible for any payments required pursuant to underlying ground leases. The
Corporation is committed under its leases with the Trust to pay the rents
payable with respect to ground leases. Total rental expense incurred by the
Corporation under such leases was approximately $386 million for the year ended
December 31, 1998, of which approximately $100 million related to percentage
rent.
The Corporation's minimum future rents at December 31, 1998 payable under
non-cancelable operating leases with the Trust and with others for the years
ended December 31 are as follows (in millions):
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Trust....................................... $340 $248 $ 71 $15 $10 $ 60
Other....................................... 42 40 36 32 31 276
---- ---- ---- --- --- ----
Total....................................... $382 $288 $107 $47 $41 $336
==== ==== ==== === === ====
</TABLE>
The Corporation leases certain equipment for the hotels' operations under
various lease agreements. The leases extend for varying periods through 2023 and
generally are for a fixed amount each month. Future minimum lease payments under
the non-cancelable operating leases are included in the other minimum future
rents above.
Rent expense under other non-cancelable operating leases was $45 million,
$39 million and $47 million in 1998, 1997 and 1996, respectively.
The Trust's rents receivable from the Corporation relating to leased hotel
properties at December 31, 1998 was $20 million.
F-34
<PAGE> 100
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Corporation is committed under its leases with the Trust to pay rents
payable with respect to ground leases, which expire in 1999 through 2069,
including renewal options. The ground leases generally provide for a minimum
rent plus a percentage of gross revenues of the properties in excess of the
minimum rent. Future minimum lease payments under the ground leases for the
years ending December 31, 1999 through December 31, 2003 are $9 million each
year and $235 million thereafter. Rent expense, inclusive of percentage rents,
incurred by the Corporation, as the operator under the ground leases, was
approximately $15 million in 1998.
NOTE 18. MINORITY INTEREST
At December 31, 1998, minority interest includes 7.7% and 18.8%
respectively, of limited partnership interest of the Realty Partnership and the
Operating Partnership, and certain other interests in consolidated joint
ventures. The total number of limited partnership units outstanding in the
Realty Partnership and the Operating Partnership at December 31, 1998 was 10.5
million and 10.3 million, respectively. The limited partnership units are
exchangeable on a one-for-one basis for Units. During 1998, approximately 1.5
million limited partnership interests were converted into an equal number of
Units.
NOTE 19. EQUITY PUT OPTIONS
As a part of its share repurchase program, defined below, the Company sold
equity put options during 1998 that entitle the holder, at the expiration date,
to sell Units to the Company at contractually specified prices. The Company
issued put options for the purchase of one million Units for $1.8 million in
premiums. As of December 31, 1998, none of the equity put options had been
exercised and equity put options with an aggregate exercise price of
approximately $32 million for one million Units remained outstanding at strike
prices ranging from $30.24 to $32.95 with expiration dates through March 1999.
The exercise price is included in temporary equity in the accompanying financial
statements. In the event the options are exercised, the Company is required to
deliver the full stated amount of cash to the put holder for the full stated
number of Units. The Company may elect, under certain circumstances, to pay the
put holder in cash or shares equal to fair market value of the difference
between the strike price and the market price of the Units.
In the first quarter of 1999, the Company settled certain outstanding
equity put options by purchasing 500,000 outstanding Units at an average strike
price of $32.04.
NOTE 20. STOCKHOLDERS' EQUITY
SHARE REPURCHASES. In 1998, the Board of Directors of the Company approved
the repurchase of up to $1 billion of Units (the "Share Repurchase Program").
Pursuant to the Share Repurchase Program, the Company repurchased approximately
10.1 million Units in the open market at an average purchase price of $36.70
during 1998.
FORWARD EQUITY TRANSACTIONS. Pursuant to a Purchase Agreement dated
October 10, 1997, the Company sold to UBS Limited ("UBS Ltd.") 2.185 million
Units ("UBS Shares") at a cash price of $57.25 per share, and paid to Warburg
Dillon Read LLC (formerly UBS Securities LLC), an affiliate of UBS Ltd., a
placement fee equal to 2.5% of the gross proceeds to the Company from such sale
of shares. Concurrently therewith, the Company entered into an agreement that
provided for a settlement payment to be made, in the form of Units or cash, by
the Company to an affiliate of Union Bank of Switzerland, London Branch, or by
that affiliate to the Company, based on the market price of the Units over a
specified "unwind period," as compared to a "forward price." The Company settled
its obligations under this agreement in September 1998 by repurchasing the UBS
Shares for approximately $130.3 million in cash. As a result of this settlement,
the Company has no further obligations under this agreement and Units were
reduced by approximately 2.185 million.
F-35
<PAGE> 101
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On February 24, 1998, the Trust and the Corporation sold an aggregate of
4.641 million Units to Merrill Lynch International, NMS Services, Inc., Lehman
Brothers Inc. and certain affiliates for a cash purchase price per Unit of
$52.798, which price reflected a 2% discount from the last reported sale price
of the Units on the date of the purchase. Concurrently with these sales, the
Trust and the Corporation entered into three separate agreements with these
purchasers and/or certain of their affiliates pursuant to which each of these
purchasers or their respective affiliates agreed to sell, as directed by the
Trust and the Corporation in an underwritten fixed price offering or other
specified methods, a sufficient number of the Units to achieve net sales
proceeds equal to the aggregate market value of the Units purchased in February
1998, plus a forward accretion component, minus an adjustment for dividends paid
on the purchased Units. Additional Units were required to be delivered by the
Company as security in the event the market prices of the Units dropped below
certain specified levels. In October 1998, the Company settled its obligations
under these agreements by repurchasing all of the Units issued to these
purchasers for an aggregate of approximately $255 million in cash. As a result
of this settlement, the Company has no further obligations under these
agreements and Units outstanding were reduced by approximately 7.379 million
(4.641 million original Units issued and 2.738 million Units previously issued
as security).
EXCHANGEABLE PREFERRED SHARES. During 1998, 6.3 million shares of Class A
EPS and 5.5 million shares of Class B EPS were issued by the Trust in connection
with the Westin Merger. Class A EPS have a par value of $0.01 per share and are
convertible on a one-for-one basis (subject to certain adjustments) to Units.
Class B EPS have a liquidation preference of $38.50 per share and provide the
holders with the right, from and after the fifth anniversary of the closing date
of the Westin Merger, to require the Trust to redeem such shares at a price of
$38.50. Shares of Class B EPS are convertible on a one-for-one basis (subject to
certain adjustments) to Class A EPS. During 1998, the Trust consented to the
conversion of approximately 1.3 million shares of Class B EPS by certain
stockholders into an equal number of shares of Class A EPS; stockholders
thereafter converted approximately 3.2 million shares of Class A EPS into an
equal number of Units. Additionally, approximately 0.3 million Class B EPS were
canceled in satisfaction of certain employee tax withholding liabilities which
were paid by the Company. At December 31, 1998, the Trust had 150 million
preferred shares authorized and 4.4 million and 3.9 million of Class A EPS and B
EPS outstanding, respectively.
NOTE 21. STOCK INCENTIVE PLANS
The Trust and the Corporation each adopted Incentive and Non-Qualified
Share Option Plans in 1986 which provided for the purchase of up to an aggregate
of 175,000 Units by Trustees, Directors, officers and employees pursuant to
option grants. At December 31, 1998, the Company had options outstanding to
purchase approximately 4,000 Units at exercise prices ranging from $11.00 to
$14.50 per Unit under these plans. Such options, which have exercise prices
equal to the Units' fair market value on the date of grant, vest over three
years.
During 1995, the Trust and the Corporation each adopted a 1995 Share Option
Plan (together, as amended, the "LTIP"), which provides for the purchase of
Units by Trustees, Directors, officers, employees, consultants and advisors,
pursuant to option grants. The aggregate number of Units subject to
non-qualified or incentive stock options, performance shares, restricted stock
or any combination of the foregoing which are available to be granted under the
LTIP at December 31, 1998 was approximately 9.7 million.
The LTIP provides for the grant of Units that are subject to performance
measures or restriction periods and performance awards in tandem with certain
Paired Options to be paid in cash subject to performance measures. The LTIP also
provides for the automatic annual grant of Paired Options, as defined, to
Trustees and Directors for options to purchase 4,500 Units and provides for the
annual fee of Trustees and Directors to
F-36
<PAGE> 102
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
be paid in Units, subject to each Trustee's and Director's option to receive up
to half in cash and to defer receipt of such annual fee until after terminating
service with the Company.
As of the date of the ITT Merger (February 23, 1998), each ITT stock option
("ITT Stock Option") and related stock appreciation right that was outstanding
immediately prior to February 23, 1998, pursuant to ITT's stock option plans in
effect on the date of the original merger agreement (November 1997), was assumed
by the Corporation and became and represent a fully exercisable option to
purchase the number of Units ("Substitute Option") determined by applying the
conversion factor of 1.543 to the ITT Stock Options outstanding immediately
prior to February 23, 1998 and to the exercise price immediately prior to
February 23, 1998. As of February 23, 1998, each Substitute Option became
subject to the same terms and conditions as were applicable immediately prior to
that date under the related ITT Stock Option under which it was granted,
including those providing for the accelerated exercisability and other special
rights arising under certain circumstances. The ITT Merger triggered an
accelerated exercisability event and, as such, entitled each holder to receive
an amount equal to the excess of $85 over the adjusted exercise price of the
related ITT Stock Option.
The Company applied APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations; accordingly, compensation cost was not
recognized for grants of stock options at market price. In November 1997, due to
the election of the holder of each ITT Stock Option to receive either cash,
Units or a combination, variable accounting required an expense to be recognized
for the difference between the option price and the formula market price
totaling $342 million.
Had compensation cost for grants been determined based on the fair value at
the grant dates consistent with SFAS No. 123, Accounting for Stock-Based
Compensation, the Company's net income would have been reduced by $86 million
($0.46 per Unit) and $20 million ($0.16 per Unit) in 1998 and 1996,
respectively. Net income would not have been affected in 1997 as a result of the
application of the variable accounting, as noted above. The fair value of each
option grant used in the 1998 and 1996 pro forma amounts was estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1998 and 1996, respectively:
dividend yield of 2.6% and 0.0%; expected volatility of 47.6% and 33.0%;
risk-free interest rates of 4.5% and 5.3%; and an expected life of three and
four years for all options.
F-37
<PAGE> 103
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity as of and for the
years ended December 31:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
EXERCISE PRICE
OPTIONS PER UNIT
----------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995............................ 9,684,788 $24.13
Granted..................................................... 2,687,205 36.16
Exercised................................................... (444,549) 21.93
Cancelled................................................... (179,383) 32.18
----------- ------
Outstanding at December 31, 1996............................ 11,748,061 26.85
Granted..................................................... 3,248,478 37.50
Exercised................................................... (1,347,453) 26.71
Forfeited................................................... (380,109) 33.01
----------- ------
Outstanding at December 31, 1997............................ 13,268,977 29.29
Granted(1).................................................. 19,783,847 43.18
Exercised(2)................................................ (12,536,071) 28.45
Forfeited................................................... (2,393,977) 44.61
----------- ------
Outstanding at December 31, 1998............................ 18,122,776 $43.80
=========== ======
Exercisable at December 31, 1997............................ 10,234,509 $27.20
=========== ======
Exercisable at December 31, 1998............................ 6,963,014 $32.51
=========== ======
</TABLE>
- ---------------
(1) Represents Corporation and Trust options of 17,055,147 outstanding at
February 23, 1998 (the ITT Merger date) and shares granted by the Company
during 1998.
(2) Represents options exercised during 1998, including the ITT Stock Options
which were exercised upon the occurrence of the accelerated exercisability
event (the ITT Merger).
The following table summarizes information about outstanding stock options
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE
REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE IN YEARS PRICE/UNIT EXERCISABLE PRICE/UNIT
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.00 - $20.31 1,984,637 7.98 $14.42 1,346,137 $11.95
$21.33 - $23.92 2,178,724 7.43 23.43 2,178,724 23.43
$24.25 - $42.31 2,722,342 8.38 38.20 1,394,286 34.28
$42.69 - $49.19 2,967,428 9.31 48.91 184,000 44.69
$50.23 - $53.94 2,085,774 8.48 52.93 682,943 52.96
$54.63 - $54.63 2,500,000 9.13 54.63 833,334 54.63
$54.85 - $55.83 2,673,613 9.13 55.21 166,666 55.83
$57.88 - $76.13 1,010,258 9.28 69.67 176,924 69.12
---------- ---- ------ --------- ------
18,122,776 8.65 $43.80 6,963,014 $32.51
========== ==== ====== ========= ======
</TABLE>
During 1998, the Company granted restricted stock awards for 327,000 Units.
As of December 31, 1998, approximately 300,000 of these awards had vested. The
remaining restricted stock awards vest at varying rates over four years from the
award grant date. Compensation expense of approximately $16 million and $1
million was recorded during 1998 and 1997, respectively, related to restricted
stock awards.
F-38
<PAGE> 104
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 22. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into interest rate swap agreements to manage interest
rate fluctuations on its variable rate debt. The Company currently has five
outstanding forward interest rate swap agreements under which the Company pays a
fixed rate and receives variable rates of interest. The aggregate notional
amount of these forward interest rate swaps was approximately $1.031 billion and
the estimated unrealized loss on these interest rate swaps was approximately $36
million at December 31, 1998. Four of these five forward interest rate swap
agreements, representing $1.0 billion of the total notional amount, are required
by the terms of the Company's existing credit facilities. The unrealized loss
represents the amount the Company would pay to terminate the swap agreements
based on current interest rates.
The Company enters into forward foreign exchange contracts to hedge the
foreign currency exposure associated with the Company's foreign currency
denominated assets and liabilities. The Company currently has two forward
foreign exchange contracts outstanding with a dollar equivalent of the
contractual amounts of these hedges at December 31, 1998 of approximately $54.9
million. These contracts mature on April 12, 1999.
A long-term debt offering that the Company was contemplating was delayed
due to market conditions and the Restructuring. As a result, certain of the
Company's forward interest rate swaps with a notional amount of $500 million no
longer correlated with this anticipated indebtedness. In accordance with the
Company's accounting policies, these forward interest rate swaps were marked to
market by the Company and, as such, the Company recognized a loss of $40 million
during 1998, which is included in interest expense. These contracts were
terminated by the Company in 1998.
NOTE 23. RELATED PARTY TRANSACTIONS
STARWOOD CAPITAL. Starwood Capital Group, L.L.C. ("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 worldwide, and to use the "Starwood" name in its
corporate name worldwide, in perpetuity.
Starwood Capital and Starwood Hotels agreed that, subject to approval by
the independent Trustees or Directors, as appropriate, until December 31, 1998,
Starwood Hotels would 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. During 1998, Starwood Hotels reimbursed
Starwood Capital approximately $391,000 for out-of-product expenses and
approximately $253,000 for internal costs in accordance with this agreement.
This agreement was terminated in 1998.
Starwood Capital's engagement to act as financial advisor to Starwood
Hotels in connection with the ITT Merger was not subject to the above
reimbursement limitation. For its services as a financial advisor, Starwood
Capital was paid $15.5 million in cash and 131,388 Units were issued.
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 hold a 20% non-controlling equity interest in a company
which operates the timeshare component of The Regina Resorts in Los Cabos,
Cancun and Puerto Vallarta, Mexico. Individuals affiliated with Starwood
Capital, including individuals who are Trustees of the Trust and Directors of
the Corporation, and certain other affiliates of Starwood Capital hold a 100%
interest in the company that owns the Westin Innisbrook Resort and the Tamarron
Hilton.
In February 1999, the Company purchased in the open market from
unaffiliated third parties debt securities of an affiliated party for $23
million.
F-39
<PAGE> 105
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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,
which was set at approximately 90% of fair market value (based on two
competitive bids from unrelated third parties) is (i) a monthly payment 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.
REALTY PARTNERSHIP AND OPERATING PARTNERSHIP. In November 1998, the
Operating Partnership and other affiliates distributed certain partnership
interests in Moorland Hotel LP ("Moorland") to the Corporation in exchange for
the redemption of 576,995 units in the Operating Partnership held by the
Corporation. Subsequently, the Corporation owned 100% of the net assets of
Moorland and paid off the mortgage note payable in the amount of $37 million
from Moorland to the Realty Partnership with proceeds from an intercompany loan
from the Trust. The real and personal property of Moorland was then contributed
to the Realty Partnership by the Corporation in exchange for 1,810,951 units in
the Realty Partnership to conform to the ownership structure of the Company's
other domestically owned hotels, excluding properties acquired in the ITT
Merger. A three-year lease for the Moorland property, which provides for a
monthly base rent of $333,000 and annual percentage rent payments, was entered
into by the Trust and the Corporation.
In December 1998, the Operating Partnership distributed its 100% interest
in Midland Holding ("Midland") to the Corporation in redemption of 3,733,630
units in the Operating Partnership held by the Corporation. Subsequently, the
Corporation owned 100% of the net assets of Midland and paid off the mortgage
note payable in the amount of $22 million from Midland to the Realty Partnership
with proceeds from an intercompany loan from the Trust. The real and personal
property of Midland was then contributed to the Realty Partnership by the
Corporation in exchange for 2,479,214 units in the Realty Partnership to conform
to the ownership structure of the Company's other domestically owned hotels,
excluding properties acquired in the ITT Merger. A three-year lease for the
Midland hotel, which provides for a monthly base rent of $400,000 and annual
percentage rent payments, was entered into by the Realty Partnership and the
Corporation.
EMPLOYEE AND OFFICER LOANS. In connection with specific employees' and
officers' relocation to Starwood Hotels headquarters in 1998, Starwood Hotels
made non-interest bearing loans to certain individuals. The original loan
amounts totaled approximately $7.8 million and the amount outstanding at
December 31, 1998 was approximately $6.9 million. These loans are due five years
from the date of issuance or upon the individual's termination.
NOTE 24. COMMITMENTS AND CONTINGENCIES
LITIGATION. The Company is involved in various legal matters that have
arisen in the normal course of business, some of which include claims for
substantial sums. Reserves have been established when the outcome is probable
and can be reasonably estimated. While the ultimate results of claims and
litigation cannot be determined, the Company does not expect that the resolution
of all legal matters will have a material adverse effect on its consolidated
combined results of operations, financial position or cash flow.
ENVIRONMENTAL MATTERS. The Company is subject to certain requirements and
potential liabilities under various federal, state and local environmental laws,
ordinances and regulations. Such laws often impose liability without regard to
whether the current or previous owner or operator knew of, or was responsible
for, the presence of such hazardous or toxic substances. Although the Company
has incurred and expects to incur remediation and other environmental costs
during the ordinary course of operations, management anticipates that such costs
will not have a material adverse effect on the operations or financial condition
of the Company.
F-40
<PAGE> 106
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CAPTIVE INSURANCE COMPANY. Through its captive insurance company, which
was acquired in connection with the Westin Merger, the Company provides
insurance coverage for workers' compensation and general liability claims
arising at hotel properties owned or managed by the Company through policies
written directly and through assumed reinsurance arrangements. Estimated
insurance claims payable represent outstanding claims and those estimated to
have been incurred but not reported based upon historical loss experience.
Actual costs may vary from estimates based on trends of losses for filed claims
and claims estimated to be incurred but not yet filed.
Estimated insurance claims payable at December 31, 1998 was $26 million. At
December 31, 1998, standby letters of credit amounting to $18.4 million had been
issued to provide collateral for the estimated claims. The letters of credit are
guaranteed by the predecessor owner of Westin and Bankers Trust Company.
GUARANTEED LOANS AND COMMITMENTS. The Company has guaranteed certain loans
and commitments of various ventures to which it is a party. These commitments,
which in the aggregate were approximately $7.2 billion and $91 million at
December 31, 1998 and 1997, respectively, are not expected to have a material
adverse effect on the Company's consolidated financial position or results of
operations.
ITT INDUSTRIES. In 1995, the former ITT Corporation, renamed ITT
Industries, Inc. ("ITT Industries"), distributed to its stockholders all of the
outstanding shares of common stock of ITT, then a wholly owned subsidiary of ITT
Industries (the "Distribution"). In connection with this Distribution, ITT,
which was then named ITT Destinations, Inc., changed its name to ITT
Corporation.
For purposes of governing certain of the ongoing relationships between the
Company and ITT Industries after the Distribution and spin-off of ITT and to
provide for an orderly transition, the Company and ITT Industries have entered
into various agreements including a spin-off agreement, Employee Benefits
Services and Liability Agreement, Tax Allocation Agreement and Intellectual
Property Transfer and License Agreements. The Company may be liable to or due
reimbursement from ITT Industries relating to the resolution of certain
pre-spin-off matters under these agreements.
NOTE 25. BUSINESS SEGMENT INFORMATION
The Company operates in four business segments within the hotel and gaming
industries as follows:
HOTELS
Owned -- Represents a worldwide network of owned, leased or consolidated
joint venture hotels and resorts operated under the Sheraton, Westin, St. Regis,
The Luxury Collection, Ciga, Four Points and "W" brand names.
Management and Franchise -- Represents fees earned on hotels managed
worldwide, usually under long-term contracts with the hotel owner and franchise
fees received in connection with the franchise of the Company's Sheraton, Westin
and Four Points brand names.
Other -- Represents the Company's interest in unconsolidated joint
ventures.
GAMING
Gaming -- Represents the operations of casinos or other gaming facilities
in the United States, Canada, the Philippines and South Africa, generally under
the Caesars brand name.
The Company evaluates the performance of its segments based primarily on
operating income before interest expense, depreciation and amortization and
income taxes. The Company's income taxes are included in the consolidated
federal income tax return of the Company. Interest expense, interest income,
depreciation
F-41
<PAGE> 107
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and amortization and income taxes are not allocated to segments as management
does not evaluate this information at a segment level.
The following table presents revenues and other financial information by
segment (in millions):
<TABLE>
<CAPTION>
HOTELS SIGNIFICANT ITEMS
---------------------------- -----------------------------
MANAGEMENT CONSOLIDATED
AND TOTAL DESERT JOINT
OWNED FRANCHISE OTHER GAMING SEGMENT CORPORATE INN(B) VENTURES(A) OTHER TOTAL
------- ---------- ----- ------ ------- --------- ------ ------------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998
Revenues................. $ 2,852 $239 $162 $1,263 $ 4,516 $ -- $116 $ 104 $ (26)(f) $ 4,710
Operating profit
(loss)................. $ 908 $239 $ 42 $ 318 $ 1,507 $ (72) $(18) $ 15 $ (26)(f) $ 601
$ (41)(c)
$(234)(d)
$(530)(g)
Interest expense......... $ 596 $ -- $ 3 $ 40(e) $ 639
Interest income.......... $ -- $ -- $ -- $ 26(f) $ 26
Depreciation and
amortization........... $ -- $ 14 $ 12 $ 530(g) $ 556
Income tax (expense)
benefit................ $ 116 $ -- $ (8) $ -- $ 108
Capital expenditures..... $ 427 $ -- $ -- $ 405 $ 832 $ -- $ -- $ -- $ -- $ 832
Total assets............. $12,199 $ -- $ -- $3,902 $16,101 $ -- $ -- $ -- $ -- $16,101
--------------------------------------------------------------------
1997
Revenues................. $ 1,465 $174 $ 57 $1,123 $ 2,819 $ -- $ 89 $ 85 $ (19)(f) $ 2,974
Operating profit
(loss)................. $ 420 $174 $(34) $ 255 $ 815 $ (66) $(34) $ 18 $ (19)(f) $ (268)
$ (28)(c)
$(263)(g)
$(691)(h)
Interest expense......... $ 110 $ 3 $ -- $ -- $ 113
Interest income.......... $ -- $ -- $ -- $ 19(f) $ 19
Depreciation and
amortization........... $ -- $ 7 $ 11 $ 263(g) $ 281
Income tax (expense)
benefit................ $(138) $(15) $ (6) $ -- $ (159)
Capital expenditures..... $ 262 $ -- $ -- $ 741 $ 1,003 $ -- $ -- $ -- $ -- $ 1,003
Total assets............. $ 4,931 $ -- $ -- $3,594 $ 8,525 $ -- $ -- $ -- $ -- $ 8,525
--------------------------------------------------------------------
1996
Revenues................. $ 1,427 $165 $ 41 $1,159 $ 2,792 $ -- $126 $ 81 $ (68)(f) $ 2,931
Operating profit
(loss)................. $ 431 $165 $(31) $ 291 $ 856 $ (74) $(10) $ 11 $ (68)(f) $ 469
$(246)(g)
Interest expense......... $(158) $ -- $ (6) $ -- $ (164)
Interest income.......... $ -- $ -- $ -- $ 68(f) $ 68
Depreciation and
amortization........... $ -- $ 8 $ 7 $ 246(g) $ 261
Income tax (expense)
benefit................ $(160) $ (7) $ (6) $ -- $ (173)
Capital expenditures..... $ 298 $ -- $ -- $ 230 $ 528 $ -- $ -- $ -- $ -- $ 528
Total assets............. $ 6,029 $ -- $ -- $2,893 $ 8,922 $ -- $ -- $ -- $ -- $ 8,922
</TABLE>
- ---------------
(a) Represents minority interest in consolidated joint venture results. These
results are not included by management in evaluating the segment results.
(b) Includes the operations of Desert Inn Resort and Casino in Las Vegas,
Nevada, which is held for sale.
(c) Represents preopening costs which were not allocated or evaluated at a
segment level by management due to the change in accounting for start-up
costs.
(d) Represents other non-recurring items including restructuring and other
special charges of $204 million and selling, general and administrative
expense of $30 million associated with vesting of restricted stock grants.
(e) Represents interest expense of $40 million associated with the settlement
of certain forward interest rate swaps.
(f) Represents interest income earned by the Company, primarily from mortgage
notes receivable secured by hotel properties, which management includes in
other hotel operations in evaluating this segment.
(g) Represents depreciation and amortization expense which management does not
evaluate in segment operating profit.
(h) Represents restructuring and other special charges recorded by ITT in 1997.
F-42
<PAGE> 108
STARWOOD HOTELS & RESORTS AND
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 26. GEOGRAPHICAL INFORMATION -- TOTAL SEGMENTS
<TABLE>
<CAPTION>
REVENUES LONG-LIVED ASSETS
-------------------------- ---------------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
United States....................................... $3,514 $1,944 $2,008 $ 8,138 $3,293 $3,065
Italy............................................... 325 302 300 655 610 701
All other international............................. 871 728 623 1,441 1,297 1,320
------ ------ ------ ------- ------ ------
Total....................................... $4,710 $2,974 $2,931 $10,234 $5,200 $5,086
====== ====== ====== ======= ====== ======
</TABLE>
There were no other individual international countries, except for Italy,
which comprised over 10% of the total revenues and long-lived assets of the
Company as of December 31, 1998, 1997 or 1996.
NOTE 27. QUARTERLY RESULTS (UNAUDITED)
The following unaudited quarterly results have been restated from amounts
previously reported by the Company for the change in accounting policy related
to non-owned managed hotel revenues (see Note 1).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
-------- ------- ------------ ----------- ------
(IN MILLIONS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
1998
Revenues......................................... $ 884 $1,282 $1,277 $1,267 $4,710
Costs and expenses............................... $ 767 $1,069 $1,292 $ 981 $4,109
Income (loss) from continuing operations......... $ 28 $ 70 $ (101) $ 144 $ 141
Discontinued operations.......................... $ 940 $ 152 $ 24 $ (2) $1,114
Net income (loss)................................ $ 968 $ 222 $ (77) $ 142 $1,255
Earnings per Unit:
Basic --
Income (loss) from continuing operations....... $ 0.14 $ 0.35 $(0.56) $ 0.80 $ 0.68
Discontinued operations........................ $ 6.19 $ 0.80 $ 0.13 $(0.01) $ 6.02
Net income (loss).............................. $ 6.33 $ 1.15 $(0.43) $ 0.79 $ 6.70
Diluted --
Income (loss) from continuing operations....... $ 0.14 $ 0.35 $(0.56) $ 0.76 $ 0.67
Discontinued operations........................ $ 6.08 $ 0.75 $ 0.13 $(0.01) $ 5.96
Net income (loss).............................. $ 6.22 $ 1.10 $(0.43) $ 0.75 $ 6.63
1997
Revenues......................................... $ 666 $ 768 $ 741 $ 799 $2,974
Costs and expenses............................... $ 667 $ 628 $ 608 $1,339 $3,242
Income (loss) from continuing operations......... $ 95 $ 183 $ 43 $ (591) $ (270)
Discontinued operations.......................... $ (15) $ 14 $ 15 $ 11 $ 25
Extraordinary item............................... $ -- $ -- $ -- $ (42) $ (42)
Cumulative effect of accounting change........... $ (11) $ -- $ -- $ -- $ (11)
Net income (loss)................................ $ 69 $ 197 $ 58 $ (622) $ (298)
Earnings per Unit:
Basic --
Income (loss) from continuing operations....... $ 0.76 $ 1.46 $ 0.34 $(4.69) $(2.14)
Discontinued operations........................ $(0.12) $ 0.11 $ 0.12 $ 0.08 $ 0.20
Extraordinary item............................. $ -- $ -- $ -- $(0.33) $(0.33)
Cumulative effect of accounting change......... $(0.09) $ -- $ -- $ -- $(0.09)
Net income..................................... $ 0.55 $ 1.57 $ 0.46 $(4.94) $(2.36)
Diluted --
Income (loss) from continuing operations....... $ 0.75 $ 1.44 $ 0.34 $(4.69) $(2.14)
Discontinued operations........................ $(0.12) $ 0.11 $ 0.11 $ 0.08 $ 0.20
Extraordinary item............................. $ -- $ -- $ -- $(0.33) $(0.33)
Cumulative effect of accounting change......... $(0.09) $ -- $ -- $ -- $(0.09)
Net income (loss).............................. $ 0.54 $ 1.55 $ 0.45 $(4.94) $(2.36)
</TABLE>
F-43
<PAGE> 109
SCHEDULE II
STARWOOD HOTELS & RESORTS
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS (DEDUCTIONS)
---------------------------------------
CHARGED
CHARGED TO/FROM
BALANCE TO OTHER PAYMENTS/ BALANCE
JANUARY 1 EXPENSES ACCOUNTS(A) OTHER DECEMBER 31,
--------- ----------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Trade receivables -- allowance for doubtful
accounts.......................................... $112 $ 52 $ 28 $(118) $ 74
Notes receivable -- allowance for doubtful
accounts.......................................... $ 57 $ -- $ -- $ (24) $ 33
Reserves included in accrued expenses and other
liabilities:
Restructuring and other special charges........... $736 $204 $(134) $(600) $206
YEAR ENDED DECEMBER 31, 1997
Trade receivables -- allowance for doubtful
accounts.......................................... $121 $ 65 $ (32) $ (42) $112
Notes receivable -- allowance for doubtful
accounts.......................................... $ 50 $ -- $ -- $ 7 $ 57
Reserves included in accrued expenses and other
liabilities:
Restructuring and other special charges........... $ 39 $860(b) $ (39) $(124) $736
YEAR ENDED DECEMBER 31, 1996
Trade receivables -- allowance for doubtful
accounts.......................................... $ 81 $ 39 $ -- $ 1 $121
Notes receivable -- allowance for doubtful
accounts.......................................... $ 98 $ -- $ -- $ (48) $ 50
Reserves included in accrued and other liabilities:
Restructuring and other special charges........... $ 65 $ -- $ -- $ (26) $ 39
</TABLE>
- ---------------
(a) Charged to/from other accounts:
<TABLE>
<CAPTION>
TRADE RECEIVABLES - RESTRUCTURING
ALLOWANCE FOR AND OTHER
DOUBTFUL ACCOUNTS SPECIAL CHARGES
------------------- ---------------
<S> <C> <C>
1998
Trade receivables........................................... $ -- $ (30)
Notes receivable............................................ -- (20)
Other Investments........................................... -- (27)
Other assets................................................ -- (40)
Other long-term liabilities................................. -- (17)
Acquired assets............................................. 7 --
Assets held for sale........................................ 21 --
---- -----
Total charged to/from other accounts.................... $ 28 $(134)
==== =====
1997
Plant, property and equipment............................... $ -- $ (7)
Other assets................................................ -- (32)
Assets held for sale........................................ (32) --
---- -----
Total charged to/from other accounts.................... $(32) $ (39)
==== =====
(b) Restructuring and other special charges:
Provision charged to costs and expenses..................... $691
Provision charged to miscellaneous expense.................. 169
----
$860
====
</TABLE>
S-1
<PAGE> 110
SCHEDULE III
STARWOOD HOTELS & RESORTS
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
GROSS AMOUNT BOOK
INITIAL COST TO COSTS SUBSEQUENT VALUE AT
COMPANY TO ACQUISITION DECEMBER 31, 1998
--------------------- ------------------- ---------------------
(1)
(1)(2)
BUILDING AND BUILDING AND BUILDING AND
DESCRIPTION CITY STATE LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS
- ----------- ---------------- ----- ------ ------------ ---- ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HOTEL ASSETS:
Plaza Hotel & Conference Center.... Tucson AZ $ -- $ 5.0 $-- $ 1.1 $ -- $ 6.1
Chicago Midland.................... Chicago IL 23.8 17.6 -- -- 23.8 17.6
St. Regis Aspen.................... Aspen CO 20.4 139.5 -- 0.1 20.4 139.6
Luxury Collection Hotel............ Houston TX 6.1 41.5 -- 0.1 6.1 41.6
Westin Central Park South.......... New York NY -- 77.9 -- 0.4 -- 78.3
Westin Fairfax Hotel............... Washington DC 5.7 38.8 -- 0.1 5.7 38.9
Four Points Hotel Denver Cherry
Creek............................. Denver CO 3.7 22.4 -- 0.2 3.7 22.6
Westin South Coast Plaza........... Costa Mesa CA -- 28.7 -- 0.1 -- 28.8
Westin Indianapolis................ Indianapolis IN 12.9 73.3 -- -- 12.9 73.3
Westin San Francisco Airport....... Millbrae CA 11.4 69.5 -- -- 11.4 69.5
Westin Ft. Lauderdale.............. Ft. Lauderdale FL 3.3 20.1 -- -- 3.3 20.1
Westin Seattle..................... Seattle WA 21.6 149.2 -- 0.1 21.6 149.4
Westin Cincinnati.................. Cincinnati OH -- 62.8 -- -- -- 62.8
Westin Tabor Center................ Denver CO 9.8 66.8 -- 0.4 9.8 67.1
Westin Galleria Houston............ Houston TX -- 10.7 -- -- -- 10.7
Westin Oaks........................ Houston TX -- 13.2 -- -- -- 13.2
The St. Regis...................... New York NY 65.0 149.8 -- -- 65.0 149.8
Danbury Hilton and Towers.......... Danbury CT 2.0 15.8 -- -- 2.0 15.8
BWI Airport Marriott............... Baltimore MD 3.6 51.6 -- -- 3.6 51.6
Charleston Hilton North............ North Charleston SC 2.6 24.1 -- 0.2 2.6 24.3
Sheraton Edison Hotel Raritan
Center............................ Edison NJ 1.7 20.2 -- 0.3 1.7 20.4
Courtyard by Marriott Crystal
City.............................. Arlington VA 3.7 31.0 -- -- 3.7 31.1
Novi Hilton........................ Novi MI 1.8 36.7 -- 0.1 1.8 36.8
Sheraton Norfolk Waterside Hotel... Norfolk VA 5.2 44.9 -- 0.2 5.2 45.1
Park Ridge Hotel................... King of Prussia PA 3.1 39.4 -- 0.3 3.1 39.7
Westin Long Beach.................. Long Beach CA 4.3 48.0 -- -- 4.3 48.0
Sonoma County Hilton............... Santa Rosa CA 1.8 15.4 -- 1.5 1.8 16.9
Tremont Hotel...................... Chicago IL 3.2 17.2 -- 0.6 3.2 17.8
Westin Stamford Hotel.............. Stamford CT 6.2 27.2 -- 0.3 6.2 27.5
Sheraton Tara Lexington Inn........ Lexington MA 1.5 17.5 -- -- 1.5 17.5
<CAPTION>
ACCUMULATED
DEPRECIATION & YEAR OF DATE
DESCRIPTION AMORTIZATION CONSTRUCTION ACQUIRED LIFE
- ----------- -------------- ------------ -------- ----
<S> <C> <C> <C> <C>
HOTEL ASSETS:
Plaza Hotel & Conference Center.... $ 0.2 1971 02/98 21
Chicago Midland.................... -- 1934 12/98 40
St. Regis Aspen.................... 3.7 1992 01/98 40
Luxury Collection Hotel............ 1.1 1982 01/98 40
Westin Central Park South.......... 3.0 1929 01/98 25
Westin Fairfax Hotel............... 1.2 1927 01/98 40
Four Points Hotel Denver Cherry
Creek............................. 0.6 1979 01/98 40
Westin South Coast Plaza........... 1.1 1975 01/98 40
Westin Indianapolis................ 2.1 1989 01/98 40
Westin San Francisco Airport....... 2.0 1987 01/98 40
Westin Ft. Lauderdale.............. 0.6 1986 01/98 40
Westin Seattle..................... 3.9 1969 01/98 40
Westin Cincinnati.................. 1.8 1981 01/98 40
Westin Tabor Center................ 1.9 1984 01/98 40
Westin Galleria Houston............ 1.2 1977 01/98 9
Westin Oaks........................ 1.5 1971 01/98 9
The St. Regis...................... 1.7 1904 06/98 40
Danbury Hilton and Towers.......... 0.2 1981 05/98 40
BWI Airport Marriott............... 1.0 1988 02/98 40
Charleston Hilton North............ 0.5 1983 02/98 40
Sheraton Edison Hotel Raritan
Center............................ 0.4 1987 02/98 40
Courtyard by Marriott Crystal
City.............................. 0.7 1990 02/98 40
Novi Hilton........................ 0.8 1985 02/98 40
Sheraton Norfolk Waterside Hotel... 0.9 1976 02/98 40
Park Ridge Hotel................... 0.8 1973 02/98 40
Westin Long Beach.................. 1.0 1988 02/98 40
Sonoma County Hilton............... 0.3 1984 02/98 40
Tremont Hotel...................... 0.4 1974 02/98 40
Westin Stamford Hotel.............. 0.6 1985 02/98 40
Sheraton Tara Lexington Inn........ 0.4 1958 02/98 40
</TABLE>
S-2
<PAGE> 111
<TABLE>
<CAPTION>
SCHEDULE III (CONTINUED)
STARWOOD HOTELS & RESORTS
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(IN MILLIONS)
INITIAL COST TO COSTS SUBSEQUENT
COMPANY TO ACQUISITION
--------------------- -------------------
BUILDING AND BUILDING AND
DESCRIPTION CITY STATE LAND IMPROVEMENTS LAND IMPROVEMENTS
- ----------- ---------------- ----- ------ ------------ ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Sheraton Tara Hotel, Newton........ Newton MA -- 37.7 -- --
Sheraton Tara Hotel, South
Portland.......................... South Portland ME 2.9 20.6 -- --
Wayfarer Inn....................... Bedford NH 2.5 10.1 -- 0.1
Merrimack Hotel & Conference
Center............................ Merrimack NH 0.7 0.3 -- --
Sheraton Tara Airport Hotel........ Warwick RI 2.7 18.2 -- 0.1
Sheraton Stamford Hotel............ Stamford CT 5.8 43.4 -- 0.1
Sheraton Tara Hotel, Braintree..... Braintree MA 4.9 59.0 -- 0.1
Sheraton Ferncroft Resort
Danvers........................... Danvers MA 4.8 55.6 -- 0.1
Sheraton Tara Hotel, Framingham.... Framingham MA 4.8 46.6 -- 0.2
Four Points Hotel Hyannis Cape
Cod............................... Hyannis MA 3.4 13.1 -- 0.2
Sheraton Hyannis Resort............ Hyannis MA 2.9 23.1 -- 0.3
Sheraton Colonial Hotel & Golf Club
Boston North...................... Lynnfield MA 3.6 53.6 -- 0.2
Sheraton Tara Hotel, Nashua........ Nashua NH 4.4 23.3 -- 0.1
Sheraton Tara Hotel, Parsippany.... Parsippany NJ 5.1 89.2 -- 0.1
Crowne Plaza New Orleans........... New Orleans LA 5.7 62.7 -- --
Best Western Airport Inn (NM)...... Albuquerque NM -- 10.3 -- 0.2
One Washington Circle.............. Washington DC 2.0 23.6 -- --
Westin Aquila...................... Omaha NE 1.9 10.9 -- 0.1
Westin Mission Hills Resort........ Rancho Mirage CA 6.6 105.7 -- (0.1)
Riverside Inn...................... Portland OR 1.8 21.7 -- 0.1
Days Inn City Center............... Portland OR 2.2 18.0 -- 0.6
Days Inn -- Town Center........... Seattle WA -- 1.7 -- 0.3
Sixth Avenue Inn................... Seattle WA -- 2.7 -- 0.2
Edmond Meany Hotel................. Seattle WA 2.0 16.3 -- --
San Diego Marriott Suites.......... San Diego CA 2.2 42.5 -- --
Raphael Hotel...................... Chicago IL 3.0 18.2 -- 0.2
Westin Southfield -- Detroit....... Southfield MI 1.7 52.0 -- 0.2
Sheraton Indianapolis North
Hotel............................. Indianapolis IN 7.2 43.7 -- 0.7
Sheraton Gainesville Hotel......... Gainesville FL 2.5 8.1 -- 1.0
Marriott Forrestal Village Hotel... Princeton NJ 3.2 31.6 -- 0.1
Westwood Marquis Hotel & Gardens... Los Angeles CA 5.2 22.1 -- 0.8
<CAPTION>
SCHEDULE III (CONTINUED)
STARWOOD HOTELS & RESORTS
REA REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(IN MILLIONS)
GROSS AMOUNT BOOK
VALUE AT
DECEMBER 31, 1998
---------------------
(1)
(1)(2) ACCUMULATED
BUILDING AND DEPRECIATION & YEAR OF DATE
DESCRIPTION LAND IMPROVEMENTS AMORTIZATION CONSTRUCTION ACQUIRED LIFE
- ----------- ------ ------------ -------------- ------------ -------- ----
<S> <C> <C> <C> <C> <C> <C>
Sheraton Tara Hotel, Newton........ -- 37.8 2.9 1968 02/98 10
Sheraton Tara Hotel, South
Portland.......................... 2.9 20.6 0.4 1973 02/98 40
Wayfarer Inn....................... 2.5 10.1 0.2 1966 02/98 40
Merrimack Hotel & Conference
Center............................ 0.7 0.3 -- 1979 02/98 40
Sheraton Tara Airport Hotel........ 2.7 18.3 0.4 1979 02/98 40
Sheraton Stamford Hotel............ 5.8 43.6 0.9 1984 02/98 40
Sheraton Tara Hotel, Braintree..... 4.9 59.1 1.2 1971 02/98 40
Sheraton Ferncroft Resort
Danvers........................... 4.8 55.7 1.2 1978 02/98 40
Sheraton Tara Hotel, Framingham.... 4.8 46.8 1.0 1973 02/98 40
Four Points Hotel Hyannis Cape
Cod............................... 3.4 13.3 0.3 1975 02/98 40
Sheraton Hyannis Resort............ 2.9 23.4 0.5 1967 02/98 40
Sheraton Colonial Hotel & Golf Club
Boston North...................... 3.6 53.8 1.1 1966 02/98 40
Sheraton Tara Hotel, Nashua........ 4.4 23.4 0.5 1980 02/98 40
Sheraton Tara Hotel, Parsippany.... 5.1 89.2 1.9 1987 02/98 40
Crowne Plaza New Orleans........... 5.7 62.8 1.3 1984 02/98 40
Best Western Airport Inn (NM)...... -- 10.5 0.3 1980 02/98 30
One Washington Circle.............. 2.0 23.6 0.5 1964 02/98 40
Westin Aquila...................... 1.9 11.0 0.3 1924 02/98 40
Westin Mission Hills Resort........ 6.6 105.7 2.2 1987 02/98 40
Riverside Inn...................... 1.8 21.8 0.5 1964 02/98 40
Days Inn City Center............... 2.2 18.6 0.4 1962 02/98 40
Days Inn -- Town Center........... -- 2.0 1.9 1957 09/86 10
Sixth Avenue Inn................... -- 2.9 2.7 1959 09/86 12
Edmond Meany Hotel................. 2.0 16.4 0.3 1932 02/98 40
San Diego Marriott Suites.......... 2.2 42.5 0.9 1989 02/98 40
Raphael Hotel...................... 3.0 18.4 0.4 1929 02/98 40
Westin Southfield -- Detroit....... 1.7 52.1 1.1 1987 02/98 40
Sheraton Indianapolis North
Hotel............................. 7.2 44.4 0.9 1983 02/98 40
Sheraton Gainesville Hotel......... 2.5 9.1 0.2 1974 02/98 40
Marriott Forrestal Village Hotel... 3.2 31.7 0.7 1987 02/98 40
Westwood Marquis Hotel & Gardens... 5.2 22.9 0.5 1969 02/98 40
</TABLE>
S-3
<PAGE> 112
<TABLE>
<CAPTION>
SCHEDULE III (CONTINUED)
STARWOOD HOTELS & RESORTS
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(IN MILLIONS)
INITIAL COST TO COSTS SUBSEQUENT
COMPANY TO ACQUISITION
--------------------- -------------------
BUILDING AND BUILDING AND
DESCRIPTION CITY STATE LAND IMPROVEMENTS LAND IMPROVEMENTS
- ----------- ---------------- ----- ------ ------------ ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Deerfield Beach Hilton............. Deerfield FL 1.5 17.8 -- 0.3
Sheraton Denver Tech Center
Hotel............................. Denver CO 2.3 26.7 -- 0.1
Days Inn Lake Shore Drive.......... Chicago IL 11.3 41.6 -- 0.1
Sheraton Milwaukee................. Milwaukee WI 4.9 27.8 -- --
W -- Tuscany....................... New York NY 1.7 11.8 -- 6.0
W -- The Court..................... New York NY 6.1 21.0 -- 7.2
Residence Inn Tyson's Corner....... Vienna VA 1.2 17.0 -- 0.5
Westin Hermitage................... Nashville TN 2.4 15.4 -- 0.3
Hotel De La Poste.................. New Orleans LA 1.7 18.0 -- 0.2
Tyee Hotel......................... Olympia WA 2.0 6.3 -- 0.2
Capital Hill Suites................ Washington DC 2.0 15.4 -- 0.2
Holiday Inn -- Albany.............. Albany GA 2.0 5.1 -- --
Doubletree Club Hotel Rancho
Bernardo.......................... Rancho Bernardo CA 2.7 20.4 -- 0.1
Four Points Hotel Wichita.......... Wichita KS 3.4 6.4 -- 0.2
Sheraton Chapel Hill Hotel......... Chapel Hill NC 2.2 15.4 -- --
Sheraton Colony Square............. Atlanta GA 3.4 64.4 -- 0.4
W -- Doral Inn..................... New York NY 8.5 -- -- --
Sheraton Buckhead Hotel Atlanta.... Atlanta GA 4.7 34.6 -- 2.0
Four Points Hotel Atlanta
Buckhead.......................... Atlanta GA 2.3 15.4 -- 0.1
Holiday Inn -- Calverton........... Beltsville MD 2.7 17.4 -- --
Westin Washington, DC.............. Washington DC 8.5 38.5 -- --
Park Plaza Hotel................... Boston MA 12.5 124.0 -- 3.4
Westin Philadelphia Int'l
Airport........................... Philadelphia PA 2.9 29.9 -- 0.2
Sheraton Philadelphia Airport...... Philadelphia PA 1.9 7.1 -- 1.2
Sheraton Suites Tampa Airport...... Tampa FL 2.3 30.5 -- 0.7
Clarion at San Francisco Airport... Milbrae CA 7.2 46.6 -- 1.2
Sheraton Tucson Hotel & Suites..... Tucson AZ 1.8 14.3 -- 0.2
W -- Atlanta....................... Atlanta GA 3.8 11.4 -- 0.6
Sheraton Minneapolis Metrodome..... Minneapolis MN 1.8 26.7 -- 0.3
Westin Atlanta N. at Perimeter..... Atlanta GA 5.4 45.4 -- --
Westin Los Angeles Airport......... Los Angeles CA 8.8 40.4 -- 0.2
<CAPTION>
SCHEDULE III (CONTINUED)
STARWOOD HOTELS & RESORTS
REA REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(IN MILLIONS)
GROSS AMOUNT BOOK
VALUE AT
DECEMBER 31, 1998
---------------------
(1)
(1)(2) ACCUMULATED
BUILDING AND DEPRECIATION & YEAR OF DATE
DESCRIPTION LAND IMPROVEMENTS AMORTIZATION CONSTRUCTION ACQUIRED LIFE
- ----------- ------ ------------ -------------- ------------ -------- ----
<S> <C> <C> <C> <C> <C> <C>
Deerfield Beach Hilton............. 1.5 18.0 0.4 1985 02/98 40
Sheraton Denver Tech Center
Hotel............................. 2.3 26.7 0.6 1986 02/98 40
Days Inn Lake Shore Drive.......... 11.3 41.7 0.9 1965 02/98 40
Sheraton Milwaukee................. 4.9 27.8 0.1 1972 02/98 40
W -- Tuscany....................... 1.7 17.9 0.3 1935 02/98 40
W -- The Court..................... 6.1 28.3 0.5 1927 02/98 40
Residence Inn Tyson's Corner....... 1.2 17.6 0.4 1984 02/98 40
Westin Hermitage................... 2.4 15.7 0.3 1910 02/98 40
Hotel De La Poste.................. 1.7 18.2 0.4 1973 02/98 40
Tyee Hotel......................... 2.0 6.4 0.1 1961 02/98 40
Capital Hill Suites................ 2.0 15.6 0.3 1955 02/98 40
Holiday Inn -- Albany.............. 2.0 5.1 0.1 1989 02/98 40
Doubletree Club Hotel Rancho
Bernardo.......................... 2.7 20.5 0.4 1988 02/98 40
Four Points Hotel Wichita.......... 3.4 6.6 -- 1974 02/98 40
Sheraton Chapel Hill Hotel......... 2.2 15.4 0.3 1981 02/98 40
Sheraton Colony Square............. 3.4 64.7 1.4 1973 02/98 40
W -- Doral Inn..................... 8.5 -- -- 1927 02/98 40
Sheraton Buckhead Hotel Atlanta.... 4.7 36.6 0.8 1975 02/98 40
Four Points Hotel Atlanta
Buckhead.......................... 2.3 15.5 0.3 1965 02/98 40
Holiday Inn -- Calverton........... 2.7 17.5 0.4 1987 02/98 40
Westin Washington, DC.............. 8.5 38.5 0.8 1984 02/98 40
Park Plaza Hotel................... 12.5 127.2 9.4 1927 02/98 40
Westin Philadelphia Int'l
Airport........................... 2.9 30.0 0.6 1985 02/98 40
Sheraton Philadelphia Airport...... 1.9 8.3 0.2 1984 02/98 40
Sheraton Suites Tampa Airport...... 2.3 31.3 0.6 1987 02/98 40
Clarion at San Francisco Airport... 7.2 47.7 0.9 1962 02/98 40
Sheraton Tucson Hotel & Suites..... 1.8 14.5 0.3 1986 02/98 40
W -- Atlanta....................... 3.8 12.1 0.2 1980 02/98 40
Sheraton Minneapolis Metrodome..... 1.8 27.0 0.6 1980 02/98 40
Westin Atlanta N. at Perimeter..... 5.4 45.4 1.0 1986 02/98 40
Westin Los Angeles Airport......... 8.8 40.6 0.8 1986 02/98 40
</TABLE>
S-4
<PAGE> 113
<TABLE>
<CAPTION>
SCHEDULE III (CONTINUED)
STARWOOD HOTELS & RESORTS
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(IN MILLIONS)
INITIAL COST TO COSTS SUBSEQUENT
COMPANY TO ACQUISITION
--------------------- -------------------
BUILDING AND BUILDING AND
DESCRIPTION CITY STATE LAND IMPROVEMENTS LAND IMPROVEMENTS
- ----------- ---------------- ----- ------ ------------ ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Doubletree Hotel Minneapolis
Airport at the Mall............... Bloomington MN 2.9 47.6 -- 0.3
Westin Horton Plaza San Diego...... San Diego CA 6.5 88.4 -- 1.0
Ritz-Carlton Kansas City........... Kansas City MO 9.4 52.6 -- 1.7
Ritz-Carlton Philadelphia.......... Philadelphia PA 5.2 56.5 -- 0.1
Sheraton Ft. Lauderdale Airport
Hotel............................. Dania FL 2.9 27.1 -- 0.1
Westin Waltham Hotel............... Waltham MA 5.0 63.9 -- 0.1
Sheraton Needham Hotel............. Needham MA 3.0 40.6 -- --
Allentown Hilton................... Allentown PA 1.2 17.3 -- 0.2
Arlington Park Hilton.............. Arlington IL 5.5 42.3 -- 0.4
Heights
------ -------- ---- -----
$487.6 $3,610.4 $-- $41.9
====== ======== ==== =====
Land...............................
Furniture, fixtures and
equipment.........................
Construction in progress...........
<CAPTION>
SCHEDULE III (CONTINUED)
STARWOOD HOTELS & RESORTS
REA REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(IN MILLIONS)
GROSS AMOUNT BOOK
VALUE AT
DECEMBER 31, 1998
---------------------
(1)
(1)(2) ACCUMULATED
BUILDING AND DEPRECIATION & YEAR OF DATE
DESCRIPTION LAND IMPROVEMENTS AMORTIZATION CONSTRUCTION ACQUIRED LIFE
- ----------- ------ ------------ -------------- ------------ -------- ----
<S> <C> <C> <C> <C> <C> <C>
Doubletree Hotel Minneapolis
Airport at the Mall............... 2.9 48.0 1.0 1975 02/98 40
Westin Horton Plaza San Diego...... 6.5 89.3 1.9 1987 02/98 40
Ritz-Carlton Kansas City........... 9.4 54.3 1.1 1973 02/98 40
Ritz-Carlton Philadelphia.......... 5.2 56.7 1.2 1990 02/98 40
Sheraton Ft. Lauderdale Airport
Hotel............................. 2.9 27.2 0.5 1985 02/98 40
Westin Waltham Hotel............... 5.0 63.9 1.3 1990 02/98 40
Sheraton Needham Hotel............. 3.0 40.6 0.9 1986 02/98 40
Allentown Hilton................... 1.2 17.5 0.4 1981 02/98 40
Arlington Park Hilton.............. 5.5 42.7 0.9 1968 02/98 40
------ -------- ------
$487.6 3,652.3 95.8
======
Land............................... 487.6 --
Furniture, fixtures and
equipment......................... 280.2 50.1
Construction in progress........... 154.9 --
-------- ------
$4,575.0 $145.9
======== ======
</TABLE>
- ---------------
(1) As of December 31, 1998, land, building, furniture, fixtures and equipment
and construction in progress have a cost basis of $415.7 million, $2,315.1
million, $353.1 million and $154.9 million, respectively, for federal income
tax purposes.
(2) Building and improvements include amounts allocated for leasehold interest
in land and net assets held for sale.
S-5
<PAGE> 114
SCHEDULE III (CONTINUED)
STARWOOD HOTELS & RESORTS
REAL ESTATE AND ACCUMULATED DEPRECIATION
(IN MILLIONS)
A reconciliation of the Trust's investment in real estate, furniture and
fixtures and related accumulated depreciation is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
REAL ESTATE AND FURNITURE AND FIXTURES:
Balance at beginning of period.............................. $4,255
Additions during period:
Acquisitions.............................................. 314
Improvements.............................................. 206
Deductions during period:
Sale of properties........................................ (200)
------
Balance at end of period.................................... $4,575
======
ACCUMULATED DEPRECIATION:
Balance at beginning of period.............................. $ (49)
Additions during period:
Depreciation expense...................................... (123)
Deductions during period:
Sale of properties........................................ 26
------
Balance at end of period.................................... $ (146)
======
</TABLE>
S-6
<PAGE> 115
SCHEDULE IV
STARWOOD HOTELS & RESORTS
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
ORIGINAL OF LOANS SUBJECT
FACE CARRYING TO DELINQUENT
INTEREST FINAL PRIOR AMOUNT OF AMOUNT OF PRINCIPAL OR
DESCRIPTION RATE MATURITY PERIODIC PAYMENT LIENS MORTGAGES MORTGAGES(1) INTEREST
- ----------- ---------- -------- ---------------- ----- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
First Mortgages:
Ramada Inn -- Tucker,
GA................... 9.00% 1998 17(3) No $ 2 $ 2
Ramada
Suites -- Secaucus,
NJ................... (2) 1999 Adjustable(4) No 14 12
Westin Maui -- Maui,
HI................... 10.00% 2000 (5) No 105 105
Harvey Hotel
Addison -- Dallas,
TX................... 8.00% 2002 324(6) No 11 8
Harvey Bristol
Suites -- Dallas,
TX................... 8.00% 2002 518(7) No 18 13
Harvey DFW Airport
Hotel -- Dallas,
TX................... 8.00% 2002 806(8) No 28 21
Vagabond
Inns -- Modesto,
CA................... 10.00% 2006 (9) No 2 1
Ramada
Inn -- Fayetteville,
NC................... 9.00% 2006 9(10) No 1 --
Second Mortgages:
Harvey Hotel
Addison -- Dallas,
TX................... Prin. Only 2002 2(11) Yes -- --
Harvey Bristol
Suites -- Dallas,
TX................... Prin. Only 2002 5(12) Yes -- --
Harvey DFW Airport
Hotel -- Dallas,
TX................... Prin. Only 2002 2(13) Yes -- --
Westin
Portland -- Portland,
OR................... 11.50% 2003 (14) Yes 2 2
------ ------
$ 183 $ 164
====== ======
Intercompany Mortgage Loans
First Mortgages:
W New York, NY......... 9.50% 2006 (15) No $ 40 $ 40
Westin
Regina -- Cancun,
Mexico............... 8.00% 1999 (16) No 41 39
Westin Regina -- Los
Cabos, Mexico........ 8.00% 1999 (16) No 53 44
Westin Regina -- Puerto
Vallarta, Mexico..... 8.00% 1999 (16) No 25 23
Westin
Hotel -- Turnberry,
Scotland............. 10.00% 2000 (17) No 27 30
ITT Corporation
Mortgage Note........ 8.50% 2005 (18) No 2,699 2,699
Starwood Hotels &
Resorts Worldwide,
Inc.................. 8.50% 2005 (18) No 100 100
Starwood Hotels &
Resorts Worldwide,
Inc.................. 8.50% 2005 (18) No 50 50
------ ------
$3,035 $3,025
====== ======
</TABLE>
(Continued)
S-7
<PAGE> 116
- ---------------
(1) As of December 31, 1998, the aggregate cost (before allowance for loan
losses) for federal income tax purposes is not significantly different from
that used for book purposes.
(2) The interest rate is the ninety-day LIBOR plus 1.25% or prime rate, at
borrower's option. At December 31, 1998, the interest rate was 6.5625%.
(3) Forbearance agreement extended due date to 1999. Payments of $20,000 due
monthly towards interest and principal.
(4) Principal and interest due monthly. Principal amount adjusts annually based
on note schedule.
(5) Interest only payable monthly. Interest based on current principal balance
and 10% interest rate. Principal balance comprised of initial advance of
$105 million with additional advances up to $121 million available.
Principal and all accrued and unpaid interest are due January 29, 2000.
(6) Principal and interest due quarterly based on note schedule. A 25%
participation on both the first and second mortgages was sold to a third
party in 1995.
(7) Principal and interest due quarterly based on note schedule.
(8) Principal and interest due quarterly based on note schedule.
(9) Note provides for monthly payments of interest plus additional annual
payments based on a percentage of the hotel's sales, a portion of which is
applied to principal. On April 29, 1996, the borrower exercised its right
under the terms of the note to extend the maturity of the note to June
2006.
(10) Principal and interest due monthly based on a 12-year amortization schedule
with unpaid principal of $9,000 due in December 2006.
(11) Forty equal principal payments of $125,125 each of which the Realty
Partnership has a 2.0% interest. The note carrying amount is net of $39,000
allowance. The face amount represents the Realty Partnership's 2.0%
interest in the mortgage loan. The remaining payment amounts are passed
through to the participants.
(12) Forty equal principal payments of $237,500 each of which the Realty
Partnership has a 2.0% interest. The note carrying amount is net of $76,000
allowance. The face amount represents the Realty Partnership's 2.0%
interest in the mortgage loan. The remaining payment amounts are passed
through to the participants.
(13) Forty equal principal payments of $90,000 each of which the Realty
Partnership has a 2.0% interest. The note carrying amount is net of $29,000
allowance. The face amount represents the Realty Partnership's 2.0%
interest in the mortgage loan. The remaining payment amounts are passed
through to the participants.
(14) Interest only payable monthly. Interest calculated based upon 11.5%
interest rate, $1.8 million principal balance and actual/365-day basis.
Principal and all accrued and unpaid interest are due June 4, 2003.
(15) One hundred thirty-two equal installments of interest only. Principal and
all accrued and unpaid interest due October 1, 2006.
(16) Principal and all accrued and unpaid interest are due May 1999.
(17) Interest only payable monthly. Principal and all accrued and unpaid
interest are due December 2000.
(18) Interest only payable monthly. Principal and all accrued and unpaid
interest are due February 2005.
(Continued)
S-8
<PAGE> 117
SCHEDULE IV (CONTINUED)
STARWOOD HOTELS & RESORTS
RECONCILIATION OF MORTGAGE LOANS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Balance at beginning of period.............................. $ 51 $ 91 $ 80
Additions:
New mortgage loans........................................ 107 -- 31
Purchase accounting revaluation........................... 12 5 3
Deductions:
Principal repayments...................................... (6) (45) (23)
---- ---- ----
Balance at end of period.................................... $164 $ 51 $ 91
==== ==== ====
</TABLE>
INTERCOMPANY MORTGAGE ROLLFORWARD
DECEMBER 31, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
BEGINNING ACCRUED PRINCIPAL ENDING
DESCRIPTION BALANCE ADDITIONS INTEREST PAYMENTS BALANCE
- ----------- --------- --------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
W New York............................................... $ 40 $-- $-- $ -- $ 40
Westin Regina -- Cancun(1)............................... 43 -- 2 (6) 39
Westin Regina -- Los Cabos(1)............................ 55 -- 3 (14) 44
Westin Regina -- Puerto Vallarta(1)...................... 26 -- 2 (5) 23
Westin Hotel -- Turnberry(1)............................. 28 -- 2 -- 30
ITT Corporation.......................................... 2,699 -- -- -- 2,699
Starwood Hotels & Resorts Worldwide, Inc................. 100 -- -- -- 100
Starwood Hotels & Resorts Worldwide, Inc................. 50 -- -- -- 50
------ -- --- ---- ------
$3,041 $-- $ 9 $(25) $3,025
====== == === ==== ======
</TABLE>
- ---------------
(1) Per mortgage loan agreements, the borrowers are not required to pay monthly
interest if the cash flows are insufficient. Thus, the Trust has accrued
interest on the notes.
S-9
<PAGE> 118
INDEX OF EXHIBITS FILED HEREWITH
<TABLE>
<C> <S>
3.2 Charter of the Corporation, amended and restated as of
February 1, 1995, as amended through March 26, 1999.
10.1 Third Amended and Restated Limited Partnership Agreement for
Realty Partnership, dated January 6, 1999, among the Trust
and the limited partners of Realty Partnership.
10.2 Third Amended and Restated Limited Partnership Agreement for
Operating Partnership, dated January 6, 1999, among the
Corporation and the limited partners of Operating
Partnership.
10.9 Employment Agreement, dated October 1, 1998, between the
Corporation and Thomas C. Janson, Jr.(1)(2)
10.50 Sixth Amendment to the Credit Agreement, dated as of
December 15, 1998, among the Trust, Realty Partnership, the
Corporation, ITT, the lenders party to the Credit Agreement,
BTC and Chase Bank, as Administrative Agents, and Lehman
Paper and Bank of Montreal, as Syndication Agents.
10.51 Seventh Amendment to the Credit Agreement, dated as of
February 1999, among the Trust, Realty Partnership, the
Corporation, ITT, the lenders party to the Credit Agreement,
BTC and Chase Bank, as Administrative Agents, and Lehman
Paper and Bank of Montreal, as Syndication Agents.
10.58 Loan Agreement, dated as of January 27, 1999, among the
Borrowers named therein, as Borrowers, Starwood Operator I
LLC, as Operator, and Lehman Capital.
12.1 Calculation of Ratio of Earnings to Total Fixed Charges.
21.1 Subsidiaries of the Registrants.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule for the Corporation for the twelve
months ended December 31, 1998.
27.2 Financial Data Schedule for the Trust for the twelve months
ended December 31, 1998.
27.3 Restated Financial Data Schedule for the Corporation for the
nine months ended September 30, 1998.
27.4 Restated Financial Data Schedule for the Trust for the nine
months ended September 30, 1998.
27.5 Restated Financial Data Schedule for the Corporation for the
six months ended June 30, 1998.
27.6 Restated Financial Data Schedule for the Trust for the six
months ended June 30, 1998.
27.7 Restated Financial Data Schedule for the Corporation for the
three months ended March 31, 1998.
27.8 Restated Financial Data Schedule for the Trust for the three
months ended March 31, 1998.
27.9 Restated Financial Data Schedule for the Corporation for the
twelve months ended December 31, 1997.
27.10 Restated Financial Data Schedule for the Corporation for the
nine months ended September 30, 1997.
27.11 Restated Financial Data Schedule for the Corporation for the
six months ended June 30, 1997.
27.12 Restated Financial Data Schedule for the Corporation for the
three months ended March 31, 1997.
27.13 Restated Financial Data Schedule for the Corporation for the
twelve months ended December 31, 1996.
</TABLE>
<PAGE> 1
EXHIBIT 3.2
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
ARTICLES OF INCORPORATION
AS AMENDED AND RESTATED AS OF FEBRUARY 1, 1995
AS AMENDED AS OF MARCH 24, 1999
FIRST: The name of the corporation ("Corporation") is: Starwood
Hotels & Resorts Worldwide, Inc.
SECOND: The purposes for which the Corporation is formed are as
follows:
(a) To lease hotels, to acquire hotels, to manage hotels and other
real property, either directly or by entering into management contracts,
to perform services relating to real estate and to engage in other
activities involving hotels and other real estate.
(b) To engage in any lawful act or activity for which corporations
may be organized under, and to have and exercise any and all powers or
privileges now or hereafter conferred by, the Maryland General Corporation
Law or any Act amendatory thereof or supplemental thereto or in
substitution therefor.
THIRD: The post office address of the principal office of the
Corporation in Maryland is:
The Corporation Trust Incorporated
32 South Street
Baltimore, Maryland 21202
FOURTH: The name and post office address of the resident agent of
the Corporation in Maryland is:
The Corporation Trust Incorporated
32 South Street
Baltimore, Maryland 21202
FIFTH: The total number of shares of stock which the Corporation has
authority to issue is one billion three hundred and fifty million
(1,350,000,000) shares, consisting of (a) one billion (1,000,000,000) shares of
common stock with a par value of $0.01 per share, (b) two hundred million
(200,000,000) shares of preferred stock with a par value of $0.01 per share, (c)
fifty million (50,000,000) shares of excess common stock with a par value of
$0.01 per share, and (d) one hundred million (100,000,000) shares of excess
preferred stock with a par value of $0.01 per share. The preferred stock may be
issued in such series and with such preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
<PAGE> 2
distributions, qualifications, and terms and conditions of redemption, if any,
as may be fixed by the Board of Directors. The excess common stock and the
excess preferred stock shall have the rights provided in the NINTH Article
hereof. The aggregate par value of all shares of stock which the Corporation has
authority to issue is thirteen million five hundred thousand Dollars
($13,500,000). The Board of Directors may authorize the issuance from time to
time of shares of stock of the Corporation of any class or series, whether now
or hereafter authorized, or securities or rights convertible into shares of its
stock of any class or series, whether now or hereafter authorized, for such
consideration (whether in cash, property, past or future services, obligation
for future payment or otherwise) as the Board of Directors may deem advisable
(or without consideration in the case of a stock split or stock dividend),
subject to such restrictions or limitations, if any, as may be set forth in the
charter or the Bylaws.
SIXTH: (a) The Corporation shall have three Directors, which number
may be changed from time to time in such manner as the By-Laws of the
Corporation shall provide. The Directors 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 annual meeting of stockholders, the term of office of the
second class to expire at the 1996 annual meeting of stockholders and the term
of office of the third class to expire at the 1997 annual meeting of
stockholders, with each director to hold office until his or her successor shall
have been duly elected and qualified. At each annual meeting of stockholders,
commencing with the 1995 annual meeting, (i) Directors elected to succeed the
class of Directors whose terms then expire shall be elected for a term of office
to expire at the third succeeding annual meeting of stockholders after their
election, with each director of the class to hold office until his or her
successor shall have been duly elected and qualified, and (ii) except as
otherwise required by law, if authorized by a resolution of the Board of
Directors, Directors may be elected to fill any vacancy on the Board of
Directors, regardless of how such vacancy shall have been created.
(b) Except as otherwise required by law, unless the Board of
Directors otherwise determines, newly created Directorships resulting from any
increase in the authorized number of Directors or any vacancies on the Board of
Directors resulting from any cause shall be filled only by a majority vote of
the Directors then in office, though less than a quorum, and Directors so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been elected expires
and until such Director's successor shall have been duly elected and qualified.
No decrease in the numbers of authorized Directors constituting the entire Board
of Directors shall shorten the term of any incumbent Director.
(c) The names of the Directors of the Corporation as of the
amendment and restatement of the Charter herein set forth are as follows:
Bruce M. Ford
Graeme W. Henderson
Earle F. Jones
- 2 -
<PAGE> 3
SEVENTH: Notwithstanding the provisions of the SIXTH Article or any
limitations on removal of Directors, the stockholders of the Corporation may
remove any director, but only for cause, and only by the affirmative vote of
two-thirds (2/3) of all the votes entitled to be cast for the election of
Directors.
EIGHTH: No holder of capital stock of the Corporation shall be
entitled as a matter of right to subscribe for, purchase or receive any part of
any new or additional issue of capital stock of any class or any options or
warrants for such stock or any rights to subscribe to or purchase such stock or
securities convertible into or exchangeable for such stock whether now or
hereafter authorized or whether issued for money, for a consideration other than
money, or for no consideration.
NINTH: Restrictions on the transferability of stock of the
Corporation are as follows:
(a) Subject to paragraphs (b), (c) and (d) of this NINTH Article,
upon surrender to the Corporation or to any transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, the
Corporation, or its transfer agent, shall issue a new certificate to the
person entitled thereto, cancel the old certificate and record the
transaction upon the Corporation's books.
(b) Beginning at the time that the payment of a distribution in kind
of the shares of common stock of the 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 Starwood Lodging Trust, a Maryland real
estate investment trust ("SLT"), and the Corporation shall be terminated:
(i) The shares of common stock of the Corporation shall not be
transferable, and shall not be transferred on the books of the
Corporation unless (1) a simultaneous transfer of a like number of
shares of SLT is made by the same transferor to the same transferee,
or (2) such transferor has previously arranged with SLT for the
acquisition by the transferee of a like number of shares of SLT, and
in each case such shares are paired with one another.
(ii) Each certificate evidencing ownership of shares of SLT
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.
(iii) Any registered holder of a certificate evidencing
ownership of shares of SLT issued prior to the effective time of the
restriction may, upon request and presentation of such certificate
to the Corporation's 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 shares of SLT.
- 3 -
<PAGE> 4
(iv) A legend shall be placed on the face of each certificate
evidencing ownership of shares of common stock of the Corporation
issued after the effective time of the restriction, referring to the
restrictions on transfer set forth herein.
(c) Restrictions on Transfer.
(i) Definitions. The following terms shall have the following
meanings:
"Beneficial Ownership" shall mean ownership of shares of
capital stock by a Person who would be treated as an owner of such
shares of capital stock 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.
"Charitable Beneficiary" shall mean the organization or
organizations described in Sections 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 common stock and the
excess preferred stock.
"Excess Share Trust" shall mean the trust created pursuant to
paragraph (d) of this NINTH Article.
"Excess Share Trust Beneficiary" shall mean a beneficiary of
the Excess Share Trust as determined pursuant to paragraph (d) of
this NINTH Article.
"Excess Share Trustee" shall mean Nina Matis or any successor
appointed pursuant to paragraph (d) of this NINTH Article.
"Market Price" of any class of shares of capital stock 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 (1) 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 (2) if such class of
shares of capital stock is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated
transaction
- 4 -
<PAGE> 5
reporting system with respect to securities listed on the principal
national securities exchange on which such class of shares of
capital stock is listed or admitted to trading, or (3) if such class
of shares of capital stock 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 (4) if such class of shares of
capital stock 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 of capital
stock selected by the Board of Directors.
"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 of capital stock 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 of capital stock (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 of capital
stock 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 of capital stock
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 of capital stock 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 of capital stock Beneficially Owned by such Existing
Holder after giving effect to such decrease.
"Person" shall mean any individual, corporation, partnership,
joint stock company or association, joint venture, association,
company, trust, bank, limited liability company, estate, foundation
or other entity and any government, agency or political subdivision
thereof.
"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
of capital stock that were, pursuant to paragraph (c)(iii) of this
NINTH Article, 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 of capital
- 5 -
<PAGE> 6
stock if such Transfer had been valid under paragraph (c)(ii) of
this NINTH Article.
"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 of capital stock that were,
pursuant to paragraph (c)(iii) of this NINTH Article, 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 of capital stock if such Transfer had been valid under
paragraph (c)(ii) of this NINTH Article.
"REIT" shall mean a real estate investment trust for federal
income tax purposes.
"Restriction Termination Date" shall mean the first day of the
taxable year for which the Trustees of SLT have determined to
terminate SLT's status as a REIT.
"Transfer" shall mean any sale, transfer, gift, hypothecation,
pledge, assignment, devise or other disposition of shares of capital
stock (including (1) 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 of capital stock or (2) the
sale, transfer, assignment or other disposition of any securities or
rights convertible into or exchangeable for shares of capital
stock), 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 capital stock shall be
determined in accordance with Sections 318 and 544 of the Code.
(ii) Restrictions on Transfers and Other Events. On or after
the Restriction Termination Date, the provisions of paragraphs (c)
and (d) of this NINTH Article shall be of no further force and
effect. Prior to the Restriction Termination Date and except as
provided in subparagraph (ix) below:
(1) No Person shall Beneficially Own shares of capital
stock in excess of the Ownership Limit;
(2) Any Transfer that, if effective, would result in any
Person Beneficially Owning shares of capital stock in excess
of the Ownership Limit shall be void ab initio as to the
Transfer of that number of shares of capital stock which would
be otherwise Beneficially Owned by such Person
- 6 -
<PAGE> 7
in excess of the Ownership Limit and the intended transferee
shall acquire no rights in such shares of capital stock in
excess of the Ownership Limit;
(3) Any Transfer that, if effective, would result in the
shares of capital stock 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 of capital
stock; and
(4) Any Transfer of shares of capital stock that, if
effective, would result in the Corporation being "closely
held" within the meaning of Section 856(h) of the Code
(applied as if the Corporation was a REIT) shall be void ab
initio as to the Transfer of that number of shares of capital
stock which would cause SLT 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 of capital
stock.
(iii) Conversion into Excess Shares.
(1) If, notwithstanding the other provisions contained
in this NINTH Article, 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 of capital
stock in excess of the Ownership Limit, then, except as
otherwise provided in subparagraph (ix) below, such shares of
capital stock 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 common stock
or excess preferred stock, as appropriate, equal to the number
of shares of capital stock being converted, as further
described in clause (3) below. 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 NINTH Article, at any time prior to the Restriction
Termination Date, there is a purported Transfer or other event
which, if effective, would cause the Corporation to become
"closely held" within the meaning of Section 856(h) of the
Code (applied as if the Corporation was a REIT), then the
shares of capital stock being Transferred or which are
otherwise affected by such event and which, in either case,
would cause, when taken together with all other shares of
capital stock, the Corporation 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 shares of excess common stock or excess
preferred stock, as appropriate, equal to the number of shares
of capital stock being converted, as further described in
clause (3) below. Such conversion shall be effective
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<PAGE> 8
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 common stock or preferred stock
into Excess Shares pursuant to subparagraph (iii), common
stock shall be converted into excess common stock and
preferred stock shall be converted in excess preferred stock.
(iv) Remedies for Breach. If the Board of Directors or its
designees shall at any time determine in good faith that a purported
Transfer or other event has taken place in violation of paragraph
(c)(ii) of this NINTH Article or that a Person intends to acquire or
has attempted to acquire Beneficial Ownership of any shares of
capital stock in violation of paragraph (c)(ii) of this NINTH
Article, the Board of Directors or its designees may take such
action as it deems 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 Corporation 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 paragraph
(c)(ii) of this NINTH Article, shall be void ab initio and
automatically result in the conversion described in paragraph
(c)(iii), irrespective of any action (or non-action) by the Board of
Directors or its designees.
(v) Notice of Restricted Transfer. Any Person who acquires or
attempts to acquire shares of capital stock in violation of
paragraph (c)(ii) of this NINTH Article, or any Person who is a
purported transferee such that Excess Shares result under paragraph
(c)(iii), shall immediately give written notice to the Corporation
of such Transfer, attempted Transfer or other event and shall
provide to the Corporation such other information as the Corporation
may request in order to determine the effect, if any, of such
Transfer or attempted Transfer or other event on SLT's status as a
REIT.
(vi) Owners Required to Provide Information. Prior to the
Restriction Termination Date:
(1) Every Beneficial Owner of five percent (5% or more,
by value, vote or number, or such lower percentages as
required pursuant to regulations under the Code (applied as if
the Corporation was a REIT), of the outstanding shares of
capital stock shall, before January 30 of each year, give
written notice to the Corporation 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
capital stock Beneficially Owned, and a description of how
such shares are held.
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<PAGE> 9
(2) Each Person who is a Beneficial Owner of shares of
capital stock and each Person (including the shareholder of
record) who is holding shares of capital stock for a
Beneficial owner shall provide on demand to the Corporation
such information as the Corporation may request from time to
time in order to ensure compliance with the ownership Limit
and SLT's compliance with the REIT requirements of the Code
and the regulations published thereunder.
(vii) Remedies Not Limited. Subject to paragraph (c)(xii) of
this NINTH Article, nothing contained in this NINTH Article shall
limit the authority of the Board of Directors to take such other
action as it deems necessary or advisable to protect SLT and the
interests of the Corporation's stockholders by preservation of SLT's
status as a REIT and to ensure compliance with the Ownership Limit.
(viii) Ambiguity. In the case of an ambiguity in the
application of any of the provisions of this paragraph (c) or
paragraph (d), including any definition contained in subparagraph
(c)(i), the Board of Directors shall have the power to determine the
application of the provisions of this paragraph (c) or paragraph (d)
with respect to any situation based on the facts known to them.
(ix) Exception. The Board of Directors 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 SLT's status as a REIT will not be
jeopardized, may exempt a Person from the Ownership Limit if the
Board of Directors obtains such representations and undertakings
from such Person as are reasonably necessary to ascertain that such
Person's Beneficial Ownership of shares of capital stock will not
jeopardize SLT's status as a REIT.
(x) Legend. Until the Restriction Termination Date, each
certificate for the respective class of shares of capital stock
shall bear the following legend:
The shares of capital stock represented by this
certificate are subject to restrictions on transfer. Unless
excepted by the Board of Directors, no Person may (1)
Beneficially Own shares of capital stock in excess of 8.096 of
the outstanding shares of capital stock, by value, vote or
number, determined as provided in the Corporation's Articles
of Incorporation, as the same may be amended from time to time
(the "Articles"), and computed with regard to all outstanding
shares of capital stock and, to the extent provided by the
Code, all shares of capital stock issuable under existing
options and exchange rights that have not been exercised; or
(2) Beneficially Own shares of capital stock which would
result in SLT being "closely held." Unless so excepted, any
acquisition of shares of capital stock and continued holding
of ownership
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<PAGE> 10
constitutes a continuous representation of compliance with the
above limitations, and any Person who attempts to Beneficially
Own shares of capital stock in excess of the above limitations
has an affirmative obligation to notify the Corporation
immediately upon such attempt. If the restrictions on transfer
are violated, the transfer will be void ab initio and the
shares of capital stock 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 Corporation. 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
Articles. The Corporation will mail without charge to any
requesting stockholder a copy of the Articles, including the
express terms of each class and series of the authorized
shares of capital stock of the Corporation, within five (5)
days after receipt of a written request therefor.
(xi) Severability. If any provision of this NINTH Article 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.
(xii) New York Stock Exchange Transactions. Nothing in this
NINTH Article shall preclude the settlement of any transaction
entered into through the facilities of the New York Stock Exchange.
(d) Excess Shares.
(i) Ownership In Trust. Upon any purported Transfer or other
event that results in Excess Shares pursuant to paragraph (c)(iii)
of this NINTH Article, 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 Corporation. 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
paragraph (d)(v). Nina Matis, or any successor Excess Share Trustee,
may resign by appointing a person independent of SLT, the
Corporation or any Excess Share Trust Beneficiary as the Excess
Share Trustee. The Excess Share Trustee shall, from time to time,
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<PAGE> 11
designate one or more charitable organization or organizations as
the Charitable Beneficiary.
(ii) 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 Corporation that the shares of capital stock 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. All dividends received or
other income earned by the Excess Share Trust shall be paid over to
the Charitable Beneficiary.
(iii) Rights Upon Liquidation. Excess Shares shall not be
entitled to receive any portion of the assets of the Corporation on
the liquidation or dissolution of the Corporation. Upon conversion
of Excess Shares into shares of capital stock pursuant to paragraph
(d)(v), such shares shall be entitled to receive their pro rata
share of the assets of the Corporation as a result of the
liquidation or dissolution of the Corporation.
(iv) Voting Rights. The Excess Share Trustee shall vote the
Excess Shares which shall have the same voting rights as the shares
of capital stock into which they are to be converted pursuant to
paragraph (d)(v). Any vote cast by the Purported Beneficial
Transferee or Purported Record Transferee will, at the option of the
Excess Share Trustee, be void ab initio.
(v) 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 clause), 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 of capital stock on the date of the purported
Transfer that resulted in the Excess Shares. If 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
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<PAGE> 12
reflects a price per share of Excess Shares equal to the lesser of
(A) the price per share received by the Excess Share Trustee or (B)
the Market Price of the shares of capital stock 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 common or preferred stock
(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 of common or preferred stock 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 of capital stock 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
Corporation must have waived in writing its purchase rights, if any,
under paragraph (d)(vi). 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 Corporation shall pay the costs and
expenses of the Excess Share Trustee.
(2) Notwithstanding the foregoing, if a Purported Beneficial
Transferee, Purported Beneficial Holder or the Excess Share Trustee
receives a price for an interest in the Excess Share Trust that
exceeds the amounts allowable under paragraph (d)(v)(1) of this
NINTH Article, 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
paragraph (d)(v) 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 option of the Corporation, to
have acted as an agent on behalf of the Corporation, in acquiring or
holding such Excess Shares and to hold such Excess Shares on behalf
of the Corporation.
(vi) Purchase Right in Excess Shares. Excess Shares shall be
deemed to have been offered for sale by the Excess Share Trustee to
the Corporation, 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 of
capital stock in the transaction that created such Excess Shares
(or, in the case of devise or gift, the Market Price of the shares
of capital stock at the time of such devise or gift), or (B) the
lowest Market Price of the class of shares of capital stock 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
Corporation, or its designee, accepts such offer or (II) in the case
of Excess Shares resulting from an
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<PAGE> 13
event other than a purported Transfer, the lesser of (A) the Market
Price of the shares of capital stock on the date of such event or
(B) the lowest Market Price for shares of capital stock 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
Corporation, or its designee, accepts such offer. The Corporation
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 Board of
Directors determines in good faith that a Transfer or other event
resulting in Excess Shares has occurred, if the Corporation does not
receive a notice of such Transfer or other event pursuant to
paragraph (c)(v) of this NINTH Article.
(e) Notwithstanding any other provision of these Articles of
Incorporation 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 capital stock required by law
or these Articles of Incorporation, the affirmative vote of the holders of
at least two-thirds (2/3) of the voting power of all the then-outstanding
shares of capital stock of the Corporation, voting together as a single
class, shall be required to alter, amend or repeal this NINTH Article.
TENTH: The Corporation shall indemnify (A) its directors and
officers, whether serving the Corporation or at its request any other entity, to
the full extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of expenses under the
procedures and to the full extent permitted by law and (B) other employees and
agents to such extent as shall be authorized by the Board of Directors or the
Corporation's By-Laws and be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such by-laws,
resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. No amendment of the
charter of the Corporation or repeal of any of its provisions shall limit or
eliminate the right to indemnification provided hereunder with respect to acts
or omissions occurring prior to such amendment or repeal.
ELEVENTH: The provisions for the regulation of the internal affairs
of the Corporation are to be stated in the Bylaws of the Corporation, as the
same may be amended from time to time.
TWELFTH: Any amendments to these Articles of Incorporation shall be
approved by the stockholders of the Corporation by the affirmative vote of a
majority of all the votes entitled to be cast on the matter.
THIRTEENTH: The Corporation shall not consummate a consolidation,
merger, share exchange or sale, lease, exchange or other transfer of all or
substantially all of its assets, the stockholder approval of which is required
by applicable law, unless such transaction is approved
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<PAGE> 14
by the stockholders of the Corporation by the affirmative vote of a majority of
all the votes entitled to be cast on the matter.
FOURTEENTH: To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted from time to time, no director or
officer of the Corporation shall be liable to the Corporation or its
stockholders for money damages. No amendment to these Articles of Incorporation
or repeal of any of its provisions shall limit or eliminate the effect of this
FOURTEENTH Article with respect to any act or omission which occurs prior to
such amendment or repeal.
FIFTEENTH: In order to enable the Corporation and any Subsidiary (as
hereinafter defined) to secure and maintain in good standing all licenses,
franchises and other regulatory approvals issued by Gaming Authorities (as
hereinafter defined) which are necessary for the lawful operation of gaming and
related businesses now or hereafter engaged in by the Corporation or any
Subsidiary within or without the United States of America, which licenses,
franchises or other regulatory approvals are conditioned upon some or all of the
holders of the Corporation's stock possessing prescribed qualifications (the
"Gaming Licenses"), and in order to insure that the business of the Corporation
and its Subsidiaries will be carried on in compliance with the laws and
regulations governing the conduct of gaming and related businesses (the "Gaming
Laws"), the following provisions are made and shall apply for so long as the
Corporation is subject to Gaming Laws:
(a) Securities (as hereinafter defined) of the Corporation shall be
subject to redemption by the Corporation, pursuant to Section 78.196 of
the Nevada Revised Statutes or any other applicable provision of law, to
the extent necessary to prevent the loss or to secure the reinstatement of
any Gaming License held by the Corporation or any Subsidiary.
(b) Securities of the Corporation shall be held subject to the
condition that if a holder thereof is found by a Gaming Authority to be
disqualified or unsuitable pursuant to any Gaming Law (a "Disqualified
Holder"), such holder shall dispose of all of the Corporation's Securities
held by such holder within the 120 day period (the "Disposition Period")
commencing on the date (the "Notice Date") upon which the Corporation
shall have received notice from a Gaming Authority of such holder's
disqualification or unsuitability (the "Disqualification Notice").
Promptly following its receipt of a Disqualification Notice, the
Corporation shall cause such Disqualification Notice to be delivered to
the Disqualified Holder named therein by personal delivery, by mailing it
to the address shown on the Corporation's books and records or through the
use of any other reasonable means. Failure of the Corporation to provide
such Disqualification Notice to a Disqualified Holder after making
reasonable efforts to do so shall not preclude the Corporation from
exercising its rights.
(c) If any Disqualified Holder fails to dispose of the Corporation's
Securities within the Disposition Period, the Corporation may redeem such
Securities at the lesser of (1) the lowest closing sale price of such
Securities on any trading day during the
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<PAGE> 15
Disposition Period or (2) such Disqualified Holder's original purchase
price; provided, that if the Securities to be so redeemed are paired with
securities of SLT (the Securities of the Corporation and the securities of
SLT when so paired being herein referred to as "Paired Securities")
pursuant to the Pairing Agreement, dated as of June 25, 1980, as amended,
between SLT and the Corporation, the Corporation and SLT may redeem such
Paired Securities for an aggregate amount equal to the lesser of (1) the
lowest closing sale price of such Paired Securities on any trading day
during the Disposition Period or (2) such Disqualified Holder's original
purchase price for such Paired Securities.
(d) Commencing on the Notice Date, it shall be unlawful for a
Disqualified Holder to:
(1) receive payments of dividends or interest upon any
Securities of the Corporation held by such Disqualified Holder,
(2) exercise, directly or indirectly, any right conferred by
the Corporation's Securities upon the holders thereof, or
(3) receive any remuneration in any form, for services
rendered or otherwise, from the Subsidiary of the Corporation that
holds a Gaming License.
(e) The Board of Directors shall have the power to determine, on the
basis of information known to the Board after reasonable inquiry, all
questions arising under this Article FIFTEENTH including, without
limitation, (1) whether a person is a Disqualified Holder, (2) whether a
Disqualified Holder has disposed of Securities pursuant to Paragraph (b)
of this Article FIFTEENTH and (3) the amount of Securities held directly
or indirectly by any person. Any such determination shall be binding and
conclusive on all such persons.
(f) The Corporation shall be entitled to injunctive relief in any
court of competent jurisdiction to enforce the provisions of this Article
FIFTEENTH, and each holder of Securities of the Corporation will be deemed
to have acknowledged by acquiring or retaining Securities of the
Corporation that failure to comply with this Article FIFTEENTH will expose
the Corporation to irreparable injury for which there is not adequate
remedy at law and that the Corporation is entitled to injunctive relief to
enforce the provisions of this Article FIFTEENTH.
(g) A Disqualified Holder shall indemnify the Corporation and its
Subsidiaries for any and all direct or indirect costs (including
attorney's fees) incurred by the Corporation as a result of such holder's
continuing ownership of or failure to divest the Securities.
(h) The following definitions shall apply with respect to this
Article FIFTEENTH:
(1) The term "Gaming Authorities" includes all governmental
authorities within or without the United States of America which
issue or grant any license,
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<PAGE> 16
franchise or regulatory approval necessary or appropriate for the
lawful operation of gaming and related businesses. With respect to
the State of Nevada, the term "Gaming Authorities" shall include,
without limitation, the Nevada Gaming Commission, the Nevada State
Gaming Control Board or their respective successors; and with
respect to Atlantic City, New Jersey, the term "Gaming Authorities"
shall include, without limitation, the New Jersey Casino Control
Commission, the Division of Gaming Enforcement or their respective
successors.
(2) The term "Securities" means any instrument evidencing a
direct or indirect beneficial ownership or creditor interest in the
Corporation, including but not limited to, Common Stock, Preferred
Stock, bonds, mortgages, debentures, security agreements, notes,
warrants, options and rights.
(3) The term "Subsidiary" (A) in matters relating to Gaming
Laws of the State of New Jersey, shall have the definition set forth
in the New Jersey Statutes Annotated 5:12-47 or (B) in matters
relating to Gaming Laws outside of the State of New Jersey, means
(i) a corporation, more than 50% of the outstanding voting
securities of which the Corporation or a Subsidiary of the
Corporation owns or has the power to vote or (ii) a firm,
association, partnership, limited liability company, trust or other
form of business organization, not a natural person, of which the
Corporation or a Subsidiary of the Corporation owns or has the power
to vote a majority interest.
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<PAGE> 17
ARTICLES SUPPLEMENTARY
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation
(the "Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Under a power contained in Article FIFTH of the charter of
the Corporation (the "Charter") in accordance with Section 2-208 of the Maryland
General Corporation Law (the "MGCL"), the Board of Directors of the Corporation
(the "Board of Directors"), by resolution duly adopted at a meeting duly called
and held, classified and designated 1,000,000 shares (the "Shares") of Preferred
Stock of the Corporation, par value $.01 per share, as shares of Series A Junior
Participating Preferred Stock of the Corporation, par value $.01 per share (the
"Series A Preferred Stock"), with the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption as follows,
which upon any restatement of the Charter shall be made part of Article FIFTH of
the Charter, with any necessary or appropriate changes to the enumeration or
lettering of the provisions thereof (all capitalized terms used herein that are
defined in the Charter shall be deemed to have the meanings provided therein):
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series A Junior Participating Preferred Stock" and the number
of shares constituting such series shall be 1,000,000. Such number of shares may
be increased or decreased by resolution of the Board of Directors and filing of
articles supplementary in accordance with the MGCL stating that such increase or
decrease has been so authorized; provided, however, that no decrease shall
reduce the number of shares of Series A Preferred Stock to a number less than
the number of shares of Series A Preferred Stock then outstanding plus the
number of shares reserved for issuance upon the exercise of outstanding options,
rights or warrants or upon conversion of any outstanding securities issued by
the Corporation convertible into shares of Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock shall be entitled to receive, when, as and if
authorized by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first business day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series A Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $.01 or (b) subject to the provisions
for adjustment hereinafter set forth, (i) 1000 times the aggregate per share
amount of all cash dividends, and 1000 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in
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<PAGE> 18
shares of common stock, par value $.01 per share, of the Corporation (the
"Common Stock") or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preferred Stock, plus (ii) 1000 times the
aggregate per share amount of all cash dividends, and 1000 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in Class B Shares of beneficial
interest, par value $.01 per share, of Starwood Hotels & Resorts, a Maryland
real estate investment trust, or any successor (the "Trust"), or any shares of
beneficial interest in the Trust into which such Class B Shares may be changed
(such Class B Shares and any such shares into which such Class B Shares are
changed being herein referred to as the "Class B Shares") or a subdivision of
the outstanding Class B Shares (by reclassification or otherwise), declared on
the Class B Shares since the immediately preceding Quarterly Dividend Payment
Date, or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series A Preferred Stock.
In the event the Corporation shall at any time after March 15, 1999 (the "Rights
Declaration Date") (x) declare any dividend on Common Stock payable in shares of
Common Stock, (y) subdivide the outstanding Common Stock or (z) combine the
outstanding Common Stock into a smaller number of shares, then in each case the
amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (b)(i) of the next preceding
sentence shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event. In
the event the Trust shall at any time after the Rights Declaration Date (X)
declare any dividend on the Class B Shares payable in Class B Shares, (Y)
subdivide the outstanding Class B Shares or (Z) combine the outstanding Class B
Shares into a smaller number of shares, then in each case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under clause (b)(ii) of the second preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of Class B Shares outstanding immediately after such event and the
denominator of which is the number of Class B Shares that were outstanding
immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) above immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock) or the Trust declares a dividend or
distribution on the Class B Shares (other than a dividend payable in Class B
Shares); provided, however, that, in the event no dividend or distribution shall
have been declared on the Common Stock or the Class B Shares during the period
between any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, subject to the prior and superior rights of the holders
of any shares of any series of Preferred Stock ranking prior to and superior to
the shares of Series A Preferred Stock with respect to dividends, a dividend of
$.01 per share on the Series A Preferred Stock shall nevertheless by payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of
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<PAGE> 19
such shares of Series A Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series A Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be no more
than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights.
The holders of shares of Series A Preferred Stock shall have the
following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to 1000
votes on all matters submitted to a vote of the stockholders of the Corporation.
In the event the Corporation shall at any time after the Rights Declaration Date
(i) declare and pay any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the number of votes per share to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, the holders of shares of
Series A Preferred Stock and the holders of shares of Common Stock shall vote
collectively as one class on all matters submitted to a vote of stockholders of
the Corporation.
(C)(i) If at any time dividends on any Series A Preferred Stock
shall be in arrears in an amount equal to six quarterly dividends thereon,
the occurrence of such contingency shall mark the beginning of a period
(herein called a "default period") which shall extend until such time when
all accrued and unpaid dividends for all previous quarterly dividend
periods and for the current quarterly dividend period on all shares of
Series A Preferred Stock then outstanding shall have been declared and
paid or set apart for payment. During each default period, all holders of
Preferred Stock (including holders of the Series A Preferred Stock) with
dividends in arrears in an amount equal to six quarterly dividends
thereon, voting as a class, irrespective of series, shall have the right
to elect two Directors.
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<PAGE> 20
(ii) During any default period, such voting right of the holders of
Series A Preferred Stock may be exercised initially at a special meeting
called pursuant to subparagraph (iii) of this Section 3(C) or at any
annual meeting of stockholders, and thereafter at annual meetings of
stockholders, provided that such voting right shall not be exercised
unless the holders of 10% in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The absence of a
quorum of the holders of Common Stock shall not affect the exercise by the
holders of Preferred Stock of such voting rights. At any meeting at which
the holders of Preferred Stock shall exercise such voting rights initially
during an existing default period, they shall have the right, voting as a
class, to elect Directors to fill such vacancies, if any, in the Board of
Directors as may then exist up to two Directors or, if such right is
exercised at an annual meeting, to elect two Directors. If the number
which may be so elected at any special meeting does not amount to the
required number, the holders of the Preferred Stock shall have the right
to make such increase in the number of Directors as shall be necessary to
permit the election by them of the required number. After the holders of
the Preferred Stock shall have exercised their right to elect Directors in
any default period and during the continuance of such period, the number
of Directors shall not be increased or decreased except by vote of the
holders of Preferred Stock as herein provided or pursuant to the rights of
any equity securities ranking senior to or pari passu with the Series A
Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any stockholder or
stockholders owning in the aggregate not less than 10% of the total number
of shares of Preferred Stock outstanding, irrespective of series, may
request, the calling of a special meeting of the holders of Preferred
Stock, which meeting shall thereupon be called by the Chairman of the
Board, the Chief Executive Officer, the President, a Vice President or the
Secretary of the Corporation. Notice of such meeting and of any annual
meeting at which holders of Preferred Stock are entitled to vote pursuant
to this paragraph (C)(iii) shall be given to each holder of record of
Preferred Stock by mailing a copy of such notice to him or her at his or
her last address as the same appears on the books of the Corporation. Such
meeting shall be called for a time not earlier than 10 days and not later
than 50 days after such order or request, or in default of the calling of
such meeting within 50 days after such order or request, such meeting may
be called on similar notice by any stockholder or stockholders owning in
the aggregate not less than 10% of the total number of shares of Preferred
Stock outstanding. Notwithstanding the provisions of this paragraph
(C)(iii), no such special meeting shall be called during the period within
50 days immediately preceding the date fixed for the next annual meeting
of the stockholders.
(iv) In any default period, the holders of Common Stock, and, if
applicable, other classes of stock of the Corporation, shall continue to
be entitled to elect the whole number of Directors until the holders of
Preferred Stock shall have exercised their right, voting as a class, to
elect two Directors, after the exercise of which right (x) the Directors
so elected by the holders of Preferred Stock shall continue in office
until their successors shall have been elected by such holders or until
the expiration of the default period and (y) any vacancy in the Board of
Directors may (except as provided in paragraph (C)(ii) of this Section 3)
be filled
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<PAGE> 21
by vote of a majority of the remaining Directors theretofore elected by
the holders of the class of stock that elected the Director whose office
shall have become vacant. References in this paragraph (C) to Directors
elected by the holders of a particular class of stock shall include
Directors appointed by such Directors to fill vacancies as provided in
clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock as a class to elect Directors
shall cease, (y) the term of any Directors elected by the holders of
Preferred Stock as a class shall terminate and (z) the number of Directors
shall be such number as may be provided for in the Charter or by-laws
irrespective of any increase made pursuant to the provisions of paragraph
(C)(ii) of this Section 3 (such number being subject, however, to change
thereafter in any manner provided by law or in the Charter or by-laws).
Any vacancies in the Board of Directors effected by the provisions of
clauses (y) and (z) in the preceding sentence may be filled by a majority
of the remaining Directors.
(D) Except as set forth herein, holders of Series A Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action (including any merger or any
issuance of Preferred Stock senior in right of payment or otherwise to the
Series A Preferred Stock).
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in
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<PAGE> 22
exchange for shares of any stock of the Corporation ranking junior (either
as to dividends or upon dissolution, liquidation or winding up) to the
Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of stock ranking on a parity with
the Series A Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares.
Any shares of Series A Preferred Stock purchased or otherwise
acquired by the Corporation in any manner whatsoever shall become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation (a "Liquidation Event"), no distribution shall be
made to the holders of shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Preferred Stock
unless, prior thereto, the holders of shares of Series A Preferred Stock shall
have received the sum (the "Series A Liquidation Preference") of (a) $1000 per
share, plus (b) an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment,
plus (c) an amount equal to the fair market value (as determined in good faith
by the Board of Directors) as of such date of all securities (or fractions
thereof) then attached to a share of Common Stock for purposes of the Amended
and Restated Intercompany Agreement dated as of January 6, 1999, between the
Corporation and the Trust, as amended from time to time. Following the payment
of the full amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series A Preferred Stock
unless, prior thereto, the holders of shares of Common Stock shall have received
an amount per share (the "Common Adjustment") equal to the quotient obtained by
dividing (i) the sum of (X) $1000 per share plus (Y) an amount equal to accrued
and unpaid dividends and distributions on the Series A Preferred Stock, whether
or not declared, to the date of payment of the Series A Liquidation Preference
by (ii) 1000 (as appropriately adjusted as set forth in subparagraph (C) below
to reflect such events as stock splits,
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<PAGE> 23
stock dividends and recapitalizations with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Following the payment of the
full amount of the Series A Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Series A Preferred Stock and Common Stock,
respectively, and the payment of liquidation preferences of all other shares of
stock which rank prior to or on a parity with Series A Preferred Stock, holders
of Series A Preferred Stock and holders of shares of Common Stock shall receive
their ratable and proportionate share of the remaining assets to be distributed
in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock
and Common Stock, on a per share basis, respectively. In determining whether a
distribution (other than upon the occurrence of a Liquidation Event), by
dividend, redemption or other acquisition of shares of stock of the Corporation
or otherwise, is permitted under Maryland law, amounts that would be needed, if
the Corporation were to be dissolved at the time of the distribution, to satisfy
the preferential rights upon dissolution of the holders of the Series A
Preferred Stock whose preferential rights upon dissolution are senior to those
receiving the distribution shall not be added to the Corporation's total
liabilities.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series A Preferred Stock, then such remaining
assets shall be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences. In the event, however,
that there are not sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be distributed ratably to
the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare and pay any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc.
In case the Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case each share of Series A Preferred Stock shall at
the same time be similarly exchanged or changed into an amount per share
(subject to the provision for adjustment hereinafter set forth) equal to 1000
times the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, that would be held or receivable upon the
consummation of such consolidation, merger, combination or other transaction by
a holder of a Unit. In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare and pay any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the amount set forth in the preceding sentence
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<PAGE> 24
with respect to the exchange or change of shares of Series A Preferred Stock
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 8. No Redemption.
The shares of Series A Preferred Stock shall not be redeemable.
Section 9. Ranking.
The Series A Preferred Stock shall rank junior to all other series
of the Corporation's Preferred Stock as to the payment of dividends and the
distribution of assets, whether or not upon the dissolution, liquidation or
winding up of the Corporation, unless the terms of any such series shall provide
otherwise.
Section 10. Amendment.
The Charter shall not be amended in any manner that would materially
alter or change the powers, preferences or special rights of the Series A
Preferred Stock, as set forth herein, so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Series A Preferred Stock, voting separately as a class.
Section 11. Fractional Shares.
Series A Preferred Stock may be issued in fractions of a share which
shall entitle the holder, in proportion to such holder's fractional shares, to
exercise voting rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of Series A Preferred Stock.
SECOND: The Shares have been classified and designated by the Board
of Directors under the authority contained in the Charter.
THIRD: These Articles Supplementary have been approved by the Board
of Directors in the manner and by the vote required by law.
FOURTH: The undersigned President of the Corporation acknowledges
these Articles Supplementary to be the corporate act of the Corporation and, as
to all matters or facts required to be verified under oath, the undersigned
acknowledges that to the best of his knowledge, information and belief, these
matters and facts are true in all material respects and that this statement is
made under the penalties for perjury.
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<PAGE> 25
IN WITNESS WHEREOF, Starwood Hotels & Resorts Worldwide, Inc. has
caused its corporate seal to be hereunto affixed and these Articles
Supplementary to be signed by its President and Chief Operating Officer, and the
same to be attested to by its Executive Vice President, General Counsel and
Secretary, this 24th day of March, 1999.
STARWOOD HOTELS & RESORTS
WORLDWIDE, INC.
By: /s/ Richard D. Nanula
--------------------------------------
Name: Richard D. Nanula
Title: President and Chief Operating Officer
(Corporate Seal)
Attest:
/s/ Thomas C. Janson, Jr.
- -----------------------------------------
Name: Thomas C. Janson, Jr.
Title: Executive Vice President,
General Counsel and Secretary
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<PAGE> 1
EXHIBIT 10.1
===================================================
THIRD
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
SLT REALTY LIMITED PARTNERSHIP
===================================================
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1
Definitions..........................................................4
1.1 Definitions.................................................4
ARTICLE 2
Continuation and Business of the Partnership........................17
2.1 Continuation...............................................17
2.2 Name.......................................................17
2.3 Character of the Business..................................17
2.4 Location of Principal Place of Business....................18
2.5 Registered Agent and Registered Office.....................18
2.6 Restatement of Agreement...................................18
ARTICLE 3
Term................................................................18
3.1 Commencement...............................................18
3.2 Dissolution................................................18
ARTICLE 4
Capital Contributions...............................................19
4.1 Capital Contributions; RP Units............................19
4.2 Redemption of RP Units Held by Limited Partner. .........20
4.3 Percentage Interests.......................................21
4.4 Purchase Rights............................................21
4.5 No Third Party Beneficiaries...............................21
4.6 No Interest on or Return of Capital Contribution...........21
ARTICLE 5
Indemnification.....................................................22
5.1 Indemnification of the General Partner.....................22
5.2 Indemnification of Limited Partners........................23
5.3 Notice of Claims...........................................24
5.4 Third Party Claims.........................................24
5.5 Indemnification Pursuant to Formation Agreement............25
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<PAGE> 3
ARTICLE 6
Allocations, Distributions and Other Tax and Accounting Matters.....25
6.1 Allocations................................................25
6.2 Distributions..............................................30
6.3 Books of Account...........................................31
6.4 Reports....................................................31
6.5 Tax Elections and Returns..................................31
6.6 Tax Matters Partner........................................31
6.7 Withholding Payments Required By Law.......................32
ARTICLE 7
Rights, Duties and Restrictions of the General Partner..............33
7.1 Powers and Duties of the General Partner...................33
7.2 Reimbursement of the General Partner.......................36
7.3 Outside Activities of the General Partner..................37
7.4 Contracts with Affiliates..................................37
7.5 Title to Partnership Assets................................37
7.6 Reliance by Third Parties..................................38
7.7 Liability of the General Partner...........................38
7.8 Other Matters Concerning the General Partner...............39
7.9 Operation of SLT in Accordance with REIT Requirements......39
7.10 Replacement of General Partner.............................40
ARTICLE 8
Dissolution, Liquidation and Winding-Up.............................40
8.1 Accounting.................................................40
8.2 Distribution on Dissolution................................40
8.3 Documentation of Liquidation...............................41
ARTICLE 9
Transfer............................................................41
9.1 General Partner............................................41
9.2 Transfers by Limited Partners..............................42
9.3 Certain Restrictions on Transfer...........................43
9.4 Effective Dates of Transfers...............................44
9.5 Transfer...................................................45
ARTICLE 10
Rights and Obligations of the Limited Partners......................45
10.1 No Participation in Management.............................45
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<PAGE> 4
10.2 Bankruptcy of a Limited Partner............................45
10.3 No Withdrawal..............................................45
10.4 Conflicts..................................................45
10.5 Provision of Information...................................46
10.6 Power of Attorney..........................................47
10.7 Ownership of Starwood Units................................48
10.8 Waiver of Fiduciary Duty...................................48
ARTICLE 11
Amendment of Partnership Agreement, Meetings........................49
11.1 Amendments.................................................49
11.2 Meetings of the Partners; Notices to Partners..............50
11.3 Mergers ...................................................51
ARTICLE 12
General Provisions..................................................51
12.1 No Liability of Directors and Others.......................51
12.2 Notices....................................................51
12.3 Controlling Law............................................52
12.4 Execution of Counterparts..................................52
12.5 Severability...............................................52
12.6 Entire Agreement...........................................52
12.7 Paragraph Headings.........................................52
12.8 Gender, Etc................................................52
12.9 Number of Days.............................................52
12.10 Partners Not Agents........................................53
12.11 Assurances.................................................53
12.12 Waiver of Partition........................................53
12.13 Starwood Hotels & Resorts..................................53
LIST OF EXHIBITS
Exhibit
A List of Partners, Percentage Interests and RP Units
A-1 List of Class A Limited Partners, Percentage Interests and Class A RP
Units
B Notice Addresses of Partners
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<PAGE> 5
THE LIMITED PARTNERSHIP INTERESTS REFERRED TO IN THIS AGREEMENT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS. REFERENCE IS MADE TO ARTICLE 9 OF THIS
AGREEMENT FOR PROVISIONS RELATING TO VARIOUS RESTRICTIONS ON THE SALE
OR OTHER TRANSFER OF THESE INTERESTS.
THIRD
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
SLT REALTY LIMITED PARTNERSHIP
THIS THIRD AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT (this "Agreement") is made and entered into as of the Effective Time
(as defined below) by and among Starwood Hotels & Resorts, a Maryland real
estate investment trust ("SLT"), as General Partner, and the persons whose names
are set forth on Exhibit A and Exhibit A-1 hereto, as each such Exhibit may be
amended from time to time, as limited partners, pursuant to the provisions of
the Delaware Revised Uniform Limited Partnership Act (the "Act").
RECITALS
A. SLT, Berl Holdings, L.P., Starwood-Apollo Hotel Partners VIII, L.P.,
Starwood-Apollo Hotel Partners IX, L.P., Starwood-Nomura Hotel Investors, L.P.,
Starwood/Wichita Investors, L.P., Starwood-Huntington Partners, L.P., and
Woodstar Partners I, L.P., were the parties to that certain Limited Partnership
Agreement of SLT Realty Limited Partnership dated as of December 15, 1994
(hereinafter, the "Original Agreement" and the "Partnership," respectively).
B. Firebird Consolidated Partners, L.P., was admitted as a limited
partner of the Partnership pursuant to that certain Admission of Limited
Partner, Consent and Amendment dated March 24, 1995.
C. The Original Agreement was restated by that certain Amended and
Restated Limited Partnership Agreement of SLT Realty Limited Partnership by and
between SLT, as General Partner, and the Limited Partners of the Partnership, as
such group was then constituted, dated as of June 29, 1995 (the "Original
Restated Agreement").
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<PAGE> 6
D. The Original Restated Agreement was amended by that certain
Amendment by and between SLT, as General Partner, and the Limited Partners of
the Partnership, as such group was then constituted, dated as of May 14, 1996.
E. Philadelphia HSR Limited Partnership ("HSR") was admitted as a
limited partner of the Partnership pursuant to that certain Admission of Limited
Partner, Consent and Amendment (Realty Partnership) dated as of June 3, 1996.
F. Starwood/Wichita Investors, L.P., Berl Holdings, L.P.,
Starwood-Huntington, L.P., Woodstar Partners I, L.P., and Wichita Harvey
Partners, Ltd., transferred their respective interests in the Partnership to SRL
Holdings, Inc., Starwood Capital Group I, L.P., Starwood Opportunity Fund II,
L.P., Moonwood Investment Partners, L.P., Woodstar II, L.P., Hospitality
Partners, Bristol Hotel Management Corp., and Edward J. Rohling, and each such
Person was admitted as a limited partner of the Partnership pursuant to that
certain Admission of Limited Partners Agreement dated as of June 4, 1996.
G. Philadelphia HIR Limited Partnership ("HIR") was admitted as a
limited partner of the Partnership pursuant to that certain Admission of Limited
Partner, Consent and Amendment (Realty Partnership) dated as of July 1, 1996.
H. Starwood-Apollo Hotel Partners VIII, L.P., transferred its interest
in the Partnership to SAHI, Inc., Starwood Hotel Investors, L.P., and AP-GP
Midstar Hotels VIII, Inc.; Starwood-Apollo Hotel Partners IX, L.P., transferred
its interest in the Partnership to SAHI, Inc., Starwood Hotel Investors, L.P.,
and AP-GP Midstar Hotels IX, Inc.; Starwood Hotel Investors, L.P., transferred
its interest in the Partnership to Starwood Hotel Investors II, L.P., SAHI, Inc.
and AP-GP Master Midstar, L.P.; and AP-GP Midstar Hotels VIII, Inc., AP-GP
Midstar Hotels IX, Inc., and AP-GP Master Midstar, L.P., transferred their
respective interests in the Partnership to Apollo Real Estate Investment Fund,
L.P., and each of Starwood Hotel Investors II, L.P., SAHI, Inc. and Apollo Real
Estate Investment Fund was admitted as a limited partner of the Partnership
pursuant to that certain Admission of Limited Partners Agreement dated as of
December 12, 1996;
I. Starwood-Nomura Hotel Investors, L.P., SRL Holdings, Inc., Starwood
Capital Group, L.P., Moonwood Investment Partners, L.P., Woodstar Partners II,
L.P., Berl Holdings I, Inc., SAHI, Inc., and Harveywood Hotel Investors II,
L.P., transferred their interests in the Partnership to Burden Direct Investment
Fund I., L.P., Ziff Investors Partnership, L.P., II, Carly Simon, Lambster
Partners Limited Partners, Montrose Corporation, Star Investors G.P., Meridian
Investment Group, 1985 Trust f/b/o Clate Joseph Korsant, 1985 Trust f/b/o Justin
Frederick Korsant, Jack Nash, the Nash Family Partnership, Brainard Holdings,
Inc., Lowell D. Kraff, Max C. Chapman, Alan Schwartz, Geoffrey T. Boisi, Gregory
Beer, Charles E. Mueller, James A. Kleeman, Steve Goldman, Mike Mueller, James
R. Gates, John Z. Kukral, John F. Couture, Barry S. Sternlicht, the Barry S.
Sternlicht Family Spray Trust I, the Barry S. Sternlicht Family Spray Trust II,
the Barry S. Sternlicht Family Spray Trust III, James G. Babb, III, Madison F.
Grose, the Madison F. Grose Irrevocable Insurance Trust, Merrick R. Kleeman, JDE
Revocable Trust u/a dated December 31, 1996, Eugene A. Gorab, Jerome C. Silvey,
Geoffrey Beer, Jay Sugarman,
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<PAGE> 7
Jennifer Albero, Steven Fiore, James Oldham, Jeff Dishner, Ellis F. Rinaldi, and
J. Peter Paganelli and each such Person was admitted as a limited partner of the
Partnership pursuant to forty-four (44) separate Admission of Limited Partner
Agreements each dated as of December 31, 1996.
J. The Prudential Insurance Company of America, on behalf of Prudential
Property Investment Separate Account II, Eleanor Mendell, as Trustee of the Gary
Mendell Family Trust, Gary Mendell, Ellen-Jo Mendell, Stephen Mendell, Judith K.
Rushmore, Murray Dow II, Westport Hospitality, Inc., Zapco Interest Holdings,
LP, Zapco Holdings, Inc., Zapco Holdings, Inc. Deferred Compensation Plan Trust,
Orna L. Shulman, Arthur Green, Michael Hall, Mark Rosinsky, Randi Rosinsky, John
Daily, Felix Cacciato, Thomas Clearwater, Harvey Moore, and Tracy Driscoll
(collectively, the "HEI Contributors") were each admitted as a limited partner
of the Partnership pursuant to that certain Admission of Limited Partners,
Consent and Amendment (Realty Partnership) dated as of February 14, 1997.
K. The Hermitage, L.P. was admitted as a limited partner of the
Partnership pursuant to that certain Admission of Limited Partners, Consent and
Amendment (Realty Partnership) dated as of March 11, 1997.
L. The Original Restated Agreement, as amended, was restated by that
certain Second Amended and Restated Limited Partnership Agreement of SLT Realty
Limited Partnership by and between SLT, as General Partner, and the Limited
Partners of the Partnership, as such group was then constituted, dated as of
November 14, 1997 (the "Second Restated Agreement").
M. The Second Restated Agreement was amended by that certain First
Amendment to Second Amended and Restated Limited Partnership Agreement of SLT
Realty Limited Partnership by and between SLT, as General Partner, and the
Limited Partners of the Partnership, as such group was then constituted, dated
as of January 1, 1998.
N. WHWE L.L.C., Woodstar Investor Partnership and Nomura Asset Capital
Corporation were each admitted as a Class A Limited Partner, and the Second
Restated Agreement was amended, pursuant to that certain Certificate of
Admission of SLT Realty Limited Partnership dated as of January 2, 1998.
O. To the extent required pursuant to the terms of the Second Restated
Agreement, as amended, the Limited Partners consent to the restructuring of SLT
and SLC and the transactions occurring in connection therewith as more fully
described in the Restructuring Agreement (as defined below) and the Joint Proxy
Statement (as defined below).
P. The parties hereto have agreed to amend and restate the Second
Restated Agreement, as previously amended, in its entirety to reflect the
foregoing and to make other necessary or appropriate changes.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt, adequacy and sufficiency
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of which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
Definitions
1.1 Definitions. Except as otherwise herein expressly provided, the
following terms and phrases shall have the meanings as set forth below:
"Accountants" shall mean the national firm or firms of independent
certified public accountants selected by the General Partner on behalf of the
Partnership to audit the books and records of the Partnership and to prepare
statements and reports in connection therewith.
"Act" shall mean the Delaware Revised Uniform Limited Partnership
Act, as the same may hereafter be amended from time to time.
"Adjusted Capital Account Deficit" shall mean, with respect to any
Partner or holder of RP Units other than the General Partner, the deficit
balance, if any, in such holder's Capital Account as of the end of any relevant
fiscal year and after giving effect to the following adjustments:
(a) credit to such Capital Account any amounts which such
holder is obligated or treated as obligated to restore with respect to any
deficit balance in such Capital Account pursuant to Section 1.704-1(b)(2)(ii)(c)
of the Regulations, or is deemed to be obligated to restore with respect to any
deficit balance pursuant to the penultimate sentences of Sections 1.704-2(g)(1)
and 1.704-2(i)(5) of the Regulations; and
(b) debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
This definition of Adjusted Capital Account Deficit is intended to comply with
the requirements of the alternate test for economic effect contained in Section
1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently
therewith.
"Administrative Expenses" shall mean: (a) all administrative and
operating costs and expenses of the Partnership; (b) those administrative costs
and expenses of the General Partner, including, but not limited to, salaries and
other remunerations paid to trustees, officers and employees of the General
Partner and accounting and legal expenses undertaken by the General Partner on
behalf or for the benefit of the Partnership; and (c) to the extent not included
in clause (b) above, REIT Expenses. The foregoing notwithstanding,
"Administrative Expenses" shall not include administrative costs and expenses of
the General Partner or REIT Expenses not properly allocable to the business of
the Partnership.
"Affected Gain" shall have the meaning set forth in Section
6.1(c)(ii) hereof.
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"Affiliate" shall mean, with respect to any Partner (or as to any
other Person the Affiliates of whom are relevant for purposes of any of the
provisions of this Agreement): (a) any member of the Immediate Family of such
Partner or Person; (b) any trustee or beneficiary of a Partner which is a trust;
(c) any trust for the benefit of any Person referred to in the preceding clauses
(a) and (b); or (d) any Entity which directly or indirectly through one or more
intermediaries, Controls, is Controlled by, or is under common Control with, any
Partner or Person referred to in the preceding clauses (a) through (c).
"Agreement" shall mean this Limited Partnership Agreement, as
amended, modified, supplemented or restated from time to time, as the context
requires.
"Audited Financial Statements" shall mean financial statements
(balance sheet, statement of income, statement of partners equity and statement
of cash flows) prepared in accordance with GAAP and accompanied by an
independent auditor's report containing an opinion thereon.
"Bankruptcy" shall mean, with respect to any Person: (a) the
commencement by such Person of any petition, case or proceeding seeking relief
under any provision or chapter of the federal Bankruptcy Code or any other
federal or state law relating to insolvency, bankruptcy or reorganization; (b)
an adjudication that such Person is insolvent or bankrupt; (c) the entry of an
order for relief under the federal Bankruptcy Code with respect to such Person;
(d) the filing of any such petition or the commencement of any such case or
proceeding against such Person, unless such petition and the case or proceeding
initiated thereby are dismissed within ninety (90) days from the date of such
filing; or (e) the filing of an answer by such Person admitting the allegations
of any such petition.
"Business Day" shall mean any day that is not a Saturday, Sunday or
a day on which banking institutions in the State of California or the State of
New York are authorized or obligated by law or executive order to close.
"Capital Account" shall mean, as to any Partner or holder of RP
Units, a book account maintained in accordance with the following provisions:
(a) to each Partner's or holder of RP Unit's Capital Account
there shall be credited the amount of cash contributed by the Partner or holder,
the initial Gross Asset value of any other asset contributed by such Partner or
holder to the capital of the Partnership (net of liabilities secured by
contributed property that the Partnership assumes or takes subject to), such
Partner's or holder's distributive share of Net Income and any other items of
income or gain allocated to such Partner or holder, the amount of any
Partnership liabilities assumed by the Partner or holder or secured by
distributed assets that such Partner or holder takes subject to and any other
items in the nature of income or gain that are allocated to such Partner or
holder pursuant to Section 6.1 hereof; and
(b) to each Partner's or holder of RP Unit's Capital Account
there shall be debited the amount of cash distributed to the Partner or holder,
the Gross Asset
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<PAGE> 10
Value of any Partnership asset distributed to such Partner or holder pursuant to
any provision of this Agreement, such Partner's or holder's distributive share
of Net Losses and any other items in the nature of expenses or losses that are
allocated to such Partner pursuant to Section 6.1 hereof.
In the event that a Partner's Partnership Interest or a holder of RP Unit's RP
Units or portion thereof is transferred within the meaning of Section
1.704-1(b)(2)(iv)(f) of the Regulations, the transferee shall succeed to the
Capital Account of the transferor to the extent that it relates to the
Partnership Interest, RP Units or portion thereof so transferred. In the event
that the Gross Asset Values of Partnership assets are adjusted, as contemplated
in paragraph (b) or (c) of the definition of "Gross Asset Value," the Capital
Accounts of the Partners and holders of RP Units shall be adjusted to reflect
the aggregate net adjustments as if the Partnership sold all of its properties
for their fair market values and recognized gain or loss for federal income tax
purposes equal to the amount of such aggregate net adjustment. This definition
of Capital Accounts is intended to comply with the maintenance of capital
account provisions of Section 1.704-1(b) of the Regulations and shall be
interpreted and applied in a manner consistent therewith.
"Capital Contribution" shall mean, with respect to any Partner, the
amount of cash and the initial Gross Asset Value of any Contributed Property
(net of liabilities to which such property is subject).
"Certificate" shall mean the Certificate of Limited Partnership
establishing the Partnership, as filed with the office of the Delaware Secretary
of State, as amended from time to time in accordance with the terms of this
Agreement and the Act.
"Class A Limited Partners" shall mean those Persons listed under
the heading "Class A Limited Partners" on Exhibit A-1 hereto in their respective
capacities as Class A Limited Partners hereof, their permitted successors or
assigns as Class A Limited Partners hereof, and any Person who, at the time of
reference thereto, is a Class A Limited Partner of the Partnership.
"Class A Liquidation Preference Distribution" shall mean, with
respect to a Class A RP Unit, an amount equal to the "fair market value" of one
OP Ordinary Unit, which shall accrue only in the event of the dissolution and
liquidation of the Partnership not preceded or accompanied, within ninety (90)
days of such dissolution and liquidation, by a liquidation and dissolution of
the Operating Partnership. Such fair market value shall be determined in good
faith by the General Partner as of the effective date of such liquidation and
dissolution or, if no such effective date applies, as of the date of the first
liquidating distribution pursuant to Section 8.2 hereof. In the event of any
change in (a) the nature or amount of securities constituting a Starwood Unit,
(b) the correspondence of the number of RP Ordinary Units to the number of
Starwood Units outstanding or (c) the correspondence of the number of OP
Ordinary Units to the number of Starwood Units outstanding, the amount of the
Class A Liquidation Preference Distribution that shall accrue with respect to
each Class A RP Unit as a function of the fair market value of each OP Ordinary
Unit shall be equitably adjusted.
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"Class A RP Special Distribution" shall mean, with respect to a
Class A RP Unit, an amount equal to the sum, in cash, of the fair market value
of all operating and liquidating distributions by the Operating Partnership with
respect to OP Ordinary Units on or after January 2, 1998 (whether pursuant to
Section 6.2 or 8.2 of the Operating Partnership Agreement) in an amount per
Class A RP Unit equal to the amount so distributed in respect of each OP
Ordinary Unit. In the event of any change in (a) the nature or amount of
securities constituting a Starwood Unit, (b) the correspondence of the number of
RP Ordinary Units to the number of Starwood Units outstanding or (c) the
correspondence of the number of OP Ordinary Units to the number of Starwood
Units outstanding, the amount of the Class A RP Special Distribution that shall
accrue with respect to each Class A RP Unit as a function of the amount of the
corresponding distribution on the OP Ordinary Units shall be equitably adjusted.
Class A RP Special Distributions shall be made only with respect to Class A RP
Units and shall accrue and be due at the time operating or liquidating
distributions are made by the Operating Partnership.
"Class A RP Units" shall have the meaning set forth in Section
4.1(c) hereof.
"Class B Shares" shall mean the Class B shares of beneficial
interest, par value $0.01 per share, of the General Partner.
"Code" shall mean the Internal Revenue Code of 1986, as amended and
in effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"Consent of the Limited Partners" shall mean the written consent of
a Majority-In-Interest of the Limited Partners given in accordance with Section
11.2 hereof, which consent shall be obtained prior to the taking of any action
for which it is required by this Agreement and may be given or withheld by a
Majority-In-Interest of the Limited Partners, unless otherwise expressly
provided herein, in their sole and absolute discretion.
"Contributed Property" shall mean any property or other asset in
such form as may be permitted by the Act, but excluding cash, contributed or
deemed contributed to the Partnership with respect to the Partnership Interest
held by each Partner.
"Control" shall mean the ability, whether by the direct or indirect
ownership of shares or other equity interests, by contract or otherwise, to
elect a majority of the directors of a corporation, to select the managing
partner of a partnership, or otherwise to select, or have the power to remove
and then select, a majority of those persons exercising governing authority over
an Entity. In the case of a limited partnership, the sole general partner, all
of the general partners to the extent each has equal management control and
authority, or the managing general partner or managing general partners thereof
shall be deemed to have control of such partnership and, in the case of a trust,
any trustee thereof or any Person having the right to select any such trustee
shall be deemed to have control of such trust.
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"Corporation Shares" shall mean the common shares of beneficial
interest, par value $0.01 per share, of SLC.
"Declaration of Trust" shall mean the Declaration of Trust of the
General Partner dated August 25, 1969, as amended and restated as of the
Effective Time, as the same may be amended, modified, supplemented, restated or
superseded from time to time.
"Depreciation" shall mean, with respect to any asset of the
Partnership for any fiscal year or other period, the depreciation or
amortization, as the case may be, allowed or allowable for federal income tax
purposes in respect of such asset for such fiscal year or other period, except
that if the Gross Asset Value of an asset differs from its adjusted tax basis
for federal income tax purposes at the beginning of such fiscal year or other
period, Depreciation shall be an amount that bears the same ratio to such
beginning book value as the federal income tax depreciation, amortization or
other cost recovery deduction for such fiscal year or other period bears to such
beginning adjusted tax basis and if such adjusted tax basis is zero, the
Depreciation shall be based on the method of depreciation, amortization or other
cost recovery deduction utilized in preparing the financial statements of the
Partnership.
"Effective Time" shall have the meaning set forth in Section 1.2 of
the Restructuring Agreement.
"Entity" shall mean any general partnership, limited partnership,
limited liability company, corporation, joint venture, trust, business trust,
real estate investment trust or association.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time and as interpreted by the applicable
regulations thereunder (or any corresponding provisions of succeeding laws and
regulations).
"Exchange Rights Agreement" shall mean any Exchange Rights
Agreement by and among SLT and/or SLC and one or more Limited Partners which is
intended to provide for the rights of such Limited Partners to tender RP Units
in exchange for Starwood Units, other securities, cash or a combination of the
foregoing.
"Excluded Liabilities" shall have the meaning set forth in Section
5.2(b) hereof.
"Formation Agreement" shall mean that certain Formation Agreement
by and among SLT, SLC, Starwood Capital Group, L.P., Berl Holdings, L.P.,
Woodstar Partners I, L.P., Starwood-Apollo Hotel Partners VIII, L.P.,
Starwood-Apollo Hotel Partners IX, L.P., Starwood-Nomura Hotel Investors, L.P.,
Starwood/Wichita Investors, L.P., and Starwood-Huntington Partners, L.P., dated
as of November 11, 1994, and any amendments or modifications thereof or side
letters thereto.
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"GAAP" shall mean generally accepted accounting principles in the
United States, as in effect from time to time.
"General Partner" shall mean SLT or its duly admitted successors
and assigns as general partner of the Partnership at the time of reference
thereto.
"General Partner Payments" shall have the meaning set forth in
Section 7.2(c) hereof.
"Gross Asset Value" shall mean, with respect to any asset of the
Partnership, such asset's adjusted basis for federal income tax purposes, except
as follows:
(a) the initial Gross Asset Value of any asset contributed by
a Partner to the Partnership shall be the gross fair market value of such asset
at the time of its contribution as reasonably determined by the General Partner
and the contributing Partner;
(b) the Gross Asset values of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as reasonably
determined by the General Partner, immediately prior to the following events:
(i) a Capital Contribution (other than a de minimis
Capital Contribution) to the Partnership by a new or existing Partner as
consideration for a Partnership Interest;
(ii) the distribution by the Partnership to a Partner of
more than a de minimis amount of Partnership property as consideration for the
redemption of a Partnership Interest;
(iii) the liquidation of the Partnership within the
meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations; and
(iv) any other event as to which the General Partner
reasonably determines that an adjustment is necessary or appropriate to reflect
the relative economic interests of the Partners;
(c) the Gross Asset Values of Partnership assets distributed
to any Partner shall be the gross fair market values of such assets as
reasonably determined by the General Partner as of the date of distribution; and
(d) the Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Sections 734(b) or 743(b) of the Code, but only to the
extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations; provided,
however, that Gross Asset Values shall not be adjusted pursuant to this
paragraph to the extent that the General Partner reasonably determines that an
adjustment
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pursuant to paragraph (b) above is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to this
paragraph (d).
At all times, Gross Asset Values shall be adjusted by any Depreciation taken
into account with respect to the Partnership's assets for purposes of computing
Net Income and Net Loss. Any adjustment to the Gross Asset Values of Partnership
property shall require an adjustment to the Partner's Capital Accounts.
"HEI Contribution Agreement" shall mean that certain Contribution
Agreement dated January 15, 1997, by and among the HEI Property Companies, SLC,
the Partnership, SLT Financing Partnership, a Delaware general partnership, SLT,
the Operating Partnership, and certain other parties.
"HEI Contributors" shall have the meaning set forth in Recital J
hereto.
"HEI Property Companies" shall mean Westport Norfolk Associates
Limited Partnership, a Delaware limited partnership, Pruwest Norfolk, L.L.C., a
Delaware limited liability company, Westport BWI, L.L.C., a Delaware limited
liability company, Pruwest Baltimore, L.L.C., a Delaware limited liability
company, Westport Raritan, L.L.C., a Delaware limited liability company, Pruwest
Edison, L.L.C., a Delaware limited liability company, Westport Novi, L.L.C., a
Delaware limited liability company, Pruwest Novi, L.L.C., a Delaware limited
liability company, Westport Park Ridge, L.P., a Delaware limited partnership,
Westport Park Ridge, L.L.C., a Delaware limited liability company, Westport Long
Beach, L.L.C., a Delaware limited liability company, Westport Charleston,
L.L.C., a Delaware limited liability company, Westport Santa Rosa, L.L.C., a
Delaware limited liability company, Westport Crystal City, L.L.C., a Delaware
limited liability company, Prudential, Atlanta Hotel Associates, LP, a
Connecticut limited partnership, Virginia Hotel Associates, L.P., a Delaware
limited partnership, BW Hotel Realty, L.P., a Maryland limited partnership,
Edison Hotel Associates, L.P., a New Jersey limited partnership, Novi Hotel
Associates, L.P., a Delaware limited partnership, Park Ridge Hotel Associates,
L.P., a Delaware limited partnership, Long Beach Hotel Associates, L.L.C., a New
Jersey limited liability company, Charleston Hotel Associates, L.L.C., a New
Jersey limited liability company, Santa Rosa Hotel Associates, L.L.C., a New
Jersey limited liability company, Crystal City Hotel Associates, L.L.C., a New
Jersey limited liability company, and Prudential HEI Joint Venture, a joint
venture.
"HIR" shall have the meaning set forth in Recital G hereto.
"HSR" shall have the meaning set forth in Recital E hereto.
"Immediate Family" shall mean, with respect to any Person, such
Person's spouse (then current or former), parents, parents-in-law, descendants,
brothers and sisters (whether by whole or half-blood), first cousins,
brothers-in-law and sisters-in-law (whether by whole or half-blood), ancestors
and lineal descendants.
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"Indemnitee" shall mean any Person who is, or at any time on or
after December 15, 1994 was (a) a General Partner, or (b) an employee, trustee,
director, officer, stockholder or Liquidating Trustee of the Partnership or the
General Partner.
"Inns Bonds" means, collectively, the Philadelphia Authority for
Industrial Development Commercial Development Revenue Bonds (Economy Inn
Project), Series A and Series B, in the original aggregate principal amounts of
$9,725,000 and $1,700,000, respectively, as amended and restated in that certain
Inns Second Supplemental Indenture dated as of July 1, 1992, and as defined in
that certain Bond Purchase Agreement by and between The First National Bank of
Boston, HSR, HIR, the Operating Partnership and the Partnership and dated as of
February 26, 1996.
"Issuance Percentage" of SLT or SLC, as the case may be, shall mean
the relative values of the Class B Shares and the Corporation Shares,
respectively, stated as a percentage of the sum of the values of the Starwood
Units, and as most recently determined by SLT and SLC. This definition shall be
appropriately modified to take into account any change in the nature or amount
of securities constituting a Starwood Unit.
"Joint Proxy Statement" means the Joint Proxy Statement of SLT and
SLC dated as of December 3, 1998, constituting the Joint Proxy Statement of SLT
and SLC for their respective 1998 annual meetings.
"Lien" shall mean any liens, security interests, mortgages, deeds
of trust, pledges, options, rights of first offer or first refusal and any other
similar encumbrances of any nature whatsoever.
"Limited Partners" shall mean those Persons listed under the
heading "Limited Partners" on the signature pages hereto in their respective
capacities as limited partners of the Partnership, their permitted successors or
assigns as limited partners hereof, and any Person who, at the time of reference
thereto, is a limited partner of the Partnership. Such term shall include Class
A Limited Partners except where the context otherwise requires.
"Liquidating Trustee" shall mean such individual or Entity which is
selected as the Liquidating Trustee hereunder by the General Partner, which
individual or Entity may include the General Partner or an Affiliate of the
General Partner, provided that such Liquidating Trustee agrees in writing to be
bound by the terms of this Agreement. The Liquidating Trustee shall be empowered
to give and receive notices, reports and payments in connection with the
dissolution, liquidation and/or winding up of the Partnership and shall hold and
exercise such other rights and powers granted to the General Partner herein or
under the Act as are necessary or required to conduct the winding-up and
liquidation of the Partnership's affairs and to authorize all parties to deal
with the Liquidating Trustee in connection with the dissolution, liquidation
and/or winding-up of the Partnership.
"Majority-In-Interest of the Limited Partners" shall mean Limited
Partner(s) who hold in the aggregate more than 50% of the Percentage Interests
then allocable to
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<PAGE> 16
and held by the Limited Partners, as a class (but excluding any Partnership
Interests acquired by the General Partner, or any Person holding as a nominee of
a General Partner or any Person controlled by a General Partner).
"Minimum Gain Attributable to Partner Nonrecourse Debt" shall mean
"partner nonrecourse debt minimum gain" as determined in accordance with Section
1.704-2(i)(2) of the Regulations.
"Net Cash Flow" shall mean, with respect to any fiscal period of
the Partnership, the excess, if any, of "Receipts" over "Expenditures." For
purposes hereof, the term "Receipts" means the sum of all cash receipts of the
Partnership from all sources for such period and any amounts held as reserves as
of the last day of such period which the General Partner reasonably deems to be
in excess of reserves as determined below. The term "Expenditures" means the sum
of (a) all cash expenditures of the Partnership for any purpose, including
operating expenses and capital expenditures for such period, (b) the amount of
all payments of principal, premium, if any, and interest on account of any
indebtedness of the Partnership, and (c) such additions to cash reserves as of
the last day of such period as the General Partner deems necessary or
appropriate for any capital, operating or other expenditure, including, without
limitation, contingent liabilities; but the term "Expenditures" shall not
include amounts paid from cash reserves previously established by the
Partnership.
"Net Income" or "Net Loss" shall mean, for each fiscal year or
other applicable period, an amount equal to the Partnership's net income or loss
for such year or period as determined for federal income tax purposes by the
Accountants, determined in accordance with Section 703(a) of the Code (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Section 703(a) of the Code shall be included in taxable
income or loss), with the following adjustments: (a) by including as an item of
gross income any tax-exempt income received by the Partnership; (b) by treating
as a deductible expense any expenditure of the Partnership described in Section
705(a)(2)(B) of the Code (including amounts paid or incurred to organize the
Partnership (unless an election is made pursuant to Section 709(b) of the Code)
or to promote the sale of interests in the Partnership and by treating
deductions for any losses incurred in connection with the sale or exchange of
Partnership property disallowed pursuant to Section 267(a)(1) or Section 707(b)
of the Code as expenditures described in Section 705(a)(2)(B) of the Code); (c)
in lieu of depreciation, depletion, amortization and other cost recovery
deductions taken into account in computing total income or loss, there shall be
taken into account Depreciation; (d) gain or loss resulting from any disposition
of Partnership property with respect to which gain or loss is recognized for
federal income tax purposes shall be computed by reference to the Gross Asset
Value of such property rather than its adjusted tax basis; (e) in the event of
an adjustment of the Gross Asset Value of any Partnership asset which requires
that the Capital Accounts of the Partnership be adjusted pursuant to Sections
1.704-1(b)(2)(iv)(e), (f) and (m) of the Regulations, the amount of such
adjustment is to be taken into account as additional Net Income or Net Loss
pursuant to Section 6.1 hereof; and (f) excluding any items specially allocated
pursuant to Section 6.1(b) hereof.
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"Nonrecourse Deductions" shall have the meaning set forth in
Sections 1.704-2(b)(1) and (c) of the Regulations and shall be determined in
accordance with Section 1.704-2(c) of the Regulations.
"Operating Partnership" shall mean SLC Operating Limited
Partnership, a Delaware limited partnership.
"Operating Partnership Agreement" shall mean the Third Amended and
Restated Partnership Agreement of the Operating Partnership, as the same may be
amended from time to time.
"OP Ordinary Units" shall mean units representing the interest of a
Partner in the capital, allocations of Net Income and Net Loss and distributions
of the Operating Partnership other than units, such as Class A OP Units and
Class B OP Units (as such terms are defined in the Operating Partnership
Agreement), entitled to receive priority distributions under the Operating
Partnership Agreement.
"OP Units" shall have the meaning set forth in Section 4.1(c) of
the Operating Partnership Agreement.
"Original Agreement" shall have the meaning set forth in Recital A
hereof.
"Original Restated Agreement" shall have the meaning set forth in
Recital C hereof.
"Partner Nonrecourse Debt" shall have the meaning set forth in
Section 1.704-2(b)(4) of the Regulations.
"Partner Nonrecourse Deductions" shall have the meaning set forth
in Section 1.704-2(i)(2) of the Regulations and the amount of Partner
Nonrecourse Deductions with respect to a Partner Nonrecourse Debt shall be
determined in accordance with the rules of Section 1.704-2(i) of the
Regulations.
"Partners" shall mean the General Partner and the Limited Partners,
their duly admitted successors or assigns or any Person who is a partner of the
Partnership at the time of reference thereto.
"Partnership" shall mean the limited partnership formed under the
Act pursuant to the Original Agreement and as continued pursuant to this
Agreement and any successor thereto.
"Partnership Interest" shall mean the ownership interest of a
Partner in the Partnership from time to time, including each Partner's
Percentage Interest and such Partner's RP Units.
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<PAGE> 18
"Partnership Minimum Gain" shall have the meaning set forth in
Section 1.704-2(b)(2) of the Regulations and the amount of Partnership Minimum
Gain (and any net increase or decrease thereof) for a fiscal year or other
period shall be determined in accordance with the rules of Section 1.704-2(d) of
the Regulations.
"Partnership Record Date" means the record date established by the
General Partner for distribution of Net Cash Flow pursuant to Section 6.2
hereof, which record date shall be the same as the record date established by
the General Partner for distribution to holders of Class B Shares of some or all
of its portion of such distribution.
"Percentage Interest" shall mean, with respect to any Partner, the
percentage ownership interest of such Partner in such items of the Partnership
as to which the term "Percentage Interest" is applied in this Agreement, as
provided in Section 4.3 hereof.
"Person" shall mean any natural person or Entity.
"Property" shall mean any property acquired by or contributed to
the Partnership or any property owned by an Entity in which the Partnership has
an ownership interest.
"Purchase Rights" shall have the meaning set forth in Section 4.4
hereof.
"Registration Rights Agreement" shall mean any Registration Rights
Agreement by and among SLT and/or SLC and one or more Limited Partners, which is
intended to set forth the rights of such Limited Partner or Limited Partners or
other holders of RP Units, and the obligations of SLT and/or SLC, to cause the
registration of certain securities pursuant to the Securities Act of 1933, as
amended.
"Regulations" shall mean the income tax regulations promulgated
under the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations), and may, in the sole
discretion of the General Partner, include temporary and/or proposed income tax
regulations.
"Regulatory Allocations" shall have the meaning set forth in
Section 6.1(b)(viii) hereof.
"REIT" shall mean a real estate investment trust as defined in
Section 856 of the Code.
"REIT Expenses" shall mean all expenses which the Partnership
hereby assumes and agrees to pay as incurred for the benefit of the Partnership,
including (a) costs and expenses relating to the formation and continuation of
the Partnership and continuity of existence of the General Partner, including
taxes (other than the General Partner's federal and state income and franchise
taxes, if any), fees and assessments associated therewith, any and all costs,
expenses or fees payable to any director or trustee of the General Partner, (b)
to the extent funded by the
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General Partner for payment by the Partnership, costs and expenses relating to
any offer or registration of securities by the General Partner the net proceeds
of which are to be contributed or loaned to the Partnership and all statements,
reports, fees and expenses incidental thereto, including underwriting discounts
and selling commissions applicable to any such offer of securities, (c) costs
and expenses associated with the preparation and filing of any periodic reports
by the General Partner under federal, state or local laws or regulations,
including filings with the SEC, (d) costs and expenses associated with
compliance by the General Partner with laws, rules and regulations promulgated
by any regulatory body, including the SEC, and (e) all other costs of the
General Partner incurred in the course of its business on behalf of the
Partnership including, but not limited to, any indemnification obligations of
the General Partner (other than indemnification obligations pursuant to Sections
9.1 and 9.2 of the Formation Agreement).
"REIT Requirements" shall mean the requirements for the General
Partner to qualify as a REIT under the Code and Regulations. "REIT Requirements"
shall also include the ownership limitation provisions set forth in Article VI
of the Declaration of Trust and in Article TENTH of SLC's Articles of
Incorporation.
"Restricted Entity" shall mean any "employee benefit plan" as
defined in and subject to ERISA, any "plan" as defined in and subject to Section
4975 of the Code, or any entity any portion or all of the assets of which are
deemed pursuant to United States Department of Labor Regulation Section
2510.3-101 or otherwise pursuant to ERISA or the Code to be, for any purpose of
ERISA or Section 4975 of the Code, assets of any such "employee benefit plan" or
"plan" which invests in such entity.
"Restructuring Agreement" shall mean that certain Agreement and
Plan of Restructuring by and among the General Partner, SLC, and ST Acquisition
Trust, a Maryland real estate investment trust, dated as of September 16, 1998,
and any amendments or modifications thereof.
"Rights" shall mean the rights of a Limited Partner as set forth in
an Exchange Rights Agreement and/or a Registration Rights Agreement. No
provision of this Agreement shall be interpreted as granting any Partner or
holder of RP Units any Rights or any rights or interest in or to the Exchange
Rights Agreement or the Registration Rights Agreement.
"RP Ordinary Units" shall mean units representing the interest of a
Partner in the capital, allocations of Net Income and Net Loss and distributions
of the Partnership other than units, such as Class A RP Units, entitled to
receive priority distributions under this Agreement.
"RP Units" shall have the meaning set forth in Section 4.1(c)
hereof, and such term shall include Class A RP Units except where the context
otherwise requires.
"SEC" shall mean the United States Securities and Exchange
Commission.
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"Second Restated Agreement" shall have the meaning set forth in
Recital L hereto.
"Section 704(c) Tax Items" shall have the meaning set forth in
Section 6.1(c)(iii) hereof.
"Senior Debt" shall mean the indebtedness issued pursuant to that
certain Credit Agreement among the General Partner and certain institutional
lenders, dated as of January 28, 1993, which indebtedness has been assumed by
the Partnership, as such indebtedness may be amended, modified or refinanced
from time to time.
"SLC" shall mean Starwood Hotels & Resorts Worldwide, Inc., a
Maryland corporation.
"SLT" shall mean Starwood Hotels & Resorts, a Maryland real estate
investment trust.
"Starwood Unit" shall mean one Class B Share of the General Partner
and one share of common stock, par value $0.01 per share, of SLC that are
subject to an intercompany agreement between the General Partner and SLC.
"Starwood Unit Closing Price" shall mean, with respect to a
particular date, the last reported sales price regular way on such date of a
Starwood Unit or, in case no such reported sale takes place on such date, the
average of the reported closing bid and asked prices regular way on such date of
a Starwood Unit, in either case on the New York Stock Exchange or, if the
Starwood Units are not then listed or admitted to trading on such Exchange, on
the principal national securities exchange on which the Starwood Units are then
listed or admitted to trading or, if not then listed or admitted to trading on
any national securities exchange, the closing sale price on such date of a
Starwood Unit or, in case no reported sale takes place on such date, then the
average of the closing bid and asked prices on such date of the Starwood Units,
on NASDAQ or any comparable system. If the Starwood Units are not then quoted on
NASDAQ or any comparable system, the Board of Trustees of SLT and the Board of
Directors of SLC shall in good faith determine the Starwood Unit Closing Price.
"Suites Bonds" means the Philadelphia Authority for Industrial
Development Commercial Development Revenue Bonds (Suite Hotel Project), Series
A, in the original aggregate principal amount of $27,275,000, as amended and
restated in that certain Supplemental Mortgage and Trust Indenture dated as of
June 1, 1991, and as defined in that certain Bond Purchase Agreement by and
between The First National Bank of Boston, HSR, HIR, the Operating Partnership
and the Partnership and dated as of February 26, 1996.
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"Tax Items" shall have the meaning set forth in Section 6.1(c)(i)
hereof.
"Tax Payment Loan" shall have the meaning set forth in Section
6.7(a) hereof.
"Tax Payment Loan Date" shall have the meaning set forth in Section
6.7(a) hereof.
"Withholding Tax Act" shall have the meaning set forth in Section
6.7(a) hereof.
ARTICLE 2
Continuation and Business of the Partnership
2.1 Continuation. The parties hereto do hereby continue the limited
partnership formed pursuant to the Original Agreement and pursuant to the
provisions of the Act and upon the terms and conditions set forth herein. The
parties hereto agree that the rights and liabilities of the Partners shall be as
provided herein. The parties hereto shall immediately execute and deliver all
certificates and other documents and do all filings, recording and publishing
and other acts as in the judgment of the General Partner may be appropriate to
comply with all of the requirements for the continuation of the Partnership as a
limited partnership under the Act and the qualification of the Partnership in
any jurisdiction in which the Partnership owns property or conducts business.
2.2 Name. The name of the Partnership shall be SLT Realty Limited
Partnership, or such other name as shall be chosen from time to time by the
General Partner in its sole and absolute discretion; provided, however, that the
General Partner may not choose the name (or any derivative thereof) of any
Limited Partner without the prior written consent of such Limited Partner.
2.3 Character of the Business. The purpose of the Partnership shall be
to acquire, hold, own, develop, redevelop, construct, improve, maintain,
operate, manage, sell, lease, rent, transfer, encumber, mortgage, convey,
exchange and otherwise dispose of or deal with the Properties and any other real
and personal property of all kinds; to undertake such other activities as may be
necessary, desirable or appropriate to the business of the Partnership; to
engage in such other activities as shall be necessary, desirable or appropriate
to effectuate the foregoing purposes; and to otherwise engage in any enterprise
or business in which a limited partnership may engage or conduct under the Act.
The Partnership shall have all powers necessary, desirable or appropriate to
accomplish the purposes enumerated. In connection with the foregoing, but
subject to the terms and conditions of this Agreement, the Partnership shall
have full power and authority to enter into, perform and carry out contracts of
any kind, to borrow money and to issue evidences of indebtedness, whether or not
secured by Liens, and, directly or indirectly, to acquire and construct
additional Properties necessary or useful in connection with its business.
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2.4 Location of Principal Place of Business. The location of the
principal place of business of the Partnership shall be at 777 Westchester
Avenue, White Plains, New York 10604, or such other location as shall be
selected from time to time by the General Partner in its sole and absolute
discretion; provided, however, that the General Partner shall notify the
Partners of any change in the location of the principal place of business of the
Partnership within thirty (30) days thereafter.
2.5 Registered Agent and Registered Office. The registered agent of the
Partnership shall be The Corporation Trust Company or such other Person as the
General Partner may select in its sole and absolute discretion. The registered
office of the Partnership in the State of Delaware shall be c/o The Corporation
Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New
Castle County, Delaware 19801 or such other location as the General Partner may
from time to time select in its sole discretion; provided, however, that the
General Partner shall notify the Limited Partners of any change in the
registered office or registered agent of the Partnership within thirty (30) days
thereafter.
2.6 Restatement of Agreement. This Agreement amended and restates the
Second Restated Agreement, including the amendments thereto, in its entirety
effective as of the date first above written and, effective as of such date, the
Second Restated Agreement and the amendments thereto shall be of no further
force or effect.
ARTICLE 3
Term
3.1 Commencement. The Partnership's term commenced upon the filing of
the Certificate with the Secretary of State of Delaware on December 15, 1994.
3.2 Dissolution. The Partnership shall continue until dissolved and
terminated upon the occurrence of the earliest of the following events:
(a) the death, dissolution, termination, withdrawal, retirement,
expulsion or Bankruptcy of the General Partner, unless the Partnership's
business is continued as provided in Section 9.1 hereof;
(b) the election to dissolve the Partnership made in writing by the
General Partner;
(c) the sale or other disposition of all or substantially all of
the assets of the Partnership unless the General Partner elects to continue the
Partnership business for the purpose of the receipt and the collection of
indebtedness or the collection of any other consideration to be received in
exchange for the assets of the Partnership (which activities shall be deemed to
be part of the winding up of the affairs of the Partnership);
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(d) the entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act, which decree is final and not
subject to appeal; or
(e) December 31, 2094.
ARTICLE 4
Capital Contributions
4.1 Capital Contributions; RP Units.
(a) As of the date first above written, the Partners have the
Percentage Interests in the Partnership as set forth in Exhibits A and A-1 which
Percentage Interests shall be adjusted to the extent necessary to reflect
properly exchanges, redemptions or conversions of Partnership Interests, Capital
Contributions, the issuance of additional Partnership Interests or any other
event having an effect on a Partner's Percentage Interest, in each case to the
extent permitted by and in accordance with this Agreement. Except to the extent
specifically set forth in this Agreement with respect to the General Partner,
the Partners shall have no obligation to make any additional Capital
Contributions or loans to the Partnership, even if the failure to do so could
result in the Bankruptcy or insolvency of the Partnership or any other adverse
consequence to the Partnership.
(b) The General Partner shall, from time to time, contribute cash
or Property to the Partnership such that the interest of the General Partner in
Net Income and Net Loss shall at all times be at least 1% and the Capital
Account balance of the General Partner shall be at least the lesser of $500,000
or 1% of the total positive Capital Account balances for the Partnership.
(c) The interest of a Partner (or an assignee of a Partner) in
capital, allocations of Net Income, Net Loss and distributions shall be
evidenced by the issuance to such Partner (or assignee) of one or more "RP
Units." The interest of a Class A Limited Partner (or an assignee of a Class A
Limited Partner) in capital, allocations of Net Income, Net Loss and
distributions, including Class A Special Distributions and Class A Liquidation
Preference Distributions, if any, shall be evidenced by the issuance to such
Class A Limited Partner (or assignee) of one or more "Class A RP Units." The
aggregate total of all RP Units and Class A RP Units outstanding and the
ownership of such RP Units and Class A RP Units by each Partner are as set forth
on Exhibit A and Exhibit A-1 hereto, which Exhibits shall be updated by the
General Partner to reflect changes in the holdings of RP Units and Class A RP
Units by the Partners.
(d) From time to time, the General Partner may cause the
Partnership to issue additional Partnership Interests to existing or
newly-admitted Partners (including the General Partner) for fair value in
exchange for additional Capital Contributions (including Capital Contributions
pursuant to Section 4.1(b)). Without limiting the generality of the foregoing,
if (i) the General Partner contributes to the Partnership the net proceeds to
the General Partner from
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any offering or sale of Starwood Units (including, without limitation, any
issuance of Starwood Units pursuant to the exercise of options, warrants,
convertible securities, or similar rights to acquire Starwood Units) the
Partnership shall issue to the General Partner RP Units equal in number to the
number of Starwood Units issued in such offering or sale, and (ii) if the
General Partner or SLC issues Starwood Units to any Person in exchange for
services, then the Partnership shall issue an equal number of RP Units to the
General Partner effective no later than the date on which the value of the
Starwood Units is includable in the gross income of such Person.
(e) The General Partner is hereby authorized to cause the
Partnership to issue Partnership Interests in one or more classes or one or more
series of any of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties, including
rights, powers and duties senior to the then-existing Partnership Interests and
RP Units, as shall be determined by the General Partner in its sole and absolute
discretion, including (i) the allocation of items of Partnership income, gain,
loss, deduction and credit to each such class or series of Partnership Interests
and (ii) the rights of each such class or series of Partnership Interests to
share in Partnership distributions (including liquidating distributions).
(f) In the event of any change in the outstanding number of
Starwood Units by reason of any share dividend, split, reverse split,
recapitalization, merger, consolidation or combination, the number of RP Units
held by each Partner (or assignee) shall be proportionately adjusted such that,
to the extent possible, one RP Unit remains the equivalent of one Class B Share
without dilution.
(g) No fractional RP Units shall remain outstanding. In lieu of
issuing a fractional RP Unit to a holder of RP Units, the number of RP Units to
be held by such holder shall be rounded to the nearest whole RP Unit, or, at the
option of the General Partner, the holder shall be paid cash equal to the fair
market value of such fractional RP Unit.
4.2 Redemption of RP Units Held by Limited Partner. The General Partner
is hereby authorized to cause the Partnership to redeem all or any portion of
the RP Units held by any Limited Partner whenever the General Partner, in its
sole discretion, believes such redemption to be reasonably necessary or
appropriate in order to prevent the Partnership from being characterized as a
"publicly traded partnership" pursuant to Section 7704 of the Code and the
Regulations thereunder. Any redemption of RP Units pursuant to this Section 4.2
shall be made from the Limited Partners in reverse order of their respective
ownership of RP Units, that is, first from the Limited Partner or Limited
Partners with the fewest RP Units, and, second, if required, from the Limited
Partner or Limited Partners with the next fewest RP Units, et cetera.
Notwithstanding the previous sentence, the General Partner is hereby authorized
to cause the Partnership to redeem all the RP Units held by a particular Limited
Partner who, because of the number of such Limited Partner's direct or indirect
beneficial owners or its structure, in the judgment of the General Partner in
its sole discretion, and whether or not in conjunction with any other Partner
(whether redeemed pursuant to this Section 4.2 or not), may cause the
Partnership to be characterized as a "publicly traded partnership" pursuant to
Section 7704 of the Code and
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the Regulations thereunder. The redemption price of any RP Unit redeemed
pursuant to this Section 4.2 shall be equal to the product of (a) 115% of the
average of the Starwood Unit Closing Price for the ten (10) trading day period
ending five (5) days prior to the date of such redemption, multiplied by (b) the
then Issuance Percentage of SLT. Any redemption of a Limited Partner shall be
effective upon the date specified in a notice to such Limited Partner, or, if
later, five (5) days after such notice. No redemption pursuant to this Section
4.2 shall be made unless the Operating Partnership concurrently effects a
comparable redemption.
4.3 Percentage Interests. The Percentage Interest of a Limited Partner
shall be equal to the percentage obtained by dividing (a) the Capital
Contributions allocable to the RP Units held by such Partner (including RP Units
held by assignees of such Partner who have not been admitted as Partners) by (b)
the total Capital Contributions of all Partners. The Percentage Interests of the
General Partner shall be equal to 100 less the total of the Percentage Interests
held by the Limited Partners.
4.4 Purchase Rights. If the General Partner grants, issues or sells any
options, convertible securities or rights to purchase shares, warrants, or other
property pro rata to the record holders of Class B Shares (collectively,
"Purchase Rights"), then the Partners shall, to the extent practicable and
consistent with the other provisions of this Agreement, be entitled to acquire
from the Partnership interests in the Partnership that are substantially similar
in amount, tone and tenor to the Purchase Rights to which such Partners would be
entitled if such Partners had converted their Partnership Interests into
Starwood Units immediately prior to the grant, issue or sale of the Purchase
Rights.
4.5 No Third Party Beneficiaries. No creditor or other third party
shall have the right to enforce any right or obligation of any Partner to make
Capital Contributions or loans or to pursue any other right or remedy hereunder
or at law or in equity, it being understood and agreed that the provisions of
this Agreement shall be solely for the benefit of, and may be enforced solely
by, the parties hereto and their respective successors and assigns. None of the
rights or obligations of the Partners herein set forth to make Capital
Contributions or loans to the Partnership shall be deemed an asset of the
Partnership for any purpose by any creditor or other third party, nor may such
rights or obligations be sold, transferred or assigned by the Partnership or
pledged or encumbered by the Partnership to secure any debt or other obligation
of the Partnership or of any of the Partners.
4.6 No Interest on or Return of Capital Contribution. No Partner shall
be entitled to interest on its Capital Contribution or Capital Account. Except
as provided herein or by law, no Partner shall have any right to demand or
receive the return of its Capital Contribution.
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ARTICLE 5
Indemnification
5.1 Indemnification of the General Partner.
(a) To the fullest extent permitted by law, the Partnership shall
and does hereby indemnify an Indemnitee from and against any and all losses,
claims, damages, liabilities, joint or several, expenses (including reasonable
legal fees and expenses), judgments, fines, settlements, and other amounts
arising from any and all claims, demands, actions, suits or proceedings
(including arbitration and mediation proceedings), civil, criminal,
administrative or investigative, that relate, directly or indirectly, to the
formation, business or operations of the Partnership in which any Indemnitee may
be involved, or is threatened to be involved, as a party, witness or otherwise,
by reason of the fact that such Person was an Indemnitee, whether or not the
same shall proceed to judgment or be settled or otherwise be brought to a
conclusion, except only if and to the extent that it is finally adjudicated that
the act or omission of the Indemnitee was material to the matter giving rise to
the proceeding and was committed with fraud, gross negligence or willful
misconduct. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 5.1(a). Any indemnification
pursuant to this Section 5.1 shall be made only out of the assets of the
Partnership and no Partner shall have any personal liability therefor. The
provisions of this Section 5.1 are for the benefit of the Indemnitees, their
heirs, successors, assigns, personal representatives and administrators, and
shall not be deemed to create any rights for the benefit of any other Persons.
The foregoing notwithstanding, the General Partner shall not be entitled to
indemnification from the Partnership with respect to matters provided for in
Sections 9.1 and 9.2 of the Formation Agreement.
(b) Reasonable expenses incurred by an Indemnitee who is a party or
witness in a proceeding shall be paid or reimbursed by the Partnership in
advance of the final disposition of the proceeding upon receipt by the
Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's
good faith belief that the standard of conduct necessary for indemnification by
the Partnership, as authorized in this Section 5.1, has been met, and (ii) a
written undertaking by or on behalf of the Indemnitee to repay the amount paid
or reimbursed if it shall ultimately be determined that such Indemnitee is not
entitled to be indemnified hereunder.
(c) The indemnification provided by this Section 5.1 shall be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity. The Partnership shall
purchase and maintain insurance, on behalf of the Indemnitees, against any
liability that may be asserted against or expenses that may be incurred by such
Person in connection with the Partnership's activities, regardless of whether
the Partnership would have the power to indemnify such Person against such
liability under the provisions of this Agreement. An Indemnitee shall not be
denied indemnification in whole or in part under this Section 5.1 solely because
the Indemnitee had an interest in the transaction with respect to which the
indemnification applies.
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(d) For purposes of this Section 5.1, the Partnership shall be
deemed to have requested an Indemnitee to serve as fiduciary of an employee
benefit plan whenever the performance by it of its duties to the Partnership
also imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of this Section 5.1; and actions taken
or omitted by the Indemnitee with respect to an employee benefit plan in the
performance of its duties for a purpose reasonably believed by it to be in the
interest of the participants and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the Partnership.
5.2 Indemnification of Limited Partners.
(a) From and after the date hereof, the Partnership shall indemnify
and hold harmless each Limited Partner, its Affiliates, employees, officers,
directors and agents against and from all liability, demands, claims, actions or
causes of action, assessments, losses, fines, penalties, costs, damages and
expenses (including, without limitation, reasonable attorneys' and accountants'
fees and expenses) sustained or incurred by such Limited Partner or Affiliate or
any assignee or successor thereof (including, without limitation, any permitted
assignee of a Limited Partner under Article 9 hereof) as a result of or arising
out of any action, suit or proceeding (including mediation and arbitration
proceedings) (i) arising out of or relating to the operation of the
Partnership's business or the Limited Partner being a Partner in the Partnership
(excluding, specifically, actions, suits or proceedings arising out of actual or
alleged breaches of a Partner's representations, warranties or covenants
hereunder or pursuant to the Formation Agreement or arising out of acts by a
Limited Partner other than in its capacity as such) and (ii) naming a Limited
Partner or any of its Affiliates as a party to such proceeding. Any
indemnification pursuant to this Section 5.2(a) shall be made only out of the
assets of the Partnership and no Partner shall have any personal liability
therefor. The provisions of this Section 5.2(a) are for the benefit of the
Limited Partners, their Affiliates, employees, officers, directors and agents,
and shall not be deemed to create any rights for the benefit of any other
Persons.
(b) Notwithstanding the foregoing, the Partnership shall indemnify
and hold harmless the HEI Contributors of and from liabilities of the HEI
Property Companies whose Property Company Interests have been acquired by the
Partnership except for any undisclosed material liability of any such HEI
Property Company as of February 14, 1997 (collectively, the "Excluded
Liabilities"); provided, however, that the Excluded Liabilities shall not
include:
(i) any liability incurred in the ordinary course of operating
the applicable hotel prior to February 14, 1997;
(ii) any liability disclosed by the Transaction Documents, the
schedules or exhibits thereto, any supplement to such schedules or exhibits
delivered to the Starwood Parties prior to February 14, 1997, the agreements,
reports or other documents referred to in any of the foregoing, the Financial
Statements, the financial statements prepared in connection with the Net Working
Capital adjustment provided for in Article IV of the HEI Contribution Agreement;
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(iii) any liability of which the Starwood Parties otherwise had
Knowledge prior to February 14, 1997; or
(iv) any liability incurred on or after February 14, 1997;
and the Partnership shall be obligated to hold the HEI Contributors harmless
from all such enumerated liabilities. The provisions of this Section 5.2(b)
shall be in addition to and not in limitation of the indemnifications provided
to Limited Partners pursuant to Section 5.2(a). Any capitalized term in this
Section 5.2(b) not otherwise defined in this Agreement shall have the meaning
set forth in the HEI Contribution Agreement.
5.3 Notice of Claims. If any Person believes that it is entitled to
indemnification under this Article 5, such Person shall so notify the
Partnership promptly in writing describing such claim for indemnification, the
amount thereof, if known, and the method of computation, all with reasonable
particularity and containing a reference to the provisions of this Agreement in
respect of which such claim shall have occurred; provided, however, that the
omission by such indemnified party to give notice as provided herein shall not
relieve the Partnership of its indemnification obligation under this Article 5
except to the extent that the Partnership is materially damaged as a result of
such failure to give notice. If any action at law or suit in equity is
instituted by or against a third party with respect to which any of the Persons
entitled to indemnification under this Article 5 intends to make a claim for
indemnification under this Article 5, any such Person shall promptly notify the
Partnership of such action or suit. Any Person entitled to indemnification
hereunder shall use reasonable efforts to minimize the amount of any claim for
indemnification hereunder.
5.4 Third Party Claims. In the event of any claim for indemnification
hereunder resulting from or in connection with any claim or legal proceeding by
a third party, the indemnified Person shall give such notice thereof to the
Partnership not later than twenty (20) Business Days prior to the time any
response to the asserted claim is required, if possible, and in any event within
fifteen (15) Business Days following the date such indemnified Person has actual
knowledge thereof; provided, however, that the omission by such indemnified
Person to give notice as provided herein shall not relieve the Partnership of
its indemnification obligation under this Article 5 except to the extent that
the Partnership is materially damaged as a result of such failure to give
notice. In the event of any such claim for indemnification resulting from or in
connection with a claim or legal proceeding by a third party, the Partnership
may, at its sole cost and expense, assume the defense thereof; provided,
however, that counsel for the Partnership, who shall conduct the defense of such
claim or legal proceeding, shall be reasonably satisfactory to the indemnified
Person; and provided, further, that if the defendants in any such actions
include both the indemnified Persons and the Partnership and the indemnified
Persons shall have reasonably concluded that there may be legal defenses or
rights available to them which have not been waived and are in actual or
potential conflict with those available to the Partnership, the indemnified
Persons shall have the right to select one law firm reasonably acceptable to the
Partnership to act as separate counsel, on behalf of such indemnified Persons,
at the expense of the Partnership. Unless the indemnified Persons are
represented by separate counsel pursuant to the second proviso of the
immediately preceding sentence, if the Partnership assumes the defense
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of any such claim or legal proceeding, it shall not consent to entry of any
judgment, or enter into any settlement, that (a) is not subject to
indemnification in accordance with the provisions in this Article 5, (b)
provides for injunctive or other non-monetary relief affecting the indemnified
Persons or (c) does not include as an unconditional term thereof the giving by
each claimant or plaintiff to such indemnified Persons of a release from all
liability with respect to such claim or legal proceeding, without the prior
written consent of the indemnified Persons (which consent, in the case of
clauses (b) and (c), shall not be unreasonably withheld or delayed); and
provided, further, that, unless the indemnified Persons are represented by
separate counsel pursuant to the second proviso of the immediately preceding
sentence, the indemnified Persons may, at their own expense, participate in any
such proceeding with the counsel of their choice without any right of control
thereof. So long as the Partnership is in good faith defending such claim or
proceeding, the indemnified Persons shall not compromise or settle such claim or
proceeding without the prior written consent of the Partnership, which consent
shall not be unreasonably withheld or delayed. If the Partnership does not
assume the defense of any such claim or litigation in accordance with the terms
hereof, the indemnified Persons may defend against such claim or litigation in
such manner as they may deem appropriate, including, without limitation,
settling such claim or litigation (after giving prior written notice of the same
to the Partnership and obtaining the prior written consent of the Partnership,
which consent shall not be unreasonably withheld or delayed) on such terms as
the indemnified Persons may deem appropriate, and the Partnership will promptly
indemnify the indemnified Persons in accordance with the provisions of this
Article 5.
5.5 Indemnification Pursuant to Formation Agreement. If any obligation
pursuant to the indemnification provisions of Article IX of the Formation
Agreement would otherwise require the indemnifying Person to make a cash payment
to the indemnified Person then, subject to Article 9 hereof, in lieu of making
all or any portion of such cash payment, the indemnifying Person may transfer RP
Units of equivalent value to the indemnified Person. Indemnification through the
transfer of RP Units pursuant to this Section 5.5 may only be made if (a)
indemnification through the transfer of an equal number of OP Units is being
made pursuant to Section 5.5 of the Operating Partnership Agreement or (b) the
indemnifying Person otherwise makes arrangements for the transfer to the
indemnified Person (or its designee) of an equal number of OP Units.
ARTICLE 6
Allocations, Distributions and Other Tax and Accounting Matters
6.1 Allocations. The Net Income, Net Loss and other Partnership items
shall be allocated pursuant to the provisions of this Section 6.1.
(a) Allocation of Net Income and Net Loss.
(i) Net Income. Except as otherwise provided herein, Net Income
for any fiscal year or other applicable period shall be allocated in the
following order and priority:
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(A) first, to the General Partner, until the cumulative Net
Income allocated pursuant to this Section 6.1(a)(i)(A) for the current
and all prior periods equals the cumulative Net Loss allocated pursuant
to Section 6.1(a)(ii)(C) for all prior periods;
(B) second, to the holders of RP Units, to the extent of, in
proportion to and in reverse order of their prior allocations of Net
Loss pursuant to Section 6.1(a)(ii)(B) until the cumulative Net Income
allocated pursuant to this Section 6.1(a)(i)(B) for the current and all
prior periods equals the cumulative Net Loss allocated to such holders
pursuant to Section 6.1(a)(ii)(B) for all prior periods;
(C) third, to the General Partner, until the cumulative Net
Income allocated pursuant to this Section 6.1(a)(i)(C) for the current
and all prior periods equals the cumulative Net Loss allocated pursuant
to Section 6.1(a)(ii)(A) for all prior periods;
(D) fourth, to the holders of Class A RP Units until each
holder of Class A RP Units has been allocated Net Income pursuant to
this Section 6.1(a)(i)(D) in an amount equal to its accrued Class A RP
Special Distributions, if any;
(E) fifth, to the holders of Class A RP Units until each
holder of Class A RP Units has been allocated Net Income pursuant to
this Section 6.1(a)(i)(E) in an amount equal to the excess of its
accrued Class A Liquidation Preference Distributions, if any, over the
portion of such holder's initial Capital Account balance allocable to
the Class A Liquidation Preference Distribution;
(F) sixth, to the extent the Partnership has made
distributions pursuant to Section 6.2(a)(ii) or Section 6.2(b), to the
holders of RP Units, in accordance with and in proportion to the
distributions made under Section 6.2(a)(ii) or Section 6.2(b); and
(G) thereafter, to the General Partner.
(ii) Net Loss. Except as otherwise provided herein, Net Loss of the
Partnership for each fiscal year or other applicable period shall be allocated
in the following order and priority:
(A) first, to the General Partner, until the Capital Account
balance of the General Partner has been reduced to the minimum Capital
Account balance required pursuant to Section 4.1(b) hereof;
(B) second, to the holders of RP Units in accordance with
their respective holdings of RP Units, provided that Net Losses shall
not be
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allocated pursuant to this Section 6.1(a)(ii)(B) to the extent that
such allocations would cause any Limited Partner to have an Adjusted
Capital Account Deficit as of the end of the fiscal year to which such
Net Loss relates; and
(C) the balance, if any, to the General Partner.
(b) Special Allocations. Notwithstanding any provisions of Section
6.1(a) hereof, the following special allocations shall be made in the following
order:
(i) Minimum Gain Chargeback. Notwithstanding any other
provision of this Article 6, if there is a net decrease in Partnership Minimum
Gain for any Partnership fiscal year (except as a result of conversion or
refinancing of Partnership indebtedness, certain capital contributions or
revaluation of the Partnership property as further outlined in Section
1.704-2(f) of the Regulations), each holder of RP Units shall be specially
allocated items of Partnership income and gain for such year (and, if necessary,
subsequent years) in an amount equal to that holder's share of the net decrease
in Partnership Minimum Gain as determined under Section 1.704-2(g) of the
Regulations. The items to be so allocated shall be determined in accordance with
Section 1.704-2(f) of the Regulations. This clause (i) is intended to comply
with the minimum gain chargeback requirement in said section of the Regulations
and shall be interpreted consistently therewith. Allocations pursuant to this
clause (i) shall be made in proportion to the respective amounts required to be
allocated to each holder of RP Units pursuant hereto.
(ii) Minimum Gain Chargeback Attributable to Partner
Nonrecourse Debt. Notwithstanding any other provision of this Article 6, if
there is a net decrease in Minimum Gain Attributable to Partner Nonrecourse Debt
during any fiscal year (other than due to the conversion, refinancing or other
change in the debt instrument causing it to become partially or wholly
nonrecourse, certain capital contributions, or certain revaluations of
Partnership property (as further outlined in Section 1.704-2(i)(4) of the
Regulations), each holder of RP Units shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent years)
in an amount equal to the holder's share of the net decrease in the Minimum Gain
Attributable to Partner Nonrecourse Debt as determined under Section 1.704-2(i)
of the Regulations. The items to be so allocated shall be determined in
accordance with Sections 1.704-2(i)(4) and (j)(2) of the Regulations. This
clause (ii) is intended to comply with the minimum gain chargeback requirement
with respect to Partner Nonrecourse Debt contained in said section of the
Regulations and shall be interpreted consistently therewith. Allocations
pursuant to this clause (ii) shall be made in proportion to the respective
amounts required to be allocated to each holder of RP Units.
(iii) Qualified Income Offset. In the event a holder of RP
Units unexpectedly receives any adjustments, allocations or distributions
described in Section 1.704-1(b)(2)(ii) (d)(4), (5), or (6) of the Regulations,
and such holder has an Adjusted Capital Account Deficit, items of Partnership
income and gain shall be specially allocated to such holder in an amount and
manner sufficient to eliminate the Adjusted Capital Account Deficit as quickly
as possible, provided that an allocation pursuant to this Section 6.1(b)(iii)
shall be made only if
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and to the extent that such holder would have Adjusted Capital Account Deficit
after all other allocations provided for in this Article 6 have been tentatively
made as if this Section 6.1(b)(iii) were not in the Agreement. This clause (iii)
is intended to constitute a "qualified income offset" under Section
1.704-1(b)(2)(ii) (d) of the Regulations and shall be interpreted consistently
therewith.
(iv) Gross Income Allocation. In the event any holder of RP
Units has a deficit Capital Account at the end of any fiscal year which is in
excess of the sum of (A) the amount such holder is obligated to restore pursuant
to any provision of this Agreement, and (B) the amount such holder is deemed to
be obligated to restore pursuant to the penultimate sentences of Sections
1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each such holder shall be
specially allocated items of Partnership income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
Section 6.1(b)(iv) shall be made only if and to the extent that such holder
would have a Capital Account Deficit in excess of such sum after all other
allocations provided for in this Article 6 have been made as if Section
6.1(b)(iii) hereof and this Section 6.1(b)(iv) were not in the Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for any
fiscal year or other applicable period shall be allocated to the holders of RP
Units in accordance with their respective holdings of RP Units. For purposes of
Section 1.752-3(a) (3) of the Regulations, "excess nonrecourse liabilities"
shall be allocated among the holders of RP Units in proportion to their
respective holdings of RP Units.
(vi) Partner Nonrecourse Deductions. Partner Nonrecourse
Deductions for any fiscal year or other applicable period shall be specially
allocated to the holder of RP Units that bears the economic risk of loss with
respect to the Partner Nonrecourse Debt in respect of which such Partner
Nonrecourse Deductions are attributable (as determined under Sections 1.704-2(b)
(4) and (i) (1) of the Regulations).
(vii) Section 754 Adjustments. To the extent an adjustment to
the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or
Section 743(b) of the Code is required, pursuant to Section 1.704-1(b)(2)(iv)
(m)(2) or Section 1.704-1(b)(2)(iv)(m)(4) of the Regulations, to be taken into
account in determining Capital Accounts, the amount of such adjustment to
Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases such
basis) and such gain or loss shall be specially allocated to holders of RP Units
in accordance with their interests in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to such
sections of the Regulations.
(viii) Curative Allocations. The Regulatory Allocations shall
be taken into account in allocating other items of income, gain, loss, and
deduction among the holders of RP Units so that, to the extent possible, the
cumulative net amount of allocations of Partnership items under Sections 6.1(a)
and 6.1(b) hereof shall be equal to the net amount that would have been
allocated to each holder of RP Units if the Regulatory Allocations had not
occurred. This subparagraph (viii) is intended to minimize to the extent
possible and to the extent
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necessary any economic distortions which may result from application of the
Regulatory Allocations and shall be interpreted in a manner consistent
therewith. For purposes hereof, "Regulatory Allocations" shall mean the
allocations provided under this Section 6.1(b) (other than this subparagraph)
and allocations pursuant to the last sentence of Section 6.1(a)(ii) hereof.
(ix) Varying Interests. In the event the number of RP Units
outstanding during a fiscal year changes, the allocations pursuant to this
Article 6 shall be made by the General Partner to take such varying interests
into account in any reasonable manner permitted under the Code and the
Regulations.
(c) Tax Allocations.
(i) Generally. Subject to clauses (ii) and (iii) hereof, items
of income, gain, loss, deduction and credit to be allocated for income tax
purposes (collectively, "Tax Items") shall be allocated among the holders of RP
Units on the same basis as their respective book items.
(ii) Sections 1245/1250 Recapture. If any portion of gain from
the sale of property is treated as gain which is ordinary income by virtue of
the application of Sections 1245 or 1250 of the Code ("Affected Gain"), then (A)
such Affected Gain shall be allocated among the holders of RP Units in the same
proportion that the depreciation and amortization deductions giving rise to the
Affected Gain were allocated and (B) other Tax Items of gain of the same
character that would have been recognized, but for the application of Sections
1245 and/or 1250 of the Code, shall be allocated away from those holders of RP
Units who are allocated Affected Gain pursuant to clause (A) so that, to the
extent possible, the other holders of RP Units are allocated the same amount,
and type, of capital gain that would have been allocated to them had Sections
1245 and/or 1250 of the Code not applied. For purposes hereof, in order to
determine the proportionate allocations of depreciation and amortization
deductions for each fiscal year or other applicable period, such deductions
shall be deemed allocated on the same basis as Net Income or Net Loss for such
respective period.
(iii) Allocations Respecting Section 704(c) of the Code and
Revaluations. Property contributed to the Partnership shall be subject to
Section 704(c) of the Code and the Regulations thereunder so that,
notwithstanding paragraph (b) hereof, taxable gain from disposition, taxable
loss from disposition and tax depreciation with respect to Partnership property
that is subject to Section 704(c) of the Code and/or Section 1.704-1(b) (2) (iv)
(f) of the Regulations (collectively "Section 704(c) Tax Items") shall be
allocated on a property by property basis in accordance with said Code Section
and/or the Regulations thereunder, as the case may be. The allocation of Section
704(c) Tax Items shall be made pursuant to any reasonable method selected by the
General Partner in its discretion authorized under Section 1.704-3 of the
Regulations. Allocations pursuant to this Section 6.1(c)(iii) are solely for
purposes of federal, state, and local taxes and shall not affect, or in any way
be taken into account in computing, the Capital Account or share of Net Income,
Net Loss, other items, or distributions of any holder of RP Units pursuant to
any provision of this Agreement.
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(iv) Tax Credits and Other Items. Tax credits and other items
shall be allocated in accordance with the holdings of RP Units to the extent
permitted under Section 1.704-1(b)(4)(ii) of the Regulations or other applicable
provision of the Code and Regulations and otherwise in accordance with such
provisions.
(v) Senior Debt. Any income (including income from discharge of
indebtedness), gain, correlative adjustments, loss, deduction or retirement or
other premium relating to the assumption of the Senior Debt by the Partnership,
the repayment of or refinancing of the Senior Debt, the contribution of any
portion of the Senior Debt to the Partnership or the defeasance of any portion
of the Senior Debt as a result of the application of Section 108(e)(4) of the
Code and the Regulations thereunder shall be specially allocated to the General
Partner.
(vi) Bonds. Income, gain, loss or correlative adjustments, if
any, relating to the Suites Bonds or the disposition thereof shall be specially
allocated to HSR (or its assignees or successors-in-interest). Income, gain,
loss or correlative adjustments, if any, relating to the Inns Bonds or the
disposition thereof shall be specially allocated to HSR (or its assignees or
successors-in-interest).
6.2 Distributions.
(a) The General Partner shall cause the Partnership to distribute
all, or such portion as the General Partner may in its reasonable discretion
determine, of Net Cash Flow in accordance with the distribution rules described
below to the General Partner and to the holders of the applicable RP Units who
are holders on the Partnership Record Date with respect to such distribution.
From and after the date first above written, Net Cash Flow shall be distributed:
(i) first, to the holders of Class A RP Units, pro rata in
accordance with the holders' ownership of Class A RP Units, in an amount equal
to the excess, if any, of (A) the total of all Class A RP Special Distributions
that have accrued as of the date of payment of such distribution, less (B) the
total amount of all previous distributions to the holders of Class A RP Units in
respect of such Class A RP Special Distributions pursuant to Section 8.2(a)(iv)
hereof, if any, and this Section 6.2(a)(i);
(ii) second, to each holder of RP Units, in an amount equal to
the excess, if any, of (A) all distributions made or to be made as of the
Partnership Record Date by the General Partner to holders of Class B Shares (on
a per Class B Share to per RP Unit basis) over (B) the total amount of all
previous distributions made to each holder of RP Units pursuant to this Section
6.2(a)(ii); and
(iii) thereafter, to the General Partner.
(b) If, as of any Partnership Record Date, the Net Cash Flow of the
Partnership is insufficient to make the distributions provided for under Section
6.2(a)(i) or (ii) hereof, the General Partner shall ensure that sufficient Net
Cash Flow is available by reducing the
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amounts distributable to it under Section 6.2(a) hereof and increasing the
amount otherwise distributable to holders of RP Units and, to the extent
necessary, by contributing additional capital to the Partnership.
6.3 Books of Account. At all times during the continuance of the
Partnership, the General Partner shall maintain or cause to be maintained full,
true, complete and correct books of account in accordance with GAAP, using the
calendar year as the fiscal and taxable year of the Partnership. In addition,
the Partnership shall keep all records required to be kept pursuant to the Act.
6.4 Reports. The General Partner shall cause to be sent to the Partners
promptly after receipt of the same from the Accountants and in no event later
than one hundred five (105) days after the close of each fiscal year of the
Partnership, copies of Audited Financial Statements for the Partnership, or of
the General Partner if such statements are prepared solely on a consolidated
basis with the General Partner, for the immediately preceding fiscal year of the
Partnership. The Partnership shall also cause to be prepared such reports and/or
information as are necessary for the General Partner to determine its
qualification as a REIT and its compliance with REIT Requirements.
6.5 Tax Elections and Returns. All elections required or permitted to
be made by the Partnership under any applicable tax law shall be made by the
General Partner in its sole and absolute discretion, except that the General
Partner shall, if requested by a Limited Partner, file an election on behalf of
the Partnership pursuant to Section 754 of the Code to adjust the basis of the
Partnership property in the case of a transfer of a Partnership Interest or
distribution from the Partnership, including transfers made in connection with
the exercise of the Rights, made in accordance with the provisions of the
Agreement. The General Partner shall be responsible for preparing and filing all
federal and state tax returns for the Partnership and furnishing copies thereof
to the Partners, together with required Partnership schedules showing
allocations of tax items, copies of all within the period of time prescribed by
law. The General Partner shall use reasonable efforts to make available to the
holders of RP Units final K-1's not later than September 15 of each year.
6.6 Tax Matters Partner. The General Partner is hereby designated as
the Tax Matters Partner within the meaning of Section 6231(a)(7) of the Code
(and any corresponding provisions of state and local law) for the Partnership;
provided, however, that (a) in exercising its authority as Tax Matters Partner,
the General Partner shall be limited by the provisions of this Agreement
affecting tax aspects of the Partnership; and (b) the General Partner shall give
prompt notice to any notice partners under Section 6231 of the Code of the
receipt of any written notice that the Internal Revenue Service intends to
examine or audit Partnership income tax returns for any year, receipt of written
notice of the beginning of an administrative proceeding at the Partnership level
relating to the Partnership under Section 6223 of the Code, receipt of written
notice of the final Partnership administrative adjustment relating to the
Partnership pursuant to Section 6223 of the Code, and receipt of any request
from the Internal Revenue Service for waiver of any applicable statute of
limitations with respect to the filing of any tax return by the Partnership.
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6.7 Withholding Payments Required By Law.
(a) Unless treated as a Tax Payment Loan (as hereinafter defined),
any amount paid by the Partnership for or with respect to any holder of RP Units
on account of any withholding tax or other tax payable with respect to the
income, profits or distributions of the Partnership pursuant to the Code, the
Regulations, or any state or local statute, regulation, notice, ruling or
ordinance requiring such payment (a "Withholding Tax Act") shall be treated as a
distribution to such holder for all purposes of this Agreement, consistent with
the character or source of the income, profits or cash which gave rise to the
payment or withholding obligation. To the extent that the amount required to be
remitted by the Partnership under the Withholding Tax Act exceeds the amount
then otherwise distributable to such holder, unless and to the extent that funds
shall have been provided by such holder pursuant to the last sentence of this
Section 6.7(a), the excess shall constitute a loan from the Partnership to such
holder (a "Tax Payment Loan") which shall be payable upon demand and shall bear
interest, from the date that the Partnership makes the payment to the relevant
taxing authority, at the rate announced from time to time by Citibank, N.A. (or
any successor thereto) as its "prime rate," plus 4% per annum, compounded
monthly (but in no event higher than the highest interest rate permitted by
applicable law). So long as any Tax Payment Loan to any holder of RP Units or
the interest thereon remains unpaid, the Partnership shall make future
distributions due to such holder under this Agreement by applying the amount of
any such distributions first to the payment of any unpaid interest on such Tax
Payment Loan and then to the repayment of the principal thereof, and no such
future distributions shall be paid to such holder until all of such principal
and interest has been paid in full. If the amount required to be remitted by the
Partnership under the Withholding Tax Act exceeds the amount then otherwise
distributable to a holder of RP Units, the Partnership shall notify such holder
at least five (5) Business Days in advance of the date upon which the
Partnership would be required to make a Tax Payment Loan under this Section
6.7(a) (the "Tax Payment Loan Date") and provide such holder the opportunity to
pay to the Partnership, on or before the Tax Payment Loan Date, all or a portion
of such deficit.
(b) The General Partner shall have the authority to take all
actions necessary to enable the Partnership to comply with the provisions of any
Withholding Tax Act applicable to the Partnership and to carry out the
provisions of this Section 6.7. Nothing in this Section 6.7 shall create any
obligation on the General Partner to advance funds to the Partnership or to
borrow funds from third parties in order to make any payments on account of any
liability of the Partnership under a Withholding Tax Act.
(c) In the event that a Tax Payment Loan is not paid by a holder of
RP Units within thirty (30) days after written demand therefor is made by the
General Partner, the General Partner may cause all distributions that would
otherwise be made to such holder to be retained by the Partnership, or sell such
holder's RP Units for sale proceeds, in each case up to the amount necessary to
repay such Tax Payment Loan, including all accrued and unpaid interest therein,
and such retained distributions or sale proceeds shall be applied against,
first, the accrued interest on and, second, the principal of, such Tax Payment
Loan.
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ARTICLE 7
Rights, Duties and Restrictions of the General Partner
7.1 Powers and Duties of the General Partner.
(a) The General Partner shall be responsible for the management of
the Partnership's business and affairs. Except as otherwise herein expressly
provided, the General Partner shall have, and is hereby granted, full and
complete power, authority and discretion to take such action for and on behalf
of the Partnership and in its name as the General Partner shall, in its sole and
absolute discretion, deem necessary or appropriate to carry out the
Partnership's business and the purposes for which the Partnership was organized.
Except as otherwise expressly provided herein, the General Partner shall, on
behalf of, and at the expense of, the Partnership, have the right, power and
authority:
(i) to manage, control, invest, reinvest, acquire by purchase,
lease or otherwise, sell, contract to purchase or sell, grant, obtain, or
exercise options to purchase, options to sell or conversion rights, assign,
transfer, convey, deliver, endorse, exchange, pledge, mortgage, abandon,
improve, repair, maintain, insure, lease for any term and otherwise deal with
any and all property of whatsoever kind and nature, and wheresoever situated, in
furtherance of the business or purposes of the Partnership;
(ii) to acquire, directly or indirectly, interests in real
estate of any kind and of any type, and any and all kinds of interests therein
(including, without limitation, Entities investing therein), and to determine
the manner in which title thereto is to be held; to manage (directly or through
property managers), insure against loss, protect and subdivide any of the real
estate, interests therein or parts thereof; to improve, develop or redevelop any
such real estate; to participate in the ownership and development of any
property; to dedicate for public use, to vacate any subdivisions or parts
thereof, to resubdivide, to contract to sell, to grant options to purchase or
lease, to sell on any terms; to convey, mortgage, pledge or otherwise encumber
said property, or any part thereof; to lease said property or any part thereof
from time to time, upon any terms and for any period of time, and to renew or
extend leases, to amend, change or modify the terms and provisions of any leases
and to grant options to lease and options to renew leases and options to
purchase; to partition or to exchange said real property, or any part thereof,
for other real or personal property; to grant easements or charges of any kind;
to release, convey or assign any right, title or interest in or about or
easement appurtenant to said property or any part thereof; to construct and
reconstruct, remodel, alter, repair, add to or take from buildings on any
property in which the Partnership owns an interest; to insure any Person having
an interest in or responsibility for the care, management or repair of such
property; to direct the trustee of any land trust to mortgage, lease, convey or
contract to convey the real estate held in such land trust or to execute and
deliver deeds, mortgages, notes and any and all documents pertaining to the
property subject to such land trust or in any matter regarding such trust; and
to execute assignments of all or any part of the beneficial interest in such
land trust;
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(iii) to employ, engage, indemnify or contract with or dismiss
from employment or engagement Persons to the extent deemed necessary or
appropriate by the General Partner for the operation and management of the
Partnership business, including but not limited to contractors, subcontractors,
engineers, architects, surveyors, mechanics, consultants, accountants,
attorneys, insurance brokers, real estate brokers and others;
(iv) to enter into contracts on behalf of the Partnership, and
to cause all Administrative Expenses to be paid;
(v) to borrow or loan money, obtain or make loans and advances
from and to any Person for Partnership purposes and to apply for and secure from
or accept and grant to any Person credit or accommodations; to contract
liabilities and obligations (including interest rate swaps, caps and hedges) of
every kind and nature with or without security; and to repay, collect,
discharge, settle, adjust, compromise or liquidate any such loan, advance,
obligation or liability;
(vi) to grant security interests, mortgage, assign, deposit,
deliver, enter into sale and leaseback arrangements or otherwise give as
security or as additional or substitute security or for sale or other
disposition any and all Partnership property, tangible or intangible, including,
but not limited to, personal property and real estate and interests in land
trusts, and to make substitutions thereof, and to receive any proceeds thereof
upon the release or surrender thereof; to sign, execute and deliver any and all
assignments, deeds, bills of sale and contracts and instruments in writing; to
authorize, give, make, procure, accept and receive moneys, payments, property
notices, demands, protests and authorize and execute waivers of every kind and
nature; to enter into, make, execute, deliver and receive agreements,
undertakings and instruments of every kind and nature; and generally to do any
and all other acts and things incidental to any of the foregoing or with
reference to any dealings or transactions which the General Partner may deem
necessary, proper or advisable to effect or accomplish any of the foregoing or
to carry out the business and purposes of the Partnership;
(vii) to acquire and enter into any contract of insurance
(including, without limitation, general partner liability and partnership
reimbursement insurance policies) which the General Partner may deem necessary
or appropriate;
(viii) to conduct any and all banking transactions on behalf of
the Partnership; to adjust and settle checking, savings and other accounts with
such institutions as the General Partner shall deem appropriate; to draw, sign,
execute, accept, endorse, guarantee, deliver, receive and pay any checks,
drafts, bills of exchange, acceptances, notes, obligations, undertakings and
other instruments for or relating to the payment of money in, into or from any
account in the Partnership's name; to make deposits into and withdrawals from
the Partnership's bank accounts and to negotiate or discount commercial paper,
acceptances, negotiable instruments, bills of exchange and dollar drafts;
(ix) to demand, sue for, receive and otherwise take steps to
collect or recover all debts, rents, proceeds, interests, dividends, goods,
chattels, income from
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property, damages and all other property, to which the Partnership may be
entitled or which are or may become due the Partnership from any Person; to
commence, prosecute or enforce, or to defend, answer or oppose, contest and
abandon all legal proceedings in which the Partnership is or may hereafter be
interested; and to settle, compromise or submit to arbitration any accounts,
debts, claims, disputes and matters which may arise between the Partnership and
any other Person and to grant an extension of time for the payment or
satisfaction thereof on any terms, with or without security;
(x) to acquire interests in and contribute money or property
to any limited or general partnerships, joint ventures, subsidiaries or other
entities as the General Partner deems desirable;
(xi) to maintain or cause to be maintained the Partnership's
books and records;
(xii) to prepare and deliver, or cause to be prepared and
delivered, all financial and other reports with respect to the operations of the
Partnership, and preparation and filing of all tax returns and reports;
(xiii) to do all things which are necessary or advisable for
the protection and preservation of the Partnership's business and assets, and to
execute and deliver such further instruments and undertake such further acts as
may be necessary or desirable to carry out the intent and purposes of this
Agreement and as are not inconsistent with the terms hereof;
(xiv) subject to Section 7.4 hereof, to lease any or all of
the Properties to SLC, the Operating Partnership or the Affiliates of either or
to any other Person on such terms and conditions as the General Partner may from
time to time agree;
(xv) subject to Section 11.3 hereof, to authorize and cause
mergers between the Partnership and other Entities in which the Partnership is
the surviving Entity; and
(xvi) in general, to exercise all of the general rights,
privileges and powers permitted to be had and exercised under the Act.
To the extent the duties of the General Partner require expenditures of funds to
be paid to third parties, the General Partner shall not have any obligations
hereunder except to the extent that Partnership funds are reasonably available
to it for the performance of such duties, and nothing herein contained shall be
deemed to require the General Partner, in its capacity as such, to expend its
individual funds for payment to third parties or to undertake any specific
liability or litigation on behalf of the Partnership.
(b) Notwithstanding the provisions of Section 7.1(a) hereof, the
Partnership shall not take any action which (or fail to take any action, the
omission of which) the
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General Partner believes, in its sole and absolute discretion, (i) could
adversely affect the ability of the General Partner to qualify or continue to
qualify as a REIT, (ii) could otherwise cause the General Partner to violate the
REIT Requirements or (iii) could violate any law or regulation of any
governmental body or agency having jurisdiction over the General Partner or its
securities, unless such action (or inaction) shall have been specifically
consented to by the General Partner in writing.
(c) Notwithstanding the provisions of Section 7.1(a) hereof, the
Partnership shall not commingle its funds with those of any Affiliate or other
entity; funds and other assets of the Partnership shall be separately identified
and segregated; all of the Partnership's assets shall at all times be held by or
on behalf of the Partnership, and, if held on behalf of the Partnership by
another entity, shall at all times be kept identifiable (in accordance with
customary usages) as assets owned by the Partnership; and the Partnership shall
maintain its own separate bank accounts, payroll and books of account.
(d) Without the consent of the Limited Partners, the General
Partner shall have no power to do any act in contravention of this Agreement or
possess any Partnership property for other than a partnership purpose.
7.2 Reimbursement of the General Partner.
(a) Except as provided in this Section 7.2 and elsewhere in this
Agreement (including the provisions of Articles 5, 6 and 8 hereof regarding
distributions, payments and allocations to which it may be entitled), the
General Partner shall not receive payments from or be compensated for its
services as general partner of the Partnership.
(b) The General Partner shall be reimbursed on a monthly basis, or
such other basis as the General Partner may determine in its sole and absolute
discretion, for all expenses it incurs relating to the ownership and operation
of, or for the benefit of, the Partnership, including, without limitation, the
Administrative Expenses. Such reimbursements shall be in addition to any
reimbursement to the General Partner as a result of indemnification pursuant to
Section 5.1 hereof.
(c) To the extent that any amount paid or credited to the General
Partner or its officers, directors, employees or agents pursuant to Section 5.1
or Section 7.2(b) hereof would constitute gross income to the General Partner
for purposes of Sections 856(c)(2) or 856(c)(3) of the Code (a "General Partner
Payment") then, notwithstanding any other provision of this Agreement, the
amount of such General Partner Payments for any fiscal year shall not exceed the
lesser of:
(i) an amount equal to the excess, if any, of (A) 4.95% of the
General Partner's total gross income (but not including the amount of any
General Partner Payments) for the fiscal year which is described in subsections
(A) through (H) of Section 856(c)(2) of the Code over (B) the amount of gross
income (within the meaning of Section 856(c)(2) of the Code) derived by a
General Partner from sources other than those described in
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subsections (A) through (H) of Section 856(c)(2) of the Code (but not including
the amount of any General Partner Payments); or
(ii) an amount equal to the excess, if any, of (A) 24.95% of
the General Partner's total gross income (but not including the amount of any
General Partner Payments) for the fiscal year which is described in subsections
(A) through (I) of Section 856(c)(3) of the Code over (B) the amount of gross
income (within the meaning of Section 856(c)(3) of the Code) derived by the
General Partner from sources other than those described in subsections (A)
through (I) of Section 856(c)(3) of the Code (but not including the amount of
any General Partner Payments); provided, however, that General Partner Payments
in excess of the amounts set forth in subparagraphs (i) and (ii) above may be
made if the General Partner, as a condition precedent, obtains an opinion of tax
counsel that the receipt of such excess amounts would not adversely affect the
General Partner's ability to qualify as a REIT. To the extent General Partner
Payments may not be made in a fiscal year due to the foregoing limitations, such
General Partner Payments shall carry over and be treated as arising in the
following year, provided, however, that such amounts shall not carry over for
more than five (5) years, and if not paid within such five (5) year period,
shall expire; provided further, that (i) as General Partner Payments are made,
such payments shall be applied first to carry over amounts outstanding, if any,
and (ii) with respect to carry over amounts for more than one (1) fiscal year,
such payments shall be applied to the earliest fiscal year first.
7.3 Outside Activities of the General Partner. The General Partner
shall not be restricted in its outside activities or investments if the General
Partner makes such arrangements as are reasonably necessary, including but not
limited to distributions and/or Rights, to prevent such activities or
investments from having a material adverse impact on the Limited Partners and to
assure that the Limited Partners share in the economic benefits of such
activities or investments in a fair and equitable manner as compared to holders
of Starwood Units. For purposes of this Section 7.3, the interests of the
holders of RP Ordinary Units in the Operating Partnership shall be taken into
account.
7.4 Contracts with Affiliates. The Partnership may engage in
transactions, enter into contracts with Affiliates, and lend money to or borrow
money from Affiliates which are on terms fair and reasonable to the Partnership
and no less favorable to the Partnership than would be obtained from
unaffiliated third parties. The Partners hereby agree that the Partnership's
leases and loans with the Operating Partnership, SLC and its Affiliates, as in
effect on the date first above written, are on terms fair and reasonable to the
Partnership and such terms are no less favorable to the Partnership than would
be obtained from unaffiliated third parties.
7.5 Title to Partnership Assets. Title to Partnership assets, whether
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Partnership as an entity, and no Partner, individually or
collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby acknowledges and confirms that any Partnership assets
for which legal title is held
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in the name of the General Partner or any nominee or Affiliate of the General
Partner shall be held by the General Partner for the use and benefit of the
Partnership in accordance with the provisions of this Agreement; provided,
however, that the General Partner shall use its best efforts to cause beneficial
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable. All Partnership assets shall be recorded as the property
of the Partnership in its books and records, irrespective of the name in which
legal title to such Partnership assets is held.
7.6 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority to
encumber, sell or otherwise use in any manner any and all assets of the
Partnership and to enter into any contracts on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if it were the
Partnership's sole party in interest, both legally and beneficially. In no event
shall any Person dealing with the General Partner or its representatives be
obligated to ascertain that the terms of this Agreement have been complied with
or to inquire into the necessity or expedience of any act or action of the
General Partner or its representatives. Each and every certificate, document or
other instrument executed on behalf of the Partnership by the General Partner
shall be conclusive evidence in favor of any and every Person relying thereon or
claiming thereunder that (a) at the time of the execution and delivery of such
certificate, document or instrument, this Agreement was in full force and
effect, (b) the Person executing and delivering such certificate, document or
instrument was duly authorized and empowered to do so for and on behalf of the
Partnership and (c) such certificate, document or instrument was duly executed
and delivered in accordance with the terms and provisions of this Agreement and
is binding upon the Partnership.
7.7 Liability of the General Partner.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary or other damages
to the Partnership, any of the Partners or any assignee of any interest of any
Partner for losses sustained or liabilities incurred as a result of errors in
judgment or of any act or omission if the General Partner acted without fraud,
gross negligence or willful misconduct.
(b) The Limited Partners expressly acknowledge (i) that the General
Partner is acting on behalf of the Partnership and the General Partner's
shareholders collectively, (ii) that, subject to the terms and conditions of
this Agreement, the General Partner may, but is under no obligation to, consider
the separate interests of the Limited Partners (including, without limitation,
the tax consequences to Limited Partners or any assignees thereof except as
provided in this Agreement) in deciding whether to cause the Partnership to take
(or decline to take) any actions, and (iii) that the General Partner shall not
be liable for monetary damages for losses sustained, liabilities incurred, or
benefits not derived by Limited Partners in connection with such decisions,
provided that the General Partner acted without fraud, gross negligence or
willful misconduct.
(c) Subject to its obligations and duties as General Partner set
forth in Section 7.1 hereof, the General Partner may exercise any of the powers
granted to it by this
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Agreement and perform any of the duties imposed upon it hereunder either
directly or by or through agents. The General Partner shall not be responsible
for any fraud, willful misconduct or gross negligence on the part of any such
agent appointed by it without fraud, gross negligence or willful misconduct.
(d) Any amendment, modification or repeal of this Section 7.7 or
any provision hereof shall be prospective only and shall not in any way affect
the limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 7.7 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may be asserted.
7.8 Other Matters Concerning the General Partner.
(a) The General Partner may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, or other document reasonably believed by it to be
genuine and to have been signed or presented by the proper party or parties.
(b) The General Partner may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisers selected by it, and any act taken or omitted to be
taken in reliance upon the advice or opinion of such Persons as to matters which
the General Partner reasonably believes to be within such Person's professional
or expert competence and in accordance with such advice or opinion shall be
prima facie evidence that such actions have been done or omitted in good faith.
(c) The General Partner shall have the right, in respect of any of
its powers or obligations hereunder, to act through any of its duly authorized
officers and any attorney or attorneys-in-fact duly appointed by the General
Partner. Each such attorney shall, to the extent provided by the General Partner
in the power of attorney, have full power and authority to do and perform all
and every act and duty which is permitted or required to be done by the General
Partner hereunder.
7.9 Operation of SLT in Accordance with REIT Requirements.
(a) The Partners acknowledge and agree the General Partner has the
authority to cause the Partnership to be operated in a manner that will enable
the General Partner to satisfy the REIT Requirements. The General Partner has
the authority to cause the Partnership to avoid taking any action which would
result in the General Partner ceasing to satisfy the REIT Requirements.
(b) Without the prior consent of the General Partner, no Limited
Partner or holder of RP Units or any Affiliate shall take any action, including
acquiring, directly or indirectly, an interest in any tenant of a Property
(including, but not limited to, the Operating Partnership, SLC or an Affiliate
of either), which would have, through the actual or constructive
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ownership of any tenant of any Property, the effect of causing the percentage of
the gross income of SLT that fails to be treated as "rents from real property"
within the meaning of Section 856(d)(2) of the Code to exceed such percentage on
the date first above written. Each Limited Partner and holder of RP Units shall
use its best efforts to notify the General Partner on a timely basis of any
direct or indirect acquisition or potential direct or indirect acquisition of
Starwood Units by such Limited Partner or holder or any Affiliate or direct or
indirect owner of an interest in such Limited Partner or holder that could
reasonably be expected to have such effect.
7.10 Replacement of General Partner. In the event the General Partner
is no longer a Partner (whether in accordance with the provisions of this
Agreement or otherwise), a successor General Partner shall be appointed by a
vote of a Majority-in-Interest of the Limited Partners.
ARTICLE 8
Dissolution, Liquidation and Winding-Up
8.1 Accounting. In the event of the dissolution, liquidation and
winding-up of the Partnership, a proper accounting shall be made of the Capital
Account of each holder of RP Units and of the Net Income or Net Loss of the
Partnership from the date of the last previous accounting to the date of
dissolution.
8.2 Distribution on Dissolution.
(a) In the event of the dissolution and liquidation of the
Partnership for any reason, the assets of the Partnership shall be liquidated
for distribution in the following rank and order:
(i) payment of creditors of the Partnership, including
creditors who are Partners or former Partners;
(ii) establishment of reserves as provided by the Liquidating
Trustee to provide for contingent liabilities, if any;
(iii) to the holders of Class A RP Units, pro rata in
accordance with the holders' ownership of Class A RP Units, in an amount equal
to the excess, if any, of (A) the Class A Liquidation Preference Distribution,
over (B) the sum of all prior distributions to holders of Class A RP Units
pursuant to this Section 8.2(a)(iii);
(iv) to the holders of Class A RP Units, pro rata in accordance
with the holders' ownership of Class A RP Units, in an amount equal to the
excess, if any, of (A) the total of all Class A RP Special Distributions that
have accrued as of the date of payment of such liquidating distribution, less
(B) the total of all previous distributions made to the holders of
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Class A RP Units in respect of such Class A RP Special Distributions pursuant to
Section 6.2(a) hereof and this Section 8.2(a)(iv); and
(v) to the holders of RP Units and to the General Partner, in
accordance with the positive balances in their Capital Accounts after giving
effect to all contributions, distributions and allocations for all periods.
Whenever the Liquidating Trustee reasonably determines that any reserves
established pursuant to paragraph (ii) above are in excess of the reasonable
requirements of the Partnership, the amount determined to be excess shall be
distributed to the Partners in accordance with the provisions of this Section
8.2(a). No Partner or holder of RP Units shall be liable to any other Partner or
holder of RP Units for a deficit balance in its Capital Account.
(b) Notwithstanding the provisions of Section 8.2(a) hereof which
require liquidation of the assets of the Partnership, but subject to the order
of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidating Trustee determines that an immediate sale of part or
all of the Partnership's assets would be impractical or would cause undue loss
to the Partners, the Liquidating Trustee may, in its sole and absolute
discretion, defer for a reasonable time liquidation of any assets except those
necessary to satisfy liabilities of the Partnership (including to those Partners
which are creditors of the Partnership) and/or, with the Consent of the Limited
Partners, distribute to the Partners, in lieu of cash, as tenants in common and
in accordance with the provisions of Section 8.2(a) hereof, undivided interests
in such Partnership assets as the Liquidating Trustee deems not suitable for
liquidation. Any such distributions in kind shall be made only if, in the good
faith judgment of the Liquidating Trustee, such distributions in kind are in the
best interest of the Partners, and shall be subject to such conditions relating
to the disposition and management of such properties as the Liquidating Trustee
deems reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidating Trustee shall determine the fair
market value of any property distributed in kind using such reasonable method of
valuation as it may adopt.
8.3 Documentation of Liquidation. Upon the completion of the
dissolution and liquidation of the Partnership, the Partnership shall terminate
and the Liquidating Trustee shall have the authority to execute and record any
and all documents or instruments required to effect the dissolution, liquidation
and termination of the Partnership.
ARTICLE 9
Transfer
9.1 General Partner. The General Partner shall not withdraw from the
Partnership and shall not sell, assign, pledge, encumber or otherwise dispose of
all or any portion of its Partnership Interest or RP Units without the Consent
of the Limited Partners, which consent may be given or withheld in each Limited
Partner's sole and absolute discretion. Upon any transfer of a Partnership
Interest in accordance with the provisions of this Section 9.1, the
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transferee General Partner shall become vested with the powers and rights of the
transferor General Partner, and shall be liable for all obligations and
responsible for all duties of the General Partner under this Agreement, once
such transferee has executed such instruments as may be necessary to effectuate
such admission and to confirm the agreement of such transferee to be bound by
all the terms and provisions of this Agreement with respect to the Partnership
interest so acquired. It shall be a condition to any transfer permitted
hereunder that the transferee assumes by express agreement (or pursuant to a
statutory merger or consolidation wherein all obligations and liabilities of the
General Partner are assumed by a successor trust or corporation by operation of
law) all of the obligations of the transferor General Partner under this
Agreement with respect to such transferred Partnership Interest and no such
transfer (other than pursuant to a statutory merger or consolidation wherein all
obligations and liabilities of the transferor General Partner are assumed by a
successor trust or corporation by operation of law) shall relieve the transferor
General Partner of its obligations under this Agreement without the Consent of
the Limited Partners. In connection with any such permitted transfer, the
successor General Partner shall be deemed admitted as such immediately prior to
the effective time of the transfer from the transferor General Partner and shall
continue the business of the Partnership without dissolution. If the General
Partner withdraws or retires from the Partnership, in violation of this
Agreement or otherwise, or dissolves, terminates or upon the Bankruptcy of the
General Partner, within ninety (90) days thereafter, at least a
Majority-in-Interest of the Limited Partners may elect to continue the
Partnership business by selecting a substitute General Partner, which substitute
General Partner accepts such election and agrees to serve as General Partner.
Such successor General Partner shall thereupon succeed to the rights and
obligations of the General Partner as provided in this Section 9.1.
9.2 Transfers by Limited Partners.
(a) No Limited Partner shall have the right, directly or
indirectly, to transfer all or any part of his Partnership Interest or RP Units
to any Person without the prior written consent of the General Partner, which
consent may be given or withheld by the General Partner in its sole and absolute
discretion. The foregoing notwithstanding, the General Partner hereby grants the
consents described in this Section 9.2 to transfers of Partnership Interests
pursuant to an exercise of Rights, provided that any such transfer otherwise
complies with all of the other provisions of this Article 9 (including, but not
limited to, any additional consents required hereunder);
(b) It shall be a condition to any transfer by a Limited Partner
(other than a pledge, encumbrance, hypothecation or mortgage) otherwise
permitted hereunder that the transferee assume by operation of law or express
agreement all of the obligations of the transferor under this Agreement
(including, without limitation, under this Article 9) with respect to such
transferred Partnership Interest or RP Units and no such transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor are assumed by a successor corporation by
operation of law) shall relieve the transferor of its obligations under this
Agreement without the approval of the General Partner, in its reasonable
discretion (it being understood that a transferor shall be deemed relieved from
such obligations, without the necessity of any such approval, in respect of
Partnership Interests transferred to the
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General Partner or the Partnership pursuant to an Exchange Rights Agreement).
Upon such transfer, the transferee of a Partnership Interest shall be admitted
as a Limited Partner and shall succeed to all of the rights of the transferor
Limited Partner under this Agreement in the place and stead of such transferor
Limited Partner (which succession, in the event of a pledge, may be entered into
and become effective at the time of foreclosure or other realization of such
pledge). The foregoing notwithstanding, a transferee of an RP Unit shall not be
admitted as a substituted Limited Partner unless the General Partner consents,
which consent may be given or withheld by the General Partner in its sole and
absolute discretion. Any transferee, whether or not admitted as a substituted
Limited Partner, shall succeed to the obligations of the transferor hereunder
(unless such transfer is a pledge, encumbrance, hypothecation or mortgage or
except as otherwise provided herein).
(c) In addition to any other restrictions on transfer provided
herein, no Partnership Interest or RP Units shall be transferable unless the
transferor gives written notice of the proposed transfer which notice shall
state, to the best of its knowledge, that such transfer will not violate any of
the restrictions set forth in Section 9.3 hereof.
(d) Any permitted transferee under this Section 9.2 who is not
admitted as a Limited Partner in accordance with this Article 9 or a transferee
who only holds RP Units shall be considered an assignee for purposes of this
Agreement. An assignee shall be deemed to have had assigned to it, and shall be
entitled to receive, distributions from the Partnership and the share of Net
Income, Net Loss, and any other items of income, gain, loss, deduction and
credit of the Partnership and rights attributable to the Partnership Interests
assigned to such transferee, but shall not be deemed to be a holder of
Partnership Interests for any other purpose under this Agreement, and shall not
be entitled to vote such Partnership Interests in any matter presented to the
Limited Partners for a vote. In the event any such transferee desires to make a
further assignment of any such Partnership Interests, such transferee shall be
subject to all the provisions of this Article 9 to the same extent and in the
same manner as any Limited Partner desiring to make an assignment of Partnership
Interests.
(e) The Limited Partners acknowledge that neither the Partnership
Interests nor the RP Units have been registered under any federal or state
securities laws and, as a result thereof, they may not be sold or otherwise
transferred, except in compliance with such laws. Notwithstanding anything to
the contrary contained in this Agreement, no Partnership Interest or RP Units
may be sold or otherwise transferred unless such transfer is exempt from
registration under any applicable securities laws or such transfer is registered
under such laws, it being acknowledged that the Partnership has no obligation to
take any action which would cause any such Partnership Interests or RP Units to
be registered.
9.3 Certain Restrictions on Transfer. In addition to any other
restrictions on transfer herein contained, except with the consent of the
General Partner, in no event may any transfer of a Partnership Interest or RP
Units by any Person be made (a) to any person or Entity that lacks the legal
right, power or capacity to own a Partnership Interest or RP Units; (b) in the
event such transfer would be substantially likely to cause the General Partner
to cease to comply with the REIT Requirements; (c) if such transfer would be
substantially likely to cause a
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termination of the Partnership for federal income tax purposes; (d) if such
transfer would be substantially likely to, in the opinion of counsel to the
Partnership, cause the Partnership to cease to be classified as a Partnership
for federal income tax purposes; (e) if such transfer would be substantially
likely to result in the Partnership being treated as a "publicly traded
partnership" or is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code and the Regulations thereunder; (f) in violation of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976; (g) if the General Partner
reasonably believes that such transfer may (i) cause any portion or all of the
assets of the Partnership to be deemed pursuant to United States Department of
Labor Regulation Section 2510.3-101 or otherwise pursuant to ERISA or the Code
to be for any purpose of ERISA or Section 4975 of the Code assets of any
Restricted Entity, or (ii) cause a "prohibited transaction" (as defined in
Section 4975(c) of the Code or within the meaning of Section 406 of ERISA) to
occur, or (iii) cause the Partnership to become with respect to any Restricted
Entity a "party in interest" (as defined in Section 3(14) of ERISA) or a
"disqualified person" (as defined in Section 4975(e) of the Code) or (iv) cause
the Partnership to be jointly and severally liable for any obligation arising
under ERISA or the Code with respect to any "employee benefit plan" as defined
in and subject to ERISA or any "plan" as defined in Section 4975 of the Code; or
(h) if the intended transferee is a Restricted Entity. Any purported transfer
described in this Section 9.3 shall be void ab initio.
9.4 Effective Dates of Transfers.
(a) Transfers pursuant to this Article 9 may be made on any day,
but for purposes of this Agreement, the effective date of any such transfer
shall be (i) the first day of the month in which such transfer occurred if such
transfer occurred on or prior to the fifteenth calendar day of a month, or (ii)
the first day of the month immediately following the month in which such
transfer occurred, if such transfer occurred after the fifteenth calendar day of
a month, or such other date determined by the General Partner pursuant to such
convention as may be administratively feasible and consistent with applicable
law.
(b) If any Partnership Interest or RP Unit is transferred or
assigned in compliance with the provisions of this Article 9, on any day other
than the first day of a calendar year, then Net Income, Net Loss, each item
thereof and all other items attributable to such Partnership Interest or RP Unit
for such year shall be allocated to the transferor, and, in the case of a
transfer or assignment other than a redemption, to the transferee, by taking
into account their varying interests during such year in accordance with Section
706(d) of the Code, using any method permitted thereunder. All distributions
pursuant to Section 6.2 hereof attributable to such transferred Partnership
Interests or RP Units (i) with respect to which the Partnership Record Date is
before the effective date of such transfer (other than a pledge, encumbrance,
hypothecation or mortgage) shall be made to the transferor, and (ii) with
respect to any Partnership Record Date after the effective date of such transfer
(other than a pledge, encumbrance, hypothecation or mortgage) shall be paid to
the transferee.
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9.5 Transfer.
(a) The term "transfer," when used in this Article 9 with respect
to a Partnership Interest, shall be deemed to refer to a transaction by which a
Person purports to assign its Partnership Interest or any portion thereof
(including RP Units) to another Person, and includes a sale, assignment, gift,
pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition
by law or otherwise.
(b) No Partnership Interest or RP Unit shall be transferred, in
whole or in part, except in accordance with the terms and conditions set forth
in this Article 9. Any transfer or purported transfer of a Partnership Interest
not made in accordance with this Article 9 shall be null and void.
ARTICLE 10
Rights and Obligations of the Limited Partners
10.1 No Participation in Management. No Limited Partner, in its
capacity as such, shall take part in the management of the Partnership's
business, transact any business in the Partnership's name or have the power to
sign documents for or otherwise bind the Partnership. Any rights expressly
granted to the Limited Partners in this Agreement shall not be deemed to be
rights relating to the management of the Partnership's business.
10.2 Bankruptcy of a Limited Partner. The Bankruptcy of any Limited
Partner shall not cause a dissolution of the Partnership, but the rights of such
Limited Partner to share in the Net Profits or Net Losses of the Partnership and
to receive distributions of Partnership funds shall, on the happening of such
event, devolve on its successors or assigns, subject to the terms and conditions
of this Agreement, and the Partnership shall continue as a limited partnership.
In no event, however, shall such assignee(s) become a substituted Limited
Partner except in accordance with Article 9 hereof.
10.3 No Withdrawal. No Limited Partner may withdraw from the
Partnership without the prior written consent of the General Partner, other than
as provided in Article 9 hereof.
10.4 Conflicts. The Partners recognize that the Limited Partners and
their Affiliates have or may have other business interests, activities and
investments, some of which may be in conflict or competition with the business
of the Partnership, and that such Persons are entitled to carry on such other
business interests, activities and investments. In deciding whether to take any
actions in such capacity, such Limited Partners and their Affiliates may, but
shall be under no obligation to, consider the separate interests of the
Partnership and shall have no fiduciary obligations to the Partnership and shall
not be liable for monetary damages for losses sustained, liabilities incurred or
benefits not derived by the other Partners in connection with such actions
except for damages for losses sustained or liabilities incurred which result
from a Limited
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Partner breaching a representation, warranty or covenant hereunder or to the
extent provided in the Formation Agreement; nor shall the Partnership or the
General Partner be under any obligation to consider the separate interests of
the Limited Partners and their Affiliates in such capacity or have any fiduciary
obligations to the Limited Partners and their Affiliates in such capacity or be
liable for monetary damages for losses sustained, liabilities incurred or
benefits not derived by the Limited Partners and their Affiliates in such
capacity arising from actions or omissions taken by the Partnership. The Limited
Partners and their Affiliates may engage in or possess an interest in any other
business or venture of any kind, independently or with others, on their own
behalf or on behalf of other entities with which they are affiliated or
associated, and such persons may engage in any activities, whether or not
competitive with the Partnership, without any obligation to offer any interest
in such activities to the Partnership or to any Partner. Neither the Partnership
nor any Partner shall have any right, by virtue of this Agreement, in or to such
activities, or the income or profits derived therefrom, and the pursuit of such
activities, even if competitive with the business of the Partnership, shall not
be deemed wrongful or improper. Notwithstanding the foregoing, the provisions of
this Section 10.4 shall not negate or impair any other written agreement between
one or more of the Limited Partners and the General Partner or the Partnership
(including Section 6.6 of the Formation Agreement) or any duties which a Limited
Partner may have in such Limited Partner's capacity as an officer or director of
the General Partner.
10.5 Provision of Information.
(a) With respect to any information required to be provided to the
Limited Partners pursuant to Section 17-305 (or any successor thereto) of the
Act: (i) the cost of preparing or providing any such information (including,
without limitation, fees paid to any person or entity in connection therewith)
shall be paid by the requesting Partner and in no event shall such information
be required to be given to the requesting Partner until such payment has been
made to the Partnership; (ii) in no event shall any financial statements of the
Partnership be required to be provided except for such statements as have
already been prepared or are otherwise required to be provided to the Limited
Partners under this Agreement and in no event shall any statements which have
been prepared be required to be audited, reviewed or otherwise examined by a
certified public accountant, if the statements are not otherwise required to be
so audited, reviewed or examined pursuant to the provisions of this Agreement;
and (iii) in no event shall such information be required to be furnished until
forty-five (45) days after such request and unless the information is already in
the possession of the Partnership.
(b) In addition to other rights provided by this Agreement or by
the Act, each Limited Partner shall have the right, for a purpose reasonably
related to such Limited Partner's interest as a limited partner in the
Partnership, upon written demand with a statement of the purpose of such demand
and at such Limited Partner's own expense (excluding copying and administrative
expenses of the General Partner):
(i) to obtain a copy of the most recent annual and quarterly
reports and current reports on Form 8-K filed with the SEC by the General
Partner pursuant to the Securities Exchange Act of 1934;
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(ii) to obtain a copy of the Partnership's federal, state and
local income tax returns for each fiscal year of the Partnership;
(iii) to obtain a current list of the name and last known
business, residence or mailing address of each Partner; and
(iv) to obtain a copy of this Agreement and the Certificate,
together with executed copies of all powers of attorney pursuant to which this
Agreement and the Certificate have been executed.
(c) Notwithstanding any other provision of this Section 10.5, the
General Partner may keep confidential from the Limited Partners, for such period
of time as the General Partner determines in its sole and absolute discretion to
be reasonable, any information that is not material to the Limited Partners and
that (i) the General Partner reasonably believes to be in the nature of trade
secrets or other information the disclosure of which the General Partner in good
faith believes is not in the best interests of the Partnership or could damage
the Partnership or its business or (ii) the Partnership is required by law or by
agreements with an unaffiliated third party to keep confidential.
10.6 Power of Attorney.
(a) Each Limited Partner constitutes and appoints the General
Partner, any Liquidating Trustee and authorized officers and attorneys-in-fact
of each, and each of those acting singly, in each case with full power of
substitution, as its true and lawful agent and attorney-in-fact, with full power
and authority in its name, place and stead to: execute, swear to, acknowledge,
deliver, file and record in the appropriate public offices (i) all certificates,
documents and other instruments (including, without limitation, this Agreement
and the Certificate and all amendments or restatements thereof) that the General
Partner or the Liquidating Trustee deems appropriate or necessary to form,
qualify or continue the existence or qualification of the Partnership as a
limited partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware and in all other jurisdictions in which the
Partnership may conduct business or own property; (ii) all instruments that the
General Partner deems appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with its terms;
(iii) all conveyances and other instruments or documents that the General
Partner deems appropriate or necessary to reflect the dissolution and
liquidation of the Partnership pursuant to the terms of this Agreement,
including, without limitation, a certificate of cancellation; and (iv) all
instruments relating to the admission, withdrawal, removal or substitution of
any Partner pursuant to the provisions of this Agreement or the Capital
Contribution of any Partner.
(b) The foregoing power of attorney is irrevocable and a power
coupled with an interest, in recognition of the fact that each of the Partners
will be relying upon the power of the General Partner to act as contemplated by
this Agreement in any filing or other action by it on behalf of the Partnership,
and it shall survive the death or incompetency of a Limited Partner to the
effect and extent permitted by law, subsequent incapacity of any Limited
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<PAGE> 52
Partner and the transfer of all or any portion of such Limited Partner's
Partnership Interests and shall extend to such Limited Partner's heirs,
successors, assigns and personal representatives.
(c) Nothing contained in this Section 10.6 shall be construed as
authorizing the General Partner to amend this Agreement except in accordance
with Article 11 hereof.
10.7 Ownership of Starwood Units.
(a) Each Limited Partner and holder of RP Units hereby agrees to
provide the General Partner within fifteen (15) days of any written request
therefor, a statement, to the best of its knowledge, describing the number of
Starwood Units actually or constructively owned by such Limited Partner or
holder of RP Units and all direct and indirect owners of such Limited Partner or
holder for purposes of the REIT Requirements as determined under 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.
(b) Each Limited Partner and holder of RP Units, except to the
extent that the General Partner provides prior written consent, hereby
represents, warrants and covenants that (A) it is not and will not become a
Restricted Entity, (B) no "prohibited transaction" (as defined in Section
4975(c) of the Code or within the meaning of Section 406 of ERISA) has occurred
or will occur that would not have occurred or occur if the Limited Partner or
holder of RP Units and its Affiliates were not Limited Partners and were not
holders of RP Units, (C) the Partnership has not become and will not become with
respect to any Restricted Entity a "party in interest" (as defined in Section
3(14) of ERISA) or a "disqualified person" (as defined in Section 4975(e) of the
Code) which the Partnership would not have become or be if the Limited Partner
or holder of RP Units and its Affiliates were not Limited Partners and were not
holders of RP Units, and (D) the Partnership has not and will not become jointly
and severally liable for any obligations arising under ERISA or the Code with
respect to any "employee benefit plan" as defined in and subject to ERISA or any
"plan" as defined in the Code for which the Partnership has not become or would
not be liable if the Limited Partner or holder of RP Units and its Affiliate
were not Limited Partners and were not holders of RP Units.
10.8 Waiver of Fiduciary Duty. Each Limited Partner and holder of RP
Units hereby waives, to the maximum extent permitted under law, any and all
fiduciary duties of the General Partner to each, all or any combination of them
and hereby agrees that the General Partner may, but is under no obligation to,
take their interests into account in performing or refraining from performing
any act permitted under this Agreement.
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ARTICLE 11
Amendment of Partnership Agreement, Meetings
11.1 Amendments.
(a) This Agreement may not be amended unless such amendment is
approved by the General Partner with the Consent of the Limited Partners, except
as provided below in this Section 11.1.
(b) Notwithstanding Section 11.1(a) hereof, the General Partner
shall have the power, without the Consent of the Limited Partners but after five
(5) Business Days notice to the Limited Partners, to amend this Agreement as may
be required to facilitate or implement any of the following purposes:
(i) to add to the obligations of the General Partner for the
benefit of the Limited Partners;
(ii) to reflect the admission, substitution, termination or
withdrawal of Partners after the date hereof in accordance with Section 4.1(d)
or Article 9 of this Agreement, provided that the General Partner shall not be
required to give the notice referred to in the first paragraph of this
subsection (b) in respect of the transaction described in this Paragraph (ii);
(iii) to set forth the rights, powers, duties, and preferences
of the holders of any additional Partnership Interests issued pursuant to
Article 4 hereof;
(iv) to reflect a change that is of an inconsequential nature
and does not materially adversely affect the Limited Partners, or to cure any
ambiguity, correct or supplement any provision of this Agreement not
inconsistent with law or with other provisions, or make other changes with
respect to matters arising under this Agreement that will not be inconsistent
with law or with the provisions of this Agreement;
(v) to satisfy any requirements, conditions, or guidelines
contained in any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law;
(vi) to prevent all or any portion of the assets of the
Partnership from being deemed pursuant to United States Department of Labor
Regulation Section 2510.3- 101 or otherwise pursuant to ERISA or the Code to be,
for any purpose of ERISA or Section 4975 of the Code, assets of any Restricted
Entity;
(vii) to prevent the Partnership from being characterized as a
"publicly traded partnership" pursuant to Section 7704 of the Code and
Regulations;
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(viii) to enable the General Partner to satisfy the REIT
Requirements; and
(ix) to maintain the Partnership's characterization as a
partnership for tax purposes.
(c) Notwithstanding Sections 11.1(a) and 11.1(b) hereof, this
Agreement shall not be amended without the prior written consent of each Partner
adversely affected if such amendment would (i) convert a Limited Partner's
interest in the Partnership into a general partner's interest, (ii) modify the
limited liability of a Limited Partner, (iii) alter rights of the Partners to
receive allocations and distributions pursuant to Article 6 or Section 8.2
hereof (except as permitted pursuant to Article 4 and Sections 11.1(b)(iii) and
11.1(d) hereof), (iv) alter or modify the Rights set forth in an Exchange Rights
Agreement or a Registration Rights Agreement except in compliance therewith, (v)
except in furtherance of Sections 11.1(b)(vii), (viii) or (ix) hereof, alter
such Partner's rights to transfer its Partnership Interest; (vi) amend Sections
7.7, 7.8 or 10.7 hereof or (vii) amend Sections 11.1(c) or 11.1(d) hereof.
(d) Notwithstanding Section 11.1(c) hereof and subject to (but not
in limitation of) the rights granted to the General Partner pursuant to Article
4 hereof and this Article 11, this Agreement may be amended to (i) alter the
rights of any or all of the Partners to receive allocations and distributions
pursuant to Article 6 or Section 8.2 hereof or (ii) alter the rights of any or
all of the Partners to transfer their Partnership Interests if such amendment is
approved by the prior written consent of a majority of each class or group of
Partnership Interests that is treated in a uniform or pro rata basis by such
amendment.
11.2 Meetings of the Partners; Notices to Partners.
(a) Meetings of Partners may be called by the General Partner or
by Limited Partners holding at least 1% of the Partnership Interests to act on
any matter specified herein or in the Act to be voted on or consented to by the
Partners. The call shall state the nature of the business to be transacted.
Notice of any such meeting shall be given to all Partners not less than seven
(7) Business Days prior to the date of such meeting. Partners may vote in person
or by proxy at such meeting. Whenever the vote or Consent of the Limited
Partners is permitted or required under this Agreement, such vote or consent may
be given at a meeting of Partners or may be given in accordance with the
procedure prescribed in Section 11.2(b) hereof.
(b) Any action required or permitted to be taken at a meeting of
the Partners may be taken without a meeting if a written consent setting forth
the action so taken is signed by the General Partner and such percentage or
number of the Limited Partners as is expressly required by this Agreement. Such
consent may be in one instrument or in several instruments, and shall have the
same force and effect as a vote of the Partners. Such consent shall be filed
with the General Partner and copies thereof delivered to all Partners. An action
so taken shall be deemed to have been taken at a meeting held on the effective
date so certified.
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(c) Each Limited Partner may authorize any Person or Persons to
act for him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited Partner executing it. No such
proxy and no such revocation shall be effective unless a copy thereof has been
delivered to the General Partner.
(d) Whenever the Consent of the Limited Partners is required
hereunder, the General Partner shall provide a notice to each Partner who is a
Limited Partner on the date the notice is given setting forth the matter(s) as
to which it proposes to seek such consent at least five (5) Business Days in
advance of the date upon which such consent is sought.
11.3 Mergers. Notwithstanding Section 7.1(a)(xv) hereof, the General
Partner may not authorize or cause a merger between the Partnership and another
Entity (a) if the Partnership is not the surviving Entity in the merger, or (b)
without the prior written consent of the Limited Partners whose consent would
have been required pursuant to Section 11.1(c) and (d) hereof if such merger had
been an amendment to this Agreement or (c) without the Consent of the Limited
Partners if such merger would otherwise have a material adverse impact on the
rights, duties or obligations of the Limited Partners.
ARTICLE 12
General Provisions
12.1 No Liability of Directors and Others. Notwithstanding anything to
the contrary contained herein, no recourse shall be had by the Partnership or
any Partner against any trustee, director, shareholder, officer, employee, agent
or attorney of the General Partner for any act or omission of the General
Partner or any obligation or liability of the General Partner under this
Agreement, and none of the foregoing shall have any personal liability for or
with respect to any of the foregoing; provided that the foregoing shall not
relieve any trustee, officer or director of the General Partner of any liability
in his capacity as such.
12.2 Notices. All notices, offers or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and may be
personally served, sent by United States mail, or sent via facsimile. A notice
shall be deemed to have been given when delivered in person or, if sent by
United States mail, three business days after deposit in United States mail,
registered or certified, postage prepaid, and properly addressed, by or to the
appropriate party, or, if sent via facsimile, upon receipt by the sending party
of verification of transmission. For purposes of this Section 12.2, the
addresses of the parties hereto shall be as set forth on Exhibit B hereto. The
address of any party hereto may be changed by a notice in writing given in
accordance with the provisions hereof.
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12.3 Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the State of Delaware,
notwithstanding any conflict-of-laws doctrines of such state or other
jurisdiction to the contrary. Each of the parties hereto irrevocably submits and
consents to the jurisdiction of the United States District Court for the
Southern District of New York in connection with any action or proceeding
arising out of or relating to this Agreement and irrevocably waives any immunity
from jurisdiction thereof and any claim of proper venue, forum non conveniens or
any similar basis to which it might otherwise be entitled in any such action or
proceeding.
12.4 Execution of Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
12.5 Severability. The provisions of this Agreement are independent of
and separable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole or in part.
12.6 Entire Agreement. This Agreement (together with the Exhibits
hereto) and the Formation Agreement contain the entire understanding among the
parties hereto with respect to the subject matter hereof, and supersede all
prior and contemporaneous agreements and understandings, inducements or
conditions, express or implied, oral or written, except as herein contained. The
parties hereto intend that this Agreement be treated as a separate and distinct
agreement and as not being part of any other agreement (other than the Formation
Agreement), arrangement, partnership or joint venture. The express terms hereof
control and supersede any course of performance and/or usage of the trade
inconsistent with any of the terms hereof. This Agreement may not be modified or
amended other than by an agreement in writing.
12.7 Paragraph Headings. The paragraph headings in this Agreement are
for convenience and they form no part of this Agreement and shall not affect its
interpretation.
12.8 Gender, Etc. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context indicates is appropriate. The term "including" shall mean
"including, but not limited to."
12.9 Number of Days. In computing the number of days (other than
Business Days) for purposes of this Agreement, all days shall be counted,
including Saturdays, Sundays and holidays; provided, however, that if the final
day of any time period falls on a Saturday, Sunday or
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<PAGE> 57
holiday on which national banks are or may elect to be closed, then the final
day shall be deemed to be the next day which is not a Saturday, Sunday or such
holiday.
12.10 Partners Not Agents. Nothing contained herein shall be construed
to constitute any Partner the agent of another Partner, except as specifically
provided herein, or in any manner to limit the Limited Partners in the carrying
on of their own respective businesses or activities.
12.11 Assurances. Each of the Partners shall hereafter execute and
deliver such further instruments and do such further acts and things as may be
reasonably required or useful to carry out the intent and purpose of this
Agreement and as are not inconsistent with the terms hereof.
12.12 Waiver of Partition. Each Partner hereby waives any right such
Partner may have to partition its interest in the Partnership or any property of
the Partnership.
12.13 Starwood Hotels & Resorts. The name "Starwood Hotels & Resorts"
is a designation of Starwood Hotels & Resorts and its Trustees (as Trustees but
not personally) under the Declaration of Trust, and all persons dealing with
Starwood Hotels & Resorts shall look solely to Starwood Hotels & Resorts' assets
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 liability for obligations entered into on behalf of Starwood
Hotels & Resorts, and their respective individual assets shall not be subject to
the claims of any person relating to such obligations.
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<PAGE> 58
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or caused this Agreement to be executed on their behalf as of the date
first above written.
GENERAL PARTNER:
STARWOOD HOTELS & RESORTS, a
Maryland real estate investment trust
By: /s/ Steven R. Goldman
-------------------------------
Name: Steven R. Goldman
Title: Executive Vice President
LIMITED PARTNERS:
STARWOOD HOTEL INVESTORS II, L.P.
By: STARWOOD CAPITAL GROUP I, L.P.
By: BSS CAPITAL PARTNERS, L.P.,
General Partner
By: STERNLICHT HOLDINGS II, Inc.
General Partner
By: /s/ Madison F. Grose
-------------------------------
Name: Madison F. Grose
Title:
FIREBIRD CONSOLIDATED PARTNERS, L.P.
By: /s/ Madison F. Grose
-------------------------------
Name: Madison F. Grose
Title: Authorized by General Partner
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<PAGE> 59
APPOLLO REAL ESTATE INVESTMENT
FUND, L.P.
By: APPOLLO REAL ESTATE ADVISORS, L.P.
By: APPOLLO REAL ESTATE MANAGEMENT,
INC.
By: /s/ Ronald J. Solotrub
-------------------------------
Name: Ronald J. Solotrub
Title: Vice President and Controller
PHILADELPHIA HSR LIMITED PARTNERSHIP
By: /s/ Edwin Sidman
-------------------------------
Name: Edwin Sidman
Title: General Partner
STARWOOD OPPORTUNITY FUND II, L.P.
By: STARWOOD CAPITAL GROUP I, L.P.
General Partner
By: BSS CAPITAL PARTNERS, L.P.,
General Partner
By: STERNLICHT HOLDINGS II, Inc.
General Partner
By: /s/ Madison F. Grose
-------------------------------
Name: Madison F. Grose
Title:
-----------------------------------
EDWARD J. ROHLING
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<PAGE> 60
ZIFF INVESTORS PARTNERSHIP, L.P. II
By: PBK HOLDINGS, INC.
By: /s/ Mark A. Beaudoin
-------------------------------
Name: Mark A. Beaudoin
Title: Treasurer
MONTROSE CORPORATION
By:
-------------------------------
Name:
Title:
HARVEYWOOD HOTEL INVESTORS, L.P.
By: /s/ Madison F. Grose
-------------------------------
Name: Madison F. Grose
Title: Authorized by General Partner
THE HERMITAGE, L.P.
By: HERMITAGE OF NASHVILLE, INC.
General Partner
By:
-------------------------------
Name:
Title:
BRAINARD HOLDINGS, INC.
By: /s/ Robert K. Hamshaw
-------------------------------
Name: Robert K. Hamshaw
Title: Secretary
/s/ Barry S. Sternlicht
-----------------------------------
BARRY S. STERNLICHT
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<PAGE> 61
THE BARRY S. STERNLICHT FAMILY SPRAY
TRUST I
By: /s/ Barry S. Sternlicht
-------------------------------
Name: Barry S. Sternlicht
Title: Trustee
THE BARRY S. STERNLICHT FAMILY SPRAY
TRUST II
By: /s/ Barry S. Sternlicht
-------------------------------
Name: Barry S. Sternlicht
Title: Trustee
THE BARRY S. STERNLICHT FAMILY SPRAY
TRUST III
By: /s/ Barry S. Sternlicht
-------------------------------
Name: Barry S. Sternlicht
Title: Trustee
/s/ Jack Nash
-----------------------------------
JACK NASH
THE NASH FAMILY PARTNERSHIP
By: /s/ Joshua Nash
-------------------------------
Name: Joshua Nash
Title: General Partner
Madison F. Grose
-----------------------------------
MADISON F. GROSE
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<PAGE> 62
THE MADISON F. GROSE IRREVOCABLE
INSURANCE TRUST
By:
-------------------------------
Name:
Title: Trustee
-----------------------------------
MAX C. CHAPMAN
/s/ Merrick R. Kleeman
-----------------------------------
MERRICK R. KLEEMAN
/s/ James R. Gates
-----------------------------------
JAMES R. GATES
-----------------------------------
CARLY SIMON
/s/ Steven R. Goldman
-----------------------------------
STEVEN R. GOLDMAN
/s/ Alan Schwartz
-----------------------------------
ALAN SCHWARTZ
-----------------------------------
JAY SUGARMAN
/s/ John Z. Kukral
-----------------------------------
JOHN Z. KUKRAL
/s/ Jerome C. Silvey
-----------------------------------
JEROME C. SILVEY
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<PAGE> 63
-----------------------------------
MICHAEL MUELLER
/s/ James G. Babb, III
-----------------------------------
JAMES G. BABB, III
LAMBSTER PARTNERS LIMITED
PARTNERSHIP
By: STER INC.
General Partner
By: /s/ Neil G. Bluhm
-------------------------------
Name: Neil G. Bluhm
Title: President
-----------------------------------
JEFF DISHNER
-----------------------------------
GEOFFREY BEER
/s/ Lowell D. Kraff
-----------------------------------
LOWELL D. KRAFF
-----------------------------------
STEPHEN FIORE
/s/ Jennifer Albero
-----------------------------------
JENNIFER ALBERO
/s/ James A. Kleeman, M.D., PC
-----------------------------------
JAMES A. KLEEMAN, M.D., PC
-----------------------------------
ELLIS F. RINALDI
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<PAGE> 64
-----------------------------------
J. PETER PAGANELLI
/s/ John F. Couture
-----------------------------------
JOHN F. COUTURE
/s/ James Oldham
-----------------------------------
JAMES OLDHAM
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA, on behalf of Prudential Property
Investment Separate Account II
By: /s/ Roger S. Pratt
-------------------------------
Name: Roger S. Pratt
Title: Managing Director
GARY MENDELL FAMILY PARTNERSHIP
By:
-------------------------------
Name:
Title:
-----------------------------------
GARY MENDELL
-----------------------------------
ELLEN-JO MENDELL
-----------------------------------
STEPHEN MENDELL
-----------------------------------
MURRAY DOW II
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<PAGE> 65
WESTPORT HOSPITALITY, INC.
By:
-------------------------------
Name:
Title:
ZAPCO HOLDINGS, INC.
By: /s/ [illegible]
-------------------------------
Name:
Title:
ZAPCO HOLDINGS, INC. DEFERRED
COMPENSATION PLAN TRUST
By: /s/ Nancy S. Heinrich
-------------------------------
Name: Nancy S. Heinrich
Title: Trustee
/s/ Orna L. Shulman
-----------------------------------
ORNA L. SHULMAN
/s/ Arthur Green
-----------------------------------
ARTHUR GREEN
-----------------------------------
MICHAEL HALL
/s/ Mark Rosinsky
-----------------------------------
MARK ROSINSKY
/s/ Randi Rosinsky
-----------------------------------
RANDI ROSINSKY
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<PAGE> 66
/s/ John Daily
-----------------------------------
JOHN DAILY
/s/ Felix Cacciato
-----------------------------------
FELIX CACCIATO
/s/ Thomas Clearwater
-----------------------------------
THOMAS CLEARWATER
-----------------------------------
HARVEY MOORE
-----------------------------------
TRACY DRISCOLL
GEOFFREY T. BOISI REVOCABLE TRUST
By:
-------------------------------
Name:
Title:
/s/ Daniel Stern
-----------------------------------
DANIEL STERN
WILLIAM A.M. BURDEN & CO., L.P.
By: BURDEN BROTHERS, INC.,
General Partner
By: /s/ Jeffery A. Weber
-------------------------------
Name: Jeffrey A. Weber
Title: President and CEO
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<PAGE> 67
JAW HOLDINGS I, L.L.C.
By: /s/ Jeffrey A. Weber
-------------------------------
Name: Jeffrey A. Weber
Title: Member
WHWE L.L.C.
By: WHITEHALL STREET REAL ESTATE
LIMITED PARTNERSHIP V,
Member and Manager
By: /s/ Stuart M. Rothenberg
-------------------------------
Name: Stuart M. Rothenberg
Title: Vice President
WOODSTAR INVESTOR PARTNERSHIP
By: MARSWOOD INVESTORS, L.P.,
General Partner
By: STARWOOD CAPITAL GROUP, L.P.,
General Partner
By: BSS CAPITAL PARTNERS, L.P.,
General Partner
By: STERNLICHT HOLDINGS II, INC.,
General Partner
By: /s/ Madison F. Grose
-------------------------------
Name: Madison F. Grose
Title:
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<PAGE> 68
NOMURA ASSET CAPITAL CORPORATION
By:
-------------------------------
Name:
Title:
STARWOOD HOTELS & RESORTS
WORLDWIDE, INC.
By: /s/ Thomas C. Janson, Jr.
-------------------------------
Name: Thomas C. Janson, Jr.
Title: Executive Vice President and
General Counsel
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<PAGE> 69
EXHIBIT A
LIST OF PARTNERS, PERCENTAGE INTERESTS AND RP UNITS
[To Be Provided]
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EXHIBIT A-1
LIST OF CLASS A LIMITED PARTNERS, PERCENTAGE INTERESTS AND CLASS A RP UNITS
[To Be Provided]
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EXHIBIT B
NOTICE ADDRESSES OF PARTNERS
[To Be Provided]
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<PAGE> 1
EXHIBIT 10.2
====================================================
THIRD
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
SLC OPERATING LIMITED PARTNERSHIP
====================================================
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1
Definitions..........................................................4
1.1 Definitions.................................................4
ARTICLE 2
Continuation and Business of the Partnership........................17
2.1 Continuation...............................................17
2.2 Name.......................................................18
2.3 Character of the Business..................................18
2.4 Location of Principal Place of Business....................18
2.5 Registered Agent and Registered Office.....................18
2.6 Restatement of Agreement...................................19
ARTICLE 3
Term................................................................19
3.1 Commencement...............................................19
3.2 Dissolution................................................19
ARTICLE 4
Capital Contributions...............................................19
4.1 Capital Contributions; OP Units............................19
4.2 Redemption of OP Units Held by Limited Partner. ..........21
4.3 Percentage Interests.......................................21
4.4 Purchase Rights............................................22
4.5 No Third Party Beneficiaries...............................22
4.6 No Interest on or Return of Capital Contribution...........22
ARTICLE 5
Indemnification.....................................................22
5.1 Indemnification of the General Partner.....................22
5.2 Indemnification of Limited Partners........................23
5.3 Notice of Claims...........................................25
5.4 Third Party Claims.........................................25
5.5 Indemnification Pursuant to Formation Agreement............26
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<PAGE> 3
ARTICLE 6
Allocations, Distributions and Other Tax and Accounting Matters.....26
6.1 Allocations................................................26
6.2 Distributions..............................................31
6.3 Books of Account...........................................32
6.4 Reports....................................................32
6.5 Tax Elections and Returns..................................33
6.6 Tax Matters Partner........................................33
6.7 Withholding Payments Required By Law.......................33
ARTICLE 7
Rights, Duties and Restrictions of the General Partner..............34
7.1 Powers and Duties of the General Partner...................34
7.2 Reimbursement of the General Partner.......................38
7.3 Outside Activities of the General Partner..................38
7.4 Contracts with Affiliates..................................38
7.5 Title to Partnership Assets................................39
7.6 Reliance by Third Parties..................................39
7.7 Liability of the General Partner...........................39
7.8 Other Matters Concerning the General Partner...............40
7.9 Operation of SLT in Accordance with REIT Requirements......40
7.10 Replacement of General Partner.............................41
ARTICLE 8
Dissolution, Liquidation and Winding-Up.............................41
8.1 Accounting.................................................41
8.2 Distribution on Dissolution................................41
8.3 Documentation of Liquidation...............................43
ARTICLE 9
Transfer............................................................43
9.1 General Partner............................................43
9.2 Transfers by Limited Partners..............................44
9.3 Certain Restrictions on Transfer...........................45
9.4 Effective Dates of Transfers...............................45
9.5 Transfer...................................................46
9.6 Nevada Gaming Control Act..................................46
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ARTICLE 10
Rights and Obligations of the Limited Partners......................47
10.1 No Participation in Management.............................47
10.2 Bankruptcy of a Limited Partner............................47
10.3 No Withdrawal..............................................47
10.4 Conflicts..................................................47
10.5 Provision of Information...................................48
10.6 Power of Attorney..........................................49
10.7 Ownership of Units.........................................50
10.8 Waiver of Fiduciary Duty...................................50
ARTICLE 11
Amendment of Partnership Agreement, Meetings........................51
11.1 Amendments.................................................51
11.2 Meetings of the Partners; Notices to Partners..............52
11.3 Mergers ...................................................53
ARTICLE 12
General Provisions..................................................53
12.1 No Liability of Directors and Others.......................53
12.2 Notices....................................................53
12.3 Controlling Law............................................53
12.4 Execution of Counterparts..................................54
12.5 Severability...............................................54
12.6 Entire Agreement...........................................54
12.7 Paragraph Headings.........................................54
12.8 Gender, Etc................................................54
12.9 Number of Days.............................................54
12.10 Partners Not Agents........................................55
12.11 Assurances.................................................55
12.12 Waiver of Partition........................................55
LIST OF EXHIBITS
Exhibit
A List of Partners, Percentage Interests and OP Units
A-1 List of Class A Limited Partners, Percentage Interests and Class A OP
Units
A-2 List of Class B Limited Partners, Percentage Interests and Class B OP
Units
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B Notice Addresses of Partners
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THE LIMITED PARTNERSHIP INTERESTS REFERRED TO IN THIS AGREEMENT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS. REFERENCE IS MADE TO ARTICLE 9 OF THIS
AGREEMENT FOR PROVISIONS RELATING TO VARIOUS RESTRICTIONS ON THE SALE
OR OTHER TRANSFER OF THESE INTERESTS.
THIRD
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
SLC OPERATING LIMITED PARTNERSHIP
THIS THIRD AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT (this "Agreement") is made and entered into as of the Effective Time
(as defined below), by and among Starwood Hotels & Resorts Worldwide, Inc., a
Maryland corporation ("SLC"), as General Partner, and the persons whose names
are set forth on Exhibit A, Exhibit A-1 and Exhibit A-2 hereto, as each such
Exhibit may be amended from time to time, as limited partners, pursuant to the
provisions of the Delaware Revised Uniform Limited Partnership Act (the "Act").
RECITALS
A. SLC, Columbus Operators, Inc., Hotel Investors of Arizona, Inc., Hotel
Investors of Michigan, Inc., Hotel Investors of Virginia, Inc., Western Host,
Inc., Hotel Investors Corporation of Nevada, Inc., Hotel Investors of Nebraska,
Inc., Berl Holdings, L.P., Starwood-Apollo Hotel Partners VIII, L.P.,
Starwood-Apollo Hotel Partners IX, L.P., Starwood-Nomura Hotel Investors, L.P.,
Starwood/Wichita Investors, L.P., Starwood-Huntington Partners, L.P., and
Woodstar Partners I, L.P., were the parties to that certain Limited Partnership
Agreement of SLC Operating Limited Partnership, dated as of December 15, 1994
(hereinafter, the "Original Agreement" and the "Partnership," respectively).
B. Firebird Consolidated Partners, L.P., was admitted as a limited
partner of the Partnership pursuant to that certain Admission of Limited
Partner, Consent and Amendment dated March 24, 1995.
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C. The Original Agreement was restated by that certain Amended and
Restated Limited Partnership Agreement of SLC Operating Limited Partnership by
and between SLC, as General Partner, and the General Partners and the Limited
Partners of the Partnership, as such groups were then constituted, dated as of
June 29, 1995 (the "Original Restated Agreement").
D. The Original Restated Agreement was amended by that certain
Amendment by and between SLC, as General Partner, and the General Partners and
the Limited Partners of the Partnership, as such groups were then constituted,
dated as of May 14, 1996.
E. Philadelphia HSR Limited Partnership ("HSR") was admitted as a
limited partner of the Partnership pursuant to that certain Admission of Limited
Partner, Consent and Amendment (Operating Partnership) dated as of June 3, 1996.
F. Starwood/Wichita Investors, L.P., Berl Holdings, L.P.,
Starwood-Huntington, L.P., Woodstar Partners I, L.P., and Wichita Harvey
Partners, Ltd., transferred their respective interests in the Partnership to SRL
Holdings, Inc., Starwood Capital Group I, L.P., Starwood Opportunity Fund II,
L.P., Moonwood Investment Partners, L.P., Woodstar II, L.P., Hospitality
Partners, Bristol Hotel Management Corp., and Edward J. Rohling, and each such
Person was admitted as a limited partner of the Partnership pursuant to that
certain Admission of Limited Partners Agreement dated as of June 4, 1996.
G. Philadelphia HIR Limited Partnership ("HIR") was admitted as a
limited partner of the Partnership pursuant to that certain Admission of Limited
Partner, Consent and Amendment (Operating Partnership) dated as of July 1, 1996.
H. Starwood-Apollo Hotel Partners VIII, L.P., transferred its interest
in the Partnership to SAHI, Inc., Starwood Hotel Investors, L.P., and AP-GP
Midstar Hotels VIII, Inc.; Starwood-Apollo Hotel Partners IX, L.P., transferred
its interest in the Partnership to SAHI, Inc., Starwood Hotel Investors, L.P.,
and AP-GP Midstar Hotels IX, Inc.; Starwood Hotel Investors, L.P., transferred
its interest in the Partnership to Starwood Hotel Investors II, L.P., SAHI, Inc.
and AP-GP Master Midstar, L.P.; and AP-GP Midstar Hotels VIII, Inc., AP-GP
Midstar Hotels IX, Inc., and AP-GP Master Midstar, L.P., transferred their
respective interests in the Partnership to Apollo Real Estate Investment Fund,
L.P., and each of Starwood Hotel Investors II, L.P., SAHI, Inc. and Apollo Real
Estate Investment Fund was admitted as a limited partner of the Partnership
pursuant to that certain Admission of Limited Partners Agreement dated as of
December 12, 1996;
I. Starwood-Nomura Hotel Investors, L.P., SRL Holdings, Inc., Starwood
Capital Group, L.P., Moonwood Investment Partners, L.P., Woodstar Partners II,
L.P., Berl Holdings I, Inc., SAHI, Inc., and Harveywood Hotel Investors II,
L.P., transferred their interests in the Partnership to Burden Direct Investment
Fund I., L.P., Ziff Investors Partnership, L.P., II, Carly Simon, Lambster
Partners Limited Partners, Montrose Corporation, Star Investors G.P., Meridian
Investment Group, 1985 Trust f/b/o Clate Joseph Korsant, 1985 Trust f/b/o Justin
Frederick Korsant, Jack Nash, the Nash Family Partnership, Brainard Holdings,
Inc., Lowell D. Kraff, Max C. Chapman, Alan Schwartz, Geoffrey T. Boisi, Gregory
Beer, Charles E. Mueller, James A.
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Kleeman, Steve Goldman, Mike Mueller, James R. Gates, John Z. Kukral, John F.
Couture, Barry S. Sternlicht, the Barry S. Sternlicht Family Spray Trust I, the
Barry S. Sternlicht Family Spray Trust II, the Barry S. Sternlicht Family Spray
Trust III, James G. Babb, III, Madison F. Grose, the Madison F. Grose
Irrevocable Insurance Trust, Merrick R. Kleeman, JDE Revocable Trust u/a dated
December 31, 1996, Eugene A. Gorab, Jerome C. Silvey, Geoffrey Beer, Jay
Sugarman, Jennifer Albero, Steven Fiore, James Oldham, Jeff Dishner, Ellis F.
Rinaldi, and J. Peter Paganelli and each such Person was admitted as a limited
partner of the Partnership pursuant to forty-four (44) separate Admission of
Limited Partner Agreements each dated as of December 31, 1996.
J. The Prudential Insurance Company of America, on behalf of Prudential
Property Investment Separate Account II, Eleanor Mendell, as Trustee of the Gary
Mendell Family Trust, Gary Mendell, Ellen-Jo Mendell, Stephen Mendell, Judith K.
Rushmore, Murray Dow II, Westport Hospitality, Inc., Zapco Interest Holdings,
LP, Zapco Holdings, Inc., Zapco Holdings, Inc. Deferred Compensation Plan Trust,
Orna L. Shulman, Arthur Green, Michael Hall, Mark Rosinsky, Randi Rosinsky, John
Daily, Felix Cacciato, Thomas Clearwater, Harvey Moore, and Tracy Driscoll
(collectively, the "HEI Contributors") were each admitted as a limited partner
of the Partnership pursuant to that certain Admission of Limited Partners,
Consent and Amendment (Operating Partnership) dated as of February 14, 1997.
K. Gary Mendell, Stephen Mendell, Judith K. Rushmore, Murray Dow II,
and Westport Hospitality, Inc. (collectively with the HEI Contributors, the "HEI
Parties"), were each admitted as a Class A Limited Partner pursuant to that
certain Admission of Class A Limited Partners, Consent and Amendment (Operating
Partnership) dated as of February 14, 1997.
L. The Hermitage, L.P. was admitted as a limited partner of the
Partnership pursuant to that certain Admission of Limited Partners, Consent and
Amendment (Operating Partnership) dated as of March 11, 1997.
M. The Original Restated Agreement, as amended, was restated by that
certain Second Amended and Restated Limited Partnership Agreement of SLC
Operating Limited Partnership by and between SLC, as General Partner, and the
Limited Partners of the Partnership, as such group was then constituted, dated
as of November 14, 1997 (the "Second Restated Agreement"). Effective as of that
date, each of Columbus Operators, Inc., Hotel Investors of Arizona, Inc., Hotel
Investors of Michigan, Inc., Hotel Investors of Virginia, Inc., Western Host,
Inc., Hotel Investors Corporation of Nevada, Inc., and Hotel Investors of
Nebraska, Inc. transferred its respective interest in the Partnership to SLC and
withdrew as a General Partner of the Partnership.
N. The Second Restated Agreement was amended by that certain First
Amendment to Second Amended and Restated Limited Partnership Agreement of SLC
Operating Limited Partnership by and between SLC, as General Partner, and the
Limited Partners of the Partnership, as such group was then constituted, dated
as of January 1, 1998.
O. WHWE L.L.C., Woodstar Investor Partnership and Nomura Asset Capital
Corporation were each admitted as a Class B Limited Partner, and the Second
Restated
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Agreement was amended, pursuant to that certain Certificate of Admission of SLC
Operating Limited Partnership dated as of January 2, 1998.
P. To the extent required pursuant to the terms of the Second Restated
Agreement, as amended, the Limited Partners consent to the restructuring of SLT
and SLC and the transactions occurring in connection therewith as more fully
described in the Restructuring Agreement (as defined below) and the Joint Proxy
Statement (as defined below).
Q. The parties hereto have agreed to amend and restate the Second
Restated Agreement, as previously amended, in its entirety to reflect the
foregoing and to make other necessary or appropriate changes.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties
hereto, intending to be legally bound, hereby agree as follows:
ARTICLE 1
Definitions
1.1 Definitions. Except as otherwise herein expressly provided, the
following terms and phrases shall have the meanings as set forth below:
"Accountants" shall mean the national firm or firms of
independent certified public accountants selected by the General Partner on
behalf of the Partnership to audit the books and records of the Partnership and
to prepare statements and reports in connection therewith.
"Act" shall mean the Delaware Revised Uniform Limited
Partnership Act, as the same may hereafter be amended from time to time.
"Adjusted Capital Account Deficit" shall mean, with respect to
any Partner or holder of OP Units other than the General Partner, the deficit
balance, if any, in such holder's Capital Account as of the end of any relevant
fiscal year and after giving effect to the following adjustments:
(a) credit to such Capital Account any amounts which such
holder is obligated or treated as obligated to restore with respect to any
deficit balance in such Capital Account pursuant to Section 1.704-1(b)(2)(ii)(c)
of the Regulations, or is deemed to be obligated to restore with respect to any
deficit balance pursuant to the penultimate sentences of Sections 1.704-2(g)(1)
and 1.704-2(i)(5) of the Regulations; and
(b) debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
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This definition of Adjusted Capital Account Deficit is intended to comply with
the requirements of the alternate test for economic effect contained in Section
1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently
therewith.
"Administrative Expenses" shall mean: (a) all administrative and
operating costs and expenses of the Partnership; (b) those administrative costs
and expenses of the General Partner, including, but not limited to, salaries and
other remunerations paid to trustees, officers and employees of the General
Partner and accounting and legal expenses undertaken by the General Partner on
behalf or for the benefit of the Partnership; and (c) all expenses which the
Partnership hereby assumes and agrees to pay as incurred for the benefit of the
Partnership, including (i) costs and expenses relating to the formation and
continuation of the Partnership and continuity of existence of the General
Partner, including taxes (other than the General Partner's federal and state
income and franchise taxes, if any), fees and assessments associated therewith,
any and all costs, expenses or fees payable to any director or trustee of the
General Partner, (ii) to the extent funded by the General Partner for payment by
the Partnership, costs and expenses relating to any offer or registration of
securities by the General Partner the net proceeds of which are to be
contributed or loaned to the Partnership and all statements, reports, fees and
expenses incidental thereto, including underwriting discounts and selling
commissions applicable to any such offer of securities, (iii) costs and expenses
associated with the preparation and filing of any periodic reports by the
General Partner under federal, state or local laws or regulations, including
filings with the SEC, (iv) costs and expenses associated with compliance by the
General Partner with laws, rules and regulations promulgated by any regulatory
body, including the SEC, and (v) all other costs of the General Partner incurred
in the course of its business on behalf of the Partnership including, but not
limited to, any indemnification obligations of the General Partner (other than
indemnification pursuant to Section 9.1 and 9.2 of the Formation Agreement). The
foregoing notwithstanding, "Administrative Expenses" shall not include
administrative costs and expenses of the General Partner not properly allocable
to the business of the Partnership.
"Affected Gain" shall have the meaning set forth in Section
6.1(c)(ii) hereof.
"Affiliate" shall mean, with respect to any Partner (or as to
any other Person the Affiliates of whom are relevant for purposes of any of the
provisions of this Agreement): (a) any member of the Immediate Family of such
Partner or Person; (b) any trustee or beneficiary of a Partner which is a trust;
(c) any trust for the benefit of any Person referred to in the preceding clauses
(a) and (b); or (d) any Entity which directly or indirectly through one or more
intermediaries, Controls, is Controlled by, or is under common Control with, any
Partner or Person referred to in the preceding clauses (a) through (c).
"Agreement" shall mean this Limited Partnership Agreement, as
amended, modified, supplemented or restated from time to time, as the context
requires.
"Articles of Incorporation" shall mean the Amended and Restated
Articles of Incorporation of the General Partner, as the same may be amended,
modified, supplemented, restated or superseded from time to time.
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"Audited Financial Statements" shall mean financial statements
(balance sheet, statement of income, statement of partners equity and statement
of cash flows) prepared in accordance with GAAP and accompanied by an
independent auditor's report containing an opinion thereon.
"Bankruptcy" shall mean, with respect to any Person: (a) the
commencement by such Person of any petition, case or proceeding seeking relief
under any provision or chapter of the federal Bankruptcy Code or any other
federal or state law relating to insolvency, bankruptcy or reorganization; (b)
an adjudication that such Person is insolvent or bankrupt; (c) the entry of an
order for relief under the federal Bankruptcy Code with respect to such Person;
(d) the filing of any such petition or the commencement of any such case or
proceeding against such Person, unless such petition and the case or proceeding
initiated thereby are dismissed within ninety (90) days from the date of such
filing; or (e) the filing of an answer by such Person admitting the allegations
of any such petition.
"Business Day" shall mean any day that is not a Saturday, Sunday
or a day on which banking institutions in the State of California or the State
of New York are authorized or obligated by law or executive order to close.
"Capital Account" shall mean, as to any Partner or holder of OP
Units, a book account maintained in accordance with the following provisions:
(a) to each Partner's or holder of OP Unit's Capital
Account there shall be credited the amount of cash contributed by the Partner or
holder, the initial Gross Asset value of any other asset contributed by such
Partner or holder to the capital of the Partnership (net of liabilities secured
by contributed property that the Partnership assumes or takes subject to), such
Partner's or holder's distributive share of Net Income and any other items of
income or gain allocated to such Partner or holder, the amount of any
Partnership liabilities assumed by the Partner or holder or secured by
distributed assets that such Partner or holder takes subject to and any other
items in the nature of income or gain that are allocated to such Partner or
holder pursuant to Section 6.1 hereof; and
(b) to each Partner's or holder of OP Unit's Capital
Account there shall be debited the amount of cash distributed to the Partner or
holder, the Gross Asset Value of any Partnership asset distributed to such
Partner or holder pursuant to any provision of this Agreement, such Partner's or
holder's distributive share of Net Losses and any other items in the nature of
expenses or losses that are allocated to such Partner pursuant to Section 6.1
hereof.
In the event that a Partner's Partnership Interest or a holder of OP Unit's OP
Units or portion thereof is transferred within the meaning of Section
1.704-1(b)(2)(iv)(f) of the Regulations, the transferee shall succeed to the
Capital Account of the transferor to the extent that it relates to the
Partnership Interest, OP Units or portion thereof so transferred. In the event
that the Gross Asset Values of Partnership assets are adjusted, as contemplated
in paragraph (b) or (c) of the definition of "Gross Asset Value," the Capital
Accounts of the Partners and holders of OP Units shall be adjusted to reflect
the aggregate net adjustments as if the Partnership sold all of its properties
for
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<PAGE> 12
their fair market values and recognized gain or loss for federal income tax
purposes equal to the amount of such aggregate net adjustment. This definition
of Capital Accounts is intended to comply with the maintenance of capital
account provisions of Section 1.704-1(b) of the Regulations and shall be
interpreted and applied in a manner consistent therewith.
"Capital Contribution" shall mean, with respect to any Partner,
the amount of cash and the initial Gross Asset Value of any Contributed Property
(net of liabilities to which such property is subject).
"Certificate" shall mean the Certificate of Limited Partnership
establishing the Partnership, as filed with the office of the Delaware Secretary
of State, as amended from time to time in accordance with the terms of this
Agreement and the Act.
"Class A Limited Partners" shall mean those Persons listed under
the heading "Class A Limited Partners" on Exhibit A-1 hereto in their respective
capacities as Class A Limited Partners hereof, their permitted successors or
assigns as Class A Limited Partners hereof, and any Person who, at the time of
reference thereto, is a Class A Limited Partner of the Partnership.
"Class A OP Units" shall have the meaning set forth in Section
4.1(c) hereof.
"Class A Preferred Return" shall mean, with respect to any
Special Class A Distribution that is not paid within five (5) Business Days of
when due, an amount calculated as interest equal to the rate of interest most
recently announced by Citibank, N.A. (or any successor to substantially all of
its assets and business), as its prime rate, plus 8%, compounded annually.
"Class B Limited Partners" shall mean those Persons listed under
the heading "Class B Limited Partners" on Exhibit A-2 hereto in their respective
capacities as Class B Limited Partners hereof, their permitted successors or
assigns as Class B Limited Partners hereof, and any Person who, at the time of
reference thereto, is a Class B Limited partner of the Partnership.
"Class B Liquidation Preference Distribution" shall mean, with
respect to a Class B OP Unit, an amount equal to the "fair market value" of one
RP Ordinary Unit, which shall accrue only in the event of the dissolution and
liquidation of the Partnership not preceded or accompanied, within ninety (90)
days of such dissolution and liquidation, by a liquidation and dissolution of
the Realty Partnership. Such fair market value shall be determined in good faith
by the General Partner as of the effective date of such liquidation and
dissolution or, if no such effective date applies, as of the date of the first
liquidating distribution pursuant to Section 8.2 hereof. In the event of any
change in (a) the nature or amount of securities constituting a Starwood Unit,
(b) the correspondence of the number of OP Ordinary Units to the number of
Starwood Units outstanding or (c) the correspondence of the number of RP
Ordinary Units to the number of Starwood Units outstanding, the amount of the
Class B Liquidation Preference
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Distribution that shall accrue with respect to each Class B OP Unit as a
function of the fair market value of each RP Ordinary Unit shall be equitably
adjusted.
"Class B OP Special Distribution" shall mean, with respect to a
Class B OP Unit, an amount equal to the sum, in cash, of the fair market value
of all operating and liquidating distributions by the Realty Partnership with
respect to RP Ordinary Units on or after January 2, 1998 (whether pursuant to
Section 6.2 or 8.2 of the Realty Partnership Agreement) in an amount per Class B
OP Unit equal to the amount so distributed in respect of each RP Ordinary Unit.
In the event of any change in (a) the nature or amount of securities
constituting a Starwood Unit, (b) the correspondence of the number of OP
Ordinary Units to the number of Starwood Units outstanding or (c) the
correspondence of the number of RP Ordinary Units to the number of Starwood
Units outstanding, the amount of the Class B OP Special Distribution that shall
accrue with respect to each Class B OP Unit as a function of the amount of the
corresponding distribution on the RP Ordinary Units shall be equitably adjusted.
Class B OP Special Distributions shall be made only with respect to Class B OP
Units and shall be due at the same time as such operating or liquidating
distributions are made by the Realty Partnership.
"Class B OP Units" shall have the meaning set forth in Section
4.1(c) hereof.
"Class B Shares" shall mean the Class B shares of beneficial
interest, par value $0.01 per share, of SLT.
"Code" shall mean the Internal Revenue Code of 1986, as amended
and in effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"Commission" shall mean the Nevada Gaming Commission.
"Consent of the Class A Limited Partners" shall mean the written
consent of a Majority-In-Interest of the Class A Limited Partners given in
accordance with Section 11.2 hereof, which consent shall be obtained prior to
the taking of any action for which it is required by this Agreement and which
shall not be unreasonably withheld or delayed provided all distributions to the
Class A Limited Partners under Section 6.2 hereof are then current.
"Consent of the Limited Partners" shall mean the written consent
of a Majority-In-Interest of the Limited Partners given in accordance with
Section 11.2 hereof, which consent shall be obtained prior to the taking of any
action for which it is required by this Agreement and may be given or withheld
by a Majority-In-Interest of the Limited Partners, unless otherwise expressly
provided herein, in their sole and absolute discretion.
"Contributed Property" shall mean any property or other asset in
such form as may be permitted by the Act, but excluding cash, contributed or
deemed contributed to the Partnership with respect to the Partnership Interest
held by each Partner.
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"Control" shall mean the ability, whether by the direct or
indirect ownership of shares or other equity interests, by contract or
otherwise, to elect a majority of the directors of a corporation, to select the
managing partner of a partnership, or otherwise to select, or have the power to
remove and then select, a majority of those persons exercising governing
authority over an Entity. In the case of a limited partnership, the sole general
partner, all of the general partners to the extent each has equal management
control and authority, or the managing general partner or managing general
partners thereof shall be deemed to have control of such partnership and, in the
case of a trust, any trustee thereof or any Person having the right to select
any such trustee shall be deemed to have control of such trust.
"Corporation Shares" shall mean the common shares of beneficial
interest, par value $0.01 per share, of the General Partner.
"Depreciation" shall mean, with respect to any asset of the
Partnership for any fiscal year or other period, the depreciation or
amortization, as the case may be, allowed or allowable for federal income tax
purposes in respect of such asset for such fiscal year or other period, except
that if the Gross Asset Value of an asset differs from its adjusted tax basis
for federal income tax purposes at the beginning of such fiscal year or other
period, Depreciation shall be an amount that bears the same ratio to such
beginning book value as the federal income tax depreciation, amortization or
other cost recovery deduction for such fiscal year or other period bears to such
beginning adjusted tax basis and if such adjusted tax basis is zero, the
Depreciation shall be based on the method of depreciation, amortization or other
cost recovery deduction utilized in preparing the financial statements of the
Partnership.
"Effective Time" shall have the meaning set forth in Section 1.2
of the Restructuring Agreement.
"Entity" shall mean any general partnership, limited
partnership, limited liability company, corporation, joint venture, trust,
business trust, real estate investment trust or association.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time and as interpreted by the applicable
regulations thereunder (or any corresponding provisions of succeeding laws and
regulations).
"Exchange Rights Agreement" shall mean any Exchange Rights
Agreement by and among SLT and/or SLC and one or more Limited Partners which is
intended to provide for the rights of such Limited Partners to tender OP Units
in exchange for Starwood Units, other securities, cash or a combination of the
foregoing.
"Excluded Liabilities" shall have the meaning set forth in
Section 5.2(c) hereof.
"Formation Agreement" shall mean that certain Formation
Agreement by and among SLT, SLC, Starwood Capital Group, L.P., Berl Holdings,
L.P., Woodstar Partners I,
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L.P., Starwood-Apollo Hotel Partners VIII, L.P., Starwood-Apollo Hotel Partners
IX, L.P., Starwood-Nomura Hotel Investors, L.P., Starwood/Wichita Investors,
L.P., and Starwood-Huntington Partners, L.P., dated as of November 11, 1994, and
any amendments or modifications thereof or side letters thereto.
"GAAP" shall mean generally accepted accounting principles in
the United States, as in effect from time to time.
"General Partner" shall mean SLC or its duly admitted successors
and assigns as general partner of the Partnership at the time of reference
thereto.
"Gross Asset Value" shall mean, with respect to any asset of the
Partnership, such asset's adjusted basis for federal income tax purposes, except
as follows:
(a) the initial Gross Asset Value of any asset contributed
by a Partner to the Partnership shall be the gross fair market value of such
asset at the time of its contribution as reasonably determined by the General
Partner and the contributing Partner;
(b) the Gross Asset values of all Partnership assets shall
be adjusted to equal their respective gross fair market values, as reasonably
determined by the General Partner, immediately prior to the following events:
(i) a Capital Contribution (other than a de minimis
Capital Contribution) to the Partnership by a new or existing Partner as
consideration for a Partnership Interest;
(ii) the distribution by the Partnership to a Partner
of more than a de minimis amount of Partnership property as consideration for
the redemption of a Partnership Interest;
(iii) the liquidation of the Partnership within the
meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations; and
(iv) any other event as to which the General Partner
reasonably determines that an adjustment is necessary or appropriate to reflect
the relative economic interests of the Partners;
(c) the Gross Asset Values of Partnership assets
distributed to any Partner shall be the gross fair market values of such assets
as reasonably determined by the General Partner as of the date of distribution;
and
(d) the Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Sections 734(b) or 743(b) of the Code, but only to the
extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the
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Regulations; provided, however, that Gross Asset Values shall not be adjusted
pursuant to this paragraph to the extent that the General Partner reasonably
determines that an adjustment pursuant to paragraph (b) above is necessary or
appropriate in connection with a transaction that would otherwise result in an
adjustment pursuant to this paragraph (d).
At all times, Gross Asset Values shall be adjusted by any Depreciation taken
into account with respect to the Partnership's assets for purposes of computing
Net Income and Net Loss. Any adjustment to the Gross Asset Values of Partnership
property shall require an adjustment to the Partner's Capital Accounts.
"HEI Contribution Agreement" shall mean that certain
Contribution Agreement dated January 15, 1997, by and among the HEI Property
Companies, SLC, the Partnership, SLT Financing Partnership, a Delaware general
partnership, SLT, the Realty Partnership, and certain other parties.
"HEI Contributors" shall have the meaning set forth in Recital J
hereto.
"HEI Parties" shall have the meaning set forth in Recital K
hereto.
"HEI Property Companies" shall mean Westport Norfolk Associates
Limited Partnership, a Delaware limited partnership, Pruwest Norfolk, L.L.C., a
Delaware limited liability company, Westport BWI, L.L.C., a Delaware limited
liability company, Pruwest Baltimore, L.L.C., a Delaware limited liability
company, Westport Raritan, L.L.C., a Delaware limited liability company, Pruwest
Edison, L.L.C., a Delaware limited liability company, Westport Novi, L.L.C., a
Delaware limited liability company, Pruwest Novi, L.L.C., a Delaware limited
liability company, Westport Park Ridge, L.P., a Delaware limited partnership,
Westport Park Ridge, L.L.C., a Delaware limited liability company, Westport Long
Beach, L.L.C., a Delaware limited liability company, Westport Charleston,
L.L.C., a Delaware limited liability company, Westport Santa Rosa, L.L.C., a
Delaware limited liability company, Westport Crystal City, L.L.C., a Delaware
limited liability company, Prudential, Atlanta Hotel Associates, LP, a
Connecticut limited partnership, Virginia Hotel Associates, L.P., a Delaware
limited partnership, BW Hotel Realty, L.P., a Maryland limited partnership,
Edison Hotel Associates, L.P., a New Jersey limited partnership, Novi Hotel
Associates, L.P., a Delaware limited partnership, Park Ridge Hotel Associates,
L.P., a Delaware limited partnership, Long Beach Hotel Associates, L.L.C., a New
Jersey limited liability company, Charleston Hotel Associates, L.L.C., a New
Jersey limited liability company, Santa Rosa Hotel Associates, L.L.C., a New
Jersey limited liability company, Crystal City Hotel Associates, L.L.C., a New
Jersey limited liability company, and Prudential HEI Joint Venture, a joint
venture.
"HIR" shall have the meaning set forth in Recital G hereto.
"HSR" shall have the meaning set forth in Recital E hereto.
"Immediate Family" shall mean, with respect to any Person, such
Person's spouse (then current or former), parents, parents-in-law, descendants,
brothers and sisters
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(whether by whole or half-blood), first cousins, brothers-in-law and
sisters-in-law (whether by whole or half-blood), ancestors and lineal
descendants.
"Indemnitee" shall mean any Person who is, or at any time on or
after December 15, 1994 was (a) a General Partner, or (b) an employee, trustee,
director, officer, stockholder or Liquidating Trustee of the Partnership or the
General Partner.
"Inns Ancillary Notes" shall have the meaning provided in
Paragraph 2(f) of that certain Bond Purchase Agreement by and among The First
National Bank of Boston, HSR, HIR, the Realty Partnership and the Partnership
dated February 26, 1996.
"Issuance Percentage" of SLT or SLC, as the case may be, shall
mean the relative values of the Class B Shares and the Corporation Shares,
respectively, stated as a percentage of the sum of the values of the Starwood
Units, and as most recently determined by SLT and SLC. This definition shall be
appropriately modified to take into account any change in the nature or amount
of securities constituting a Starwood Unit.
"Joint Proxy Statement" means the Joint Proxy Statement of SLT
and SLC dated December 3, 1998, constituting the Joint Proxy Statement of SLT
and SLC for their respective 1998 annual meetings.
"Lien" shall mean any liens, security interests, mortgages,
deeds of trust, pledges, options, rights of first offer or first refusal and any
other similar encumbrances of any nature whatsoever.
"Limited Partners" shall mean those Persons listed under the
heading "Limited Partners" on the signature pages hereto in their respective
capacities as limited partners of the Partnership, their permitted successors or
assigns as limited partners hereof, and any Person who, at the time of reference
thereto, is a limited partner of the Partnership. Such term shall include Class
A Limited Partners and Class B Limited Partners except where the context
otherwise requires.
"Liquidating Trustee" shall mean such individual or Entity which
is selected as the Liquidating Trustee hereunder by the General Partner, which
individual or Entity may include the General Partner or an Affiliate of the
General Partner, provided that such Liquidating Trustee agrees in writing to be
bound by the terms of this Agreement. The Liquidating Trustee shall be empowered
to give and receive notices, reports and payments in connection with the
dissolution, liquidation and/or winding up of the Partnership and shall hold and
exercise such other rights and powers granted to the General Partner herein or
under the Act as are necessary or required to conduct the winding-up and
liquidation of the Partnership's affairs and to authorize all parties to deal
with the Liquidating Trustee in connection with the dissolution, liquidation
and/or winding-up of the Partnership.
"Majority-In-Interest of the Class A Limited Partners" shall
mean Class A Limited Partner(s) who hold in the aggregate more than 50% of the
Percentage Interests then
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allocable to and held by the Class A Limited Partners, as a class (but excluding
any Partnership Interest acquired by the General Partner, or any Person holding
as a nominee of a General Partner or any Person controlled by a General
Partner).
"Majority-In-Interest of the Limited Partners" shall mean
Limited Partner(s) who hold in the aggregate more than 50% of the Percentage
Interests then allocable to and held by the Limited Partners, as a class (but
excluding any Partnership Interests acquired by the General Partner, or any
Person holding as a nominee of a General Partner or any Person controlled by a
General Partner).
"Minimum Gain Attributable to Partner Nonrecourse Debt" shall
mean "partner nonrecourse debt minimum gain" as determined in accordance with
Section 1.704-2(i)(2) of the Regulations.
"Net Cash Flow" shall mean, with respect to any fiscal period of
the Partnership, the excess, if any, of "Receipts" over "Expenditures." For
purposes hereof, the term "Receipts" means the sum of all cash receipts of the
Partnership from all sources for such period and any amounts held as reserves as
of the last day of such period which the General Partner reasonably deems to be
in excess of reserves as determined below. The term "Expenditures" means the sum
of (a) all cash expenditures of the Partnership for any purpose, including
operating expenses and capital expenditures for such period, (b) the amount of
all payments of principal, premium, if any, and interest on account of any
indebtedness of the Partnership, and (c) such additions to cash reserves as of
the last day of such period as the General Partner deems necessary or
appropriate for any capital, operating or other expenditure, including, without
limitation, contingent liabilities; but the term "Expenditures" shall not
include amounts paid from cash reserves previously established by the
Partnership.
"Net Income" or "Net Loss" shall mean, for each fiscal year or
other applicable period, an amount equal to the Partnership's net income or loss
for such year or period as determined for federal income tax purposes by the
Accountants, determined in accordance with Section 703(a) of the Code (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Section 703(a) of the Code shall be included in taxable
income or loss), with the following adjustments: (a) by including as an item of
gross income any tax-exempt income received by the Partnership; (b) by treating
as a deductible expense any expenditure of the Partnership described in Section
705(a)(2)(B) of the Code (including amounts paid or incurred to organize the
Partnership (unless an election is made pursuant to Section 709(b) of the Code)
or to promote the sale of interests in the Partnership and by treating
deductions for any losses incurred in connection with the sale or exchange of
Partnership property disallowed pursuant to Section 267(a)(1) or Section 707(b)
of the Code as expenditures described in Section 705(a)(2)(B) of the Code); (c)
in lieu of depreciation, depletion, amortization and other cost recovery
deductions taken into account in computing total income or loss, there shall be
taken into account Depreciation; (d) gain or loss resulting from any disposition
of Partnership property with respect to which gain or loss is recognized for
federal income tax purposes shall be computed by reference to the Gross Asset
Value of such property rather than its adjusted tax basis; (e) in the event of
an adjustment of the Gross Asset Value of any Partnership asset which
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<PAGE> 19
requires that the Capital Accounts of the Partnership be adjusted pursuant to
Sections 1.704-1(b)(2)(iv)(e), (f) and (m) of the Regulations, the amount of
such adjustment is to be taken into account as additional Net Income or Net Loss
pursuant to Section 6.1 hereof; and (f) excluding any items specially allocated
pursuant to Section 6.1(b) hereof.
"Nonrecourse Deductions" shall have the meaning set forth in
Sections 1.704-2(b)(1) and (c) of the Regulations and shall be determined in
accordance with Section 1.704-2(c) of the Regulations.
"OP Ordinary Units" shall mean units representing the interest
of a Partner in the capital, allocations of Net Income and Net Loss and
distributions of the Partnership other than units, such as Class A OP Units and
Class B OP Units, entitled to receive priority distributions under this
Agreement.
"OP Units" shall have the meaning set forth in Section 4.1(c)
hereof, and such term shall include Class A OP Units and Class B OP Units except
where the context otherwise requires.
"Original Agreement" shall have the meaning set forth in Recital
A hereof.
"Original Restated Agreement" shall have the meaning set forth
in Recital C hereof.
"Partner Nonrecourse Debt" shall have the meaning set forth in
Section 1.704-2(b)(4) of the Regulations.
"Partner Nonrecourse Deductions" shall have the meaning set
forth in Section 1.704-2(i)(2) of the Regulations and the amount of Partner
Nonrecourse Deductions with respect to a Partner Nonrecourse Debt shall be
determined in accordance with the rules of Section 1.704-2(i) of the
Regulations.
"Partners" shall mean the General Partner and the Limited
Partners, their duly admitted successors or assigns or any Person who is a
partner of the Partnership at the time of reference thereto.
"Partnership" shall mean the limited partnership formed under
the Act pursuant to the Original Agreement and as continued pursuant to this
Agreement and any successor thereto.
"Partnership Interest" shall mean the ownership interest of a
Partner in the Partnership from time to time, including each Partner's
Percentage Interest and such Partner's OP Units.
"Partnership Minimum Gain" shall have the meaning set forth in
Section 1.704-2(b)(2) of the Regulations and the amount of Partnership Minimum
Gain (and any net
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increase or decrease thereof) for a fiscal year or other period shall be
determined in accordance with the rules of Section 1.704-2(d) of the
Regulations.
"Partnership Record Date" means the record date established by
the General Partner for distribution of Net Cash Flow pursuant to Section 6.2
hereof, which record date shall be the same as the record date established by
the General Partner for distribution to its shareholders of some or all of its
portion of such distribution.
"Percentage Interest" shall mean, with respect to any Partner,
the percentage ownership interest of such Partner in such items of the
Partnership as to which the term "Percentage Interest" is applied in this
Agreement, as provided in Section 4.3 hereof.
"Person" shall mean any natural person or Entity.
"Property" shall mean any property acquired by or contributed to
the Partnership or any property owned by an Entity in which the Partnership has
an ownership interest.
"Purchase Rights" shall have the meaning set forth in Section
4.4 hereof.
"Realty Partnership" shall mean SLT Realty Limited Partnership,
a Delaware limited partnership.
"Realty Partnership Agreement" shall mean the Third Amended and
Restated Limited Partnership Agreement of the Realty Partnership, as the same
may be amended from time to time.
"Registration Rights Agreement" shall mean any Registration
Rights Agreement by and among SLT and/or SLC and one or more Limited Partners,
which is intended to set forth the rights of such Limited Partner or Limited
Partners or other holders of OP Units, and the obligations of SLT and/or SLC, to
cause the registration of certain securities pursuant to the Securities Act of
1933, as amended.
"Regulations" shall mean the income tax regulations promulgated
under the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations), and may, in the sole
discretion of the General Partner, include temporary and/or proposed income tax
regulations.
"Regulatory Allocations" shall have the meaning set forth in
Section 6.1(b)(viii) hereof.
"REIT" shall mean a real estate investment trust as defined in
Section 856 of the Code.
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"REIT Requirements" shall mean the requirements for SLT to
qualify as a REIT under the Code and Regulations. "REIT Requirements" shall also
include the ownership limitation provisions set forth in Article VI of the
Declaration of Trust of SLT, dated August 25, 1969, as amended and restated as
of the Effective Time, and as the same may be further amended, modified,
supplemented, restated or superseded from time to time, and in Article TENTH of
the Articles of Incorporation.
"Restricted Entity" shall mean any "employee benefit plan" as
defined in and subject to ERISA, any "plan" as defined in and subject to Section
4975 of the Code, or any entity any portion or all of the assets of which are
deemed pursuant to United States Department of Labor Regulation Section
2510.3-101 or otherwise pursuant to ERISA or the Code to be, for any purpose of
ERISA or Section 4975 of the Code, assets of any such "employee benefit plan" or
"plan" which invests in such entity.
"Restructuring Agreement" shall mean that certain Agreement and
Plan of Restructuring by and among SLT, the General Partner and ST Acquisition
Trust, a Maryland real estate investment trust, dated as of September 16, 1998,
and any amendments or modifications thereof.
"Rights" shall mean the rights of a Limited Partner as set forth
in an Exchange Rights Agreement and/or a Registration Rights Agreement. No
provision of this Agreement shall be interpreted as granting any Partner or
holder of OP Units any Rights or any rights or interest in or to the Exchange
Rights Agreement or the Registration Rights Agreement.
"RP Ordinary Units" shall mean units representing the interest
of a Partner in the capital, allocations of Net Income and Net Loss and
distributions of the Realty Partnership other than units, such as Class A RP
Units (as such term is defined in the Realty Partnership Agreement), entitled to
receive priority distributions under the Realty Partnership Agreement.
"SEC" shall mean the United States Securities and Exchange
Commission.
"Second Restated Agreement" shall have the meaning set forth in
Recital M hereto.
"Section 704(c) Tax Items" shall have the meaning set forth in
Section 6.1(c)(iii) hereof.
"Shares" shall mean the common stock, par value $0.01 per share,
of the General Partner.
"SLC" shall mean Starwood Hotels & Resorts Worldwide, Inc., a
Maryland corporation.
"SLT" shall mean Starwood Hotels & Resorts, a Maryland real
estate investment trust.
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"Special Class A Distribution" shall mean, with respect to a
Class A OP Unit, the fair market value, in cash, of any operating or liquidating
distribution in cash or other property made by the Realty Partnership with
respect to an RP Ordinary Unit. Special Class A Distributions shall be made only
with respect to Class A OP Units and shall accrue and be due at the time
operating or liquidating distributions are made by the Realty Partnership.
"Starwood Unit" shall mean one Share of the General Partner and
one Class B Share (as defined in the Realty Partnership Agreement) of SLT that
are subject to an intercompany agreement between the General Partner and SLT.
"Starwood Unit Closing Price" shall mean, with respect to a
particular date, the last reported sales price regular way on such date of a
Starwood Unit or, in case no such reported sale takes place on such date, the
average of the reported closing bid and asked prices regular way on such date of
a Starwood Unit, in either case on the New York Stock Exchange or, if the
Starwood Units are not then listed or admitted to trading on such Exchange, on
the principal national securities exchange on which the Starwood Units are then
listed or admitted to trading or, if not then listed or admitted to trading on
any national securities exchange, the closing sale price on such date of a
Starwood Unit or, in case no reported sale takes place on such date, then the
average of the closing bid and asked prices on such date of the Starwood Units,
on NASDAQ or any comparable system. If the Starwood Units are not then quoted on
NASDAQ or any comparable system, the Board of Trustees of SLT and the Board of
Directors of SLC shall in good faith determine the Starwood Unit Closing Price.
"Suites Ancillary Notes" shall have the meaning provided in
Paragraph 2(f) of that certain Bond Purchase Agreement by and among the First
National Bank of Boston, HSR, HIR, the Realty Partnership and the Partnership
dated February 26, 1996.
"Tax Items" shall have the meaning set forth in Section
6.1(c)(i) hereof.
"Tax Payment Loan" shall have the meaning set forth in Section
6.7(a) hereof.
"Tax Payment Loan Date" shall have the meaning set forth in
Section 6.7(a) hereof.
"Withholding Tax Act" shall have the meaning set forth in
Section 6.7(a) hereof.
ARTICLE 2
Continuation and Business of the Partnership
2.1 Continuation. The parties hereto do hereby continue the limited
partnership formed pursuant to the Original Agreement and pursuant to the
provisions of the Act and upon the terms and conditions set forth herein. The
parties hereto agree that the rights and
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liabilities of the Partners shall be as provided herein. The parties hereto
shall immediately execute and deliver all certificates and other documents and
do all filings, recording and publishing and other acts as in the judgment of
the General Partner may be appropriate to comply with all of the requirements
for the continuation of the Partnership as a limited partnership under the Act
and the qualification of the Partnership in any jurisdiction in which the
Partnership owns property or conducts business.
2.2 Name. The name of the Partnership shall be SLC Operating Limited
Partnership, or such other name as shall be chosen from time to time by the
General Partner in its sole and absolute discretion; provided, however, that the
General Partner may not choose the name (or any derivative thereof) of any
Limited Partner without the prior written consent of such Limited Partner.
2.3 Character of the Business. The purpose of the Partnership shall
be to acquire, hold, own, develop, redevelop, construct, improve, maintain,
operate, manage, sell, lease, rent, transfer, encumber, mortgage, convey,
exchange and otherwise dispose of or deal with the Properties and any other real
and personal property of all kinds; to undertake such other activities as may be
necessary, desirable or appropriate to the business of the Partnership; to
engage in such other activities as shall be necessary, desirable or appropriate
to effectuate the foregoing purposes; and to otherwise engage in any enterprise
or business in which a limited partnership may engage or conduct under the Act.
The Partnership shall have all powers necessary, desirable or appropriate to
accomplish the purposes enumerated. In connection with the foregoing, but
subject to the terms and conditions of this Agreement, the Partnership shall
have full power and authority to enter into, perform and carry out contracts of
any kind, to borrow money and to issue evidences of indebtedness, whether or not
secured by Liens, and, directly or indirectly, to acquire and construct
additional Properties necessary or useful in connection with its business.
2.4 Location of Principal Place of Business. The location of the
principal place of business of the Partnership shall be at 777 Westchester
Avenue, White Plains, New York 10604, or such other location as shall be
selected from time to time by the General Partner in its sole and absolute
discretion; provided, however, that the General Partner shall notify the
Partners of any change in the location of the principal place of business of the
Partnership within thirty (30) days thereafter.
2.5 Registered Agent and Registered Office. The registered agent of
the Partnership shall be The Corporation Trust Company or such other Person as
the General Partner may select in its sole and absolute discretion. The
registered office of the Partnership in the State of Delaware shall be c/o The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801 or such other location as the
General Partner may from time to time select in its sole discretion; provided,
however, that the General Partner shall notify the Limited Partners of any
change in the registered office or registered agent of the Partnership within
thirty (30) days thereafter.
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2.6 Restatement of Agreement. This Agreement amended and restates
the Second Restated Agreement, including the amendments thereto, in its entirety
effective as of the date first above written and, effective as of such date, the
Second Restated Agreement and the amendments thereto shall be of no further
force or effect.
ARTICLE 3
Term
3.1 Commencement. The Partnership's term commenced upon the filing
of the Certificate with the Secretary of State of Delaware on December 15, 1994.
3.2 Dissolution. The Partnership shall continue until dissolved and
terminated upon the occurrence of the earliest of the following events:
(a) the death, dissolution, termination, withdrawal, retirement,
expulsion or Bankruptcy of the General Partner, unless the Partnership's
business is continued as provided in Section 9.1 hereof;
(b) the election to dissolve the Partnership made in writing by
the General Partner;
(c) the sale or other disposition of all or substantially all of
the assets of the Partnership unless the General Partner elects to continue the
Partnership business for the purpose of the receipt and the collection of
indebtedness or the collection of any other consideration to be received in
exchange for the assets of the Partnership (which activities shall be deemed to
be part of the winding up of the affairs of the Partnership);
(d) the entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act, which decree is final and not
subject to appeal; or
(e) December 31, 2094.
ARTICLE 4
Capital Contributions
4.1 Capital Contributions; OP Units.
(a) As of the date first above written, the Partners have the
Percentage Interests in the Partnership as set forth in Exhibits A, A-1 and A-2,
which Percentage Interests shall be adjusted to the extent necessary to reflect
properly exchanges, redemptions or conversions of Partnership Interests, Capital
Contributions, the issuance of additional Partnership Interests or any other
event having an effect on a Partner's Percentage Interest, in each case to the
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extent permitted by and in accordance with this Agreement. Except to the extent
specifically set forth in this Agreement with respect to the General Partner,
the Partners shall have no obligation to make any additional Capital
Contributions or loans to the Partnership, even if the failure to do so could
result in the Bankruptcy or insolvency of the Partnership or any other adverse
consequence to the Partnership.
(b) The General Partner shall, from time to time, contribute
cash or Property to the Partnership such that the interest of the General
Partner in Net Income and Net Loss shall at all times be at least 1% and the
Capital Account balance of the General Partner shall be at least the lesser of
$500,000 or 1% of the total positive Capital Account balances for the
Partnership.
(c) The interest of a Partner (or an assignee of a Partner) in
capital, allocations of Net Income, Net Loss and distributions shall be
evidenced by the issuance to such Partner (or assignee) of one or more "OP
Units." The interest of a Class A Limited Partner (or an assignee of a Class A
Limited Partner) in capital, allocations of Net Income, Net Loss and
distributions, including Special Class A Distributions and Class A Preferred
Return, if any, shall be evidenced by the issuance to such Class A Limited
Partner (or assignee) of one or more "Class A OP Units." The interest of a Class
B Limited Partner (or an assignee of a Class B Limited Partner) in capital,
allocations of Net Income, Net Loss and distributions, including Class B OP
Special Distributions and Class B Liquidation Preference Distributions, if any,
shall be evidenced by the issuance to such Class B Limited Partner (or assignee)
of one or more "Class B OP Units." The aggregate total of all OP Units, Class A
OP Units and Class B OP Units outstanding and the ownership of such OP Units,
Class A OP Units and Class B OP Units by each Partner, Class A Limited Partner
and Class B Limited Partner are as set forth on Exhibit A, Exhibit A-1 and
Exhibit A-2 hereto, which Exhibits shall be updated by the General Partner to
reflect changes in the holdings of OP Units, Class A OP Units and Class B OP
Units by the Partners.
(d) From time to time, the General Partner may cause the
Partnership to issue additional Partnership Interests to existing or
newly-admitted Partners (including the General Partner) for fair value in
exchange for additional Capital Contributions (including Capital Contributions
pursuant to Section 4.1(b)). Without limiting the generality of the foregoing,
if (i) the General Partner contributes to the Partnership the net proceeds to
the General Partner from any offering or sale of Starwood Units (including,
without limitation, any issuance of Starwood Units pursuant to the exercise of
options, warrants, convertible securities, or similar rights to acquire Starwood
Units), the Partnership shall issue to the General Partner OP Units equal in
number to the number of Starwood Units issued in such offering or sale, and (ii)
if the General Partner or SLT issues Starwood Units to any Person in exchange
for services, then the Partnership shall issue an equal number of OP Units to
the General Partner effective no later than the date on which the value of the
Starwood Units is includable in the gross income of such Person.
(e) The General Partner is hereby authorized to cause the
Partnership to issue Partnership Interests in one or more classes or one or more
series of any of such classes, with such designations, preferences and relative,
participating, optional or other special rights,
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powers and duties, including rights, powers and duties senior to the
then-existing Partnership Interests and OP Units, as shall be determined by the
General Partner in its sole and absolute discretion, including (i) the
allocation of items of Partnership income, gain, loss, deduction and credit to
each such class or series of Partnership Interests and (ii) the rights of each
such class or series of Partnership Interests to share in Partnership
distributions (including liquidating distributions).
(f) In the event of any change in the outstanding number of
Starwood Units by reason of any share dividend, split, reverse split,
recapitalization, merger, consolidation or combination, the number of OP Units
held by each Partner (or assignee) shall be proportionately adjusted such that,
to the extent possible, one OP Unit remains the equivalent of one Share without
dilution.
(g) No fractional OP Units shall remain outstanding. In lieu of
issuing a fractional OP Unit to a holder of OP Units, the number of OP Units to
be held by such holder shall be rounded to the nearest whole OP Unit, or, at the
option of the General Partner, the holder shall be paid cash equal to the fair
market value of such fractional OP Unit.
4.2 Redemption of OP Units Held by Limited Partner. The General
Partner is hereby authorized to cause the Partnership to redeem all or any
portion of the OP Units held by any Limited Partner whenever the General
Partner, in its sole discretion, believes such redemption to be reasonably
necessary or appropriate in order to prevent the Partnership from being
characterized as a "publicly traded partnership" pursuant to Section 7704 of the
Code and the Regulations thereunder. Any redemption of OP Units pursuant to this
Section 4.2 shall be made from the Limited Partners in reverse order of their
respective ownership of OP Units, that is, first from the Limited Partner or
Limited Partners with the fewest OP Units, and, second, if required, from the
Limited Partner or Limited Partners with the next fewest OP Units, et cetera.
Notwithstanding the previous sentence, the General Partner is hereby authorized
to cause the Partnership to redeem all the OP Units held by a particular Limited
Partner who, because of the number of such Limited Partner's direct or indirect
beneficial owners or its structure, in the judgment of the General Partner in
its sole discretion, and whether or not in conjunction with any other Partner
(whether redeemed pursuant to this Section 4.2 or not), may cause the
Partnership to be characterized as a "publicly traded partnership" pursuant to
Section 7704 of the Code and the Regulations thereunder. The redemption price of
any OP Unit redeemed pursuant to this Section 4.2 shall be equal to the product
of (a) 115% of the average of the Starwood Unit Closing Price for the ten (10)
trading day period ending five (5) days prior to the date of such redemption,
multiplied by (b) the then Issuance Percentage of SLC. Any redemption of a
Limited Partner shall be effective upon the date specified in a notice to such
Limited Partner, or, if later, five (5) days after such notice. No redemption
pursuant to this Section 4.2 shall be made unless the Realty Partnership
concurrently effects a comparable redemption.
4.3 Percentage Interests. The Percentage Interest of a Limited
Partner shall be equal to the percentage obtained by dividing (a) the Capital
Contributions allocable to the OP Units held by such Partner (including OP Units
held by assignees of such Partner who have not been admitted as Partners) by (b)
the total Capital Contributions of all Partners. The Percentage
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Interest of the General Partner shall be equal to 100 less the total of the
Percentage Interests held by the Limited Partners.
4.4 Purchase Rights. If the General Partner grants, issues or sells
any options, convertible securities or rights to purchase shares, warrants, or
other property pro rata to the record holders of Shares (collectively, "Purchase
Rights"), then the Partners shall, to the extent practicable and consistent with
the other provisions of this Agreement, be entitled to acquire from the
Partnership interests in the Partnership that are substantially similar in
amount, tone and tenor to the Purchase Rights to which such Partners would be
entitled if such Partners had converted their Partnership Interests into
Starwood Units immediately prior to the grant, issue or sale of the Purchase
Rights.
4.5 No Third Party Beneficiaries. No creditor or other third party
shall have the right to enforce any right or obligation of any Partner to make
Capital Contributions or loans or to pursue any other right or remedy hereunder
or at law or in equity, it being understood and agreed that the provisions of
this Agreement shall be solely for the benefit of, and may be enforced solely
by, the parties hereto and their respective successors and assigns. None of the
rights or obligations of the Partners herein set forth to make Capital
Contributions or loans to the Partnership shall be deemed an asset of the
Partnership for any purpose by any creditor or other third party, nor may such
rights or obligations be sold, transferred or assigned by the Partnership or
pledged or encumbered by the Partnership to secure any debt or other obligation
of the Partnership or of any of the Partners.
4.6 No Interest on or Return of Capital Contribution. No Partner
shall be entitled to interest on its Capital Contribution or Capital Account.
Except as provided herein or by law, no Partner shall have any right to demand
or receive the return of its Capital Contribution.
ARTICLE 5
Indemnification
5.1 Indemnification of the General Partner.
(a) To the fullest extent permitted by law, the Partnership
shall and does hereby indemnify an Indemnitee from and against any and all
losses, claims, damages, liabilities, joint or several, expenses (including
reasonable legal fees and expenses), judgments, fines, settlements, and other
amounts arising from any and all claims, demands, actions, suits or proceedings
(including arbitration and mediation proceedings), civil, criminal,
administrative or investigative, that relate, directly or indirectly, to the
formation, business or operations of the Partnership in which any Indemnitee may
be involved, or is threatened to be involved, as a party, witness or otherwise,
by reason of the fact that such Person was an Indemnitee, whether or not the
same shall proceed to judgment or be settled or otherwise be brought to a
conclusion, except only if and to the extent that it is finally adjudicated that
the act or omission of the Indemnitee was material to the matter giving rise to
the proceeding and was committed with fraud, gross
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negligence or willful misconduct. The termination of any proceeding by judgment,
order or settlement does not create a presumption that the Indemnitee did not
meet the requisite standard of conduct set forth in this Section 5.1(a). Any
indemnification pursuant to this Section 5.1 shall be made only out of the
assets of the Partnership and no Partner shall have any personal liability
therefor. The provisions of this Section 5.1 are for the benefit of the
Indemnitees, their heirs, successors, assigns, personal representatives and
administrators, and shall not be deemed to create any rights for the benefit of
any other Persons. The foregoing notwithstanding, the General Partner (or any
former General Partner) shall not be entitled to indemnification from the
Partnership with respect to matters provided for in Sections 9.1 and 9.2 of the
Formation Agreement.
(b) Reasonable expenses incurred by an Indemnitee who is a party
or witness in a proceeding shall be paid or reimbursed by the Partnership in
advance of the final disposition of the proceeding upon receipt by the
Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's
good faith belief that the standard of conduct necessary for indemnification by
the Partnership, as authorized in this Section 5.1, has been met, and (ii) a
written undertaking by or on behalf of the Indemnitee to repay the amount paid
or reimbursed if it shall ultimately be determined that such Indemnitee is not
entitled to be indemnified hereunder.
(c) The indemnification provided by this Section 5.1 shall be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity. The Partnership shall
purchase and maintain insurance, on behalf of the Indemnitees, against any
liability that may be asserted against or expenses that may be incurred by such
Person in connection with the Partnership's activities, regardless of whether
the Partnership would have the power to indemnify such Person against such
liability under the provisions of this Agreement. An Indemnitee shall not be
denied indemnification in whole or in part under this Section 5.1 solely because
the Indemnitee had an interest in the transaction with respect to which the
indemnification applies.
(d) For purposes of this Section 5.1, the Partnership shall be
deemed to have requested an Indemnitee to serve as fiduciary of an employee
benefit plan whenever the performance by it of its duties to the Partnership
also imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of this Section 5.1; and actions taken
or omitted by the Indemnitee with respect to an employee benefit plan in the
performance of its duties for a purpose reasonably believed by it to be in the
interest of the participants and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the Partnership.
5.2 Indemnification of Limited Partners.
(a) From and after the date hereof, the Partnership shall
indemnify and hold harmless each Limited Partner, its Affiliates, employees,
officers, directors and agents against and from all liability, demands, claims,
actions or causes of action, assessments, losses, fines,
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penalties, costs, damages and expenses (including, without limitation,
reasonable attorneys' and accountants' fees and expenses) sustained or incurred
by such Limited Partner or Affiliate or any assignee or successor thereof
(including, without limitation, any permitted assignee of a Limited Partner
under Article 9 hereof) as a result of or arising out of any action, suit or
proceeding (including mediation and arbitration proceedings) (i) arising out of
or relating to the operation of the Partnership's business or the Limited
Partner being a Partner in the Partnership (excluding, specifically, actions,
suits or proceedings arising out of actual or alleged breaches of a Partner's
representations, warranties or covenants hereunder or pursuant to the Formation
Agreement or arising out of acts by a Limited Partner other than in its capacity
as such) and (ii) naming a Limited Partner or any of its Affiliates as a party
to such proceeding. Any indemnification pursuant to this Section 5.2(a) shall be
made only out of the assets of the Partnership and no Partner shall have any
personal liability therefor. The provisions of this Section 5.2(a) are for the
benefit of the Limited Partners, their Affiliates, employees, officers,
directors and agents, and shall not be deemed to create any rights for the
benefit of any other Persons.
(b) The foregoing notwithstanding, the Partnership shall
indemnify the Class A Limited Partners in respect of all federal or state income
tax consequences to them arising from the Special Class A Distributions and the
distribution described in Section 8.2(a)(iii) hereof being subject to federal or
state income tax in a manner that is less favorable than comparable
distributions with respect to RP Ordinary Units. Any indemnification pursuant to
the preceding sentence shall be computed on a cumulative basis from and after
February 14, 1997, and shall be grossed up for any income tax consequences of
such indemnification so as to put the Class A Limited Partners in the same
after-tax position they would have been in had they been Partners in the Realty
Partnership as to such distributions. All calculations of the indemnification
payments shall be computed as if the Class A Limited Partners had no sources of
income, loss or gain other than from the comparable distributions with respect
to RP Ordinary Units and pay tax at the highest applicable federal and state tax
rates. The provisions of this Section 5.2(b) shall be in addition to and not in
limitation of the indemnification provided to Limited Partners pursuant to
Section 5.2(a) above.
(c) Also notwithstanding the foregoing, the Partnership shall
indemnify and hold harmless the HEI Parties of and from liabilities of the HEI
Property Companies whose Property Company Interests have been acquired by the
Partnership except for any undisclosed material liability of any such HEI
Property Company as of February 14, 1997 (collectively, the "Excluded
Liabilities"); provided, however, that the Excluded Liabilities shall not
include:
(i) any liability incurred in the ordinary course of
operating the applicable hotel prior to February 14, 1997;
(ii) any liability disclosed by the Transaction
Documents, the schedules or exhibits thereto, any supplement to such
schedules or exhibits delivered to the Starwood Parties prior to
February 14, 1997, the agreements, reports or other documents referred
to in any of the foregoing, the Financial Statements, the financial
statements prepared in connection with the Net Working Capital
adjustment provided for in Article IV of the HEI Contribution
Agreement;
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(iii) any liability of which the Starwood Parties
otherwise had Knowledge prior to February 14, 1997; or
(iv) any liability incurred on or after February 14,
1997;
and the Partnership shall be obligated to hold the HEI Parties harmless from all
such enumerated liabilities. The provisions of this Section 5.2(c) shall be in
addition to and not in limitation of the indemnifications provided to Limited
Partners pursuant to Section 5.2(a) and 5.2(b) above. Any capitalized term in
this Section 5.2(c) not otherwise defined in this Agreement shall have the
meaning set forth in the HEI Contribution Agreement.
5.3 Notice of Claims. If any Person believes that it is entitled to
indemnification under this Article 5, such Person shall so notify the
Partnership promptly in writing describing such claim for indemnification, the
amount thereof, if known, and the method of computation, all with reasonable
particularity and containing a reference to the provisions of this Agreement in
respect of which such claim shall have occurred; provided, however, that the
omission by such indemnified party to give notice as provided herein shall not
relieve the Partnership of its indemnification obligation under this Article 5
except to the extent that the Partnership is materially damaged as a result of
such failure to give notice. If any action at law or suit in equity is
instituted by or against a third party with respect to which any of the Persons
entitled to indemnification under this Article 5 intends to make a claim for
indemnification under this Article 5, any such Person shall promptly notify the
Partnership of such action or suit. Any Person entitled to indemnification
hereunder shall use reasonable efforts to minimize the amount of any claim for
indemnification hereunder.
5.4 Third Party Claims. In the event of any claim for
indemnification hereunder resulting from or in connection with any claim or
legal proceeding by a third party, the indemnified Person shall give such notice
thereof to the Partnership not later than twenty (20) Business Days prior to the
time any response to the asserted claim is required, if possible, and in any
event within fifteen (15) Business Days following the date such indemnified
Person has actual knowledge thereof; provided, however, that the omission by
such indemnified Person to give notice as provided herein shall not relieve the
Partnership of its indemnification obligation under this Article 5 except to the
extent that the Partnership is materially damaged as a result of such failure to
give notice. In the event of any such claim for indemnification resulting from
or in connection with a claim or legal proceeding by a third party, the
Partnership may, at its sole cost and expense, assume the defense thereof;
provided, however, that counsel for the Partnership, who shall conduct the
defense of such claim or legal proceeding, shall be reasonably satisfactory to
the indemnified Person; and provided, further, that if the defendants in any
such actions include both the indemnified Persons and the Partnership and the
indemnified Persons shall have reasonably concluded that there may be legal
defenses or rights available to them which have not been waived and are in
actual or potential conflict with those available to the Partnership, the
indemnified Persons shall have the right to select one law firm reasonably
acceptable to the Partnership to act as separate counsel, on behalf of such
indemnified Persons, at the expense of the Partnership. Unless the indemnified
Persons are represented by separate counsel pursuant to the second proviso of
the immediately preceding sentence, if the Partnership assumes the defense
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of any such claim or legal proceeding, it shall not consent to entry of any
judgment, or enter into any settlement, that (a) is not subject to
indemnification in accordance with the provisions in this Article 5, (b)
provides for injunctive or other non-monetary relief affecting the indemnified
Persons or (c) does not include as an unconditional term thereof the giving by
each claimant or plaintiff to such indemnified Persons of a release from all
liability with respect to such claim or legal proceeding, without the prior
written consent of the indemnified Persons (which consent, in the case of
clauses (b) and (c), shall not be unreasonably withheld or delayed); and
provided, further, that, unless the indemnified Persons are represented by
separate counsel pursuant to the second proviso of the immediately preceding
sentence, the indemnified Persons may, at their own expense, participate in any
such proceeding with the counsel of their choice without any right of control
thereof. So long as the Partnership is in good faith defending such claim or
proceeding, the indemnified Persons shall not compromise or settle such claim or
proceeding without the prior written consent of the Partnership, which consent
shall not be unreasonably withheld or delayed. If the Partnership does not
assume the defense of any such claim or litigation in accordance with the terms
hereof, the indemnified Persons may defend against such claim or litigation in
such manner as they may deem appropriate, including, without limitation,
settling such claim or litigation (after giving prior written notice of the same
to the Partnership and obtaining the prior written consent of the Partnership,
which consent shall not be unreasonably withheld or delayed) on such terms as
the indemnified Persons may deem appropriate, and the Partnership will promptly
indemnify the indemnified Persons in accordance with the provisions of this
Article 5.
5.5 Indemnification Pursuant to Formation Agreement. If any
obligation pursuant to the indemnification provisions of Article IX of the
Formation Agreement would otherwise require the indemnifying Person to make a
cash payment to the indemnified Person then, subject to Article 9 hereof, in
lieu of making all or any portion of such cash payment, the indemnifying Person
may transfer OP Ordinary Units of equivalent value to the indemnified Person.
Indemnification through the transfer of OP Units pursuant to this Section 5.5
may only be made if (a) indemnification through the transfer of an equal number
of RP Units is being made pursuant to Section 5.5 of the Realty Partnership
Agreement or (b) the indemnifying Person otherwise makes arrangements for the
transfer to the indemnified Person (or its designee) of an equal number of RP
Units.
ARTICLE 6
Allocations, Distributions and Other Tax and Accounting Matters
6.1 Allocations. The Net Income, Net Loss and other Partnership
items shall be allocated pursuant to the provisions of this Section 6.1.
(a) Allocation of Net Income and Net Loss.
(i) Net Income. Except as otherwise provided herein,
Net Income for any fiscal year or other applicable period shall be allocated in
the following order and priority:
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(A) first, to the General Partner, until the
cumulative Net Income allocated pursuant to this Section 6.1(a)(i)(A)
for the current and all prior periods equals the cumulative Net Loss
allocated pursuant to Section 6.1(a)(ii)(C) for all prior periods;
(B) second, to the holders of OP Units, including
Class A OP Units and Class B OP Units, to the extent of, in proportion
to and in reverse order of their prior allocations of Net Loss pursuant
to Section 6.1(a)(ii)(B) until the cumulative Net Income allocated
pursuant to this Section 6.1(a)(i)(B) for the current and all prior
periods equals the cumulative Net Loss allocated to such holders
pursuant to Section 6.1(a)(ii)(B) for all prior periods;
(C) third, to the General Partner, until the
cumulative Net Income allocated pursuant to this Section 6.1(a)(i)(C)
for the current and all prior periods equals the cumulative Net Loss
allocated pursuant to Section 6.1(a)(ii)(A) for all prior periods;
(D) fourth, to the holders of Class A OP Units
until each holder of Class A OP Units has been allocated Net Income
pursuant to this Section 6.1(a)(i)(D) in an amount equal to its Class A
Preferred Return for the current and all prior periods;
(E) fifth, to the holders of Class A OP Units until
each holder of Class A OP Units has been allocated Net Income pursuant
to this Section 6.1(a)(i)(E) in an amount equal to the Net Income (as
defined in the Realty Partnership Agreement) allocated to an RP
Ordinary Unit for all prior periods (or portions thereof) from and
after February 14, 1997 pursuant to Section 6.1(a)(i)(F) of the Realty
Partnership Agreement, multiplied by the number of Class A OP Units
held by such holder;
(F) sixth, to the holders of Class B OP Units until
each holder of Class B OP Units has been allocated Net Income pursuant
to this Section 6.1(a)(i)(F) in an amount equal to its accrued Class B
OP Special Distributions, if any;
(G) seventh, to the holders of Class B OP Units
until each holder of Class B OP Units has been allocated Net Income
pursuant to this Section 6.1(a)(i)(G) in an amount equal to the excess
of its accrued Class B Liquidation Preference Distributions, if any,
over the portion of such holder's initial Capital Account balance
allocable to the Class B Liquidation Preference Distribution;
(H) eighth, to the extent the Partnership has made
distributions pursuant to Section 6.2(a)(iii) or Section 6.2(b) to the
holders of OP Units, including Class A OP Units and Class B OP Units,
in accordance with and
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in proportion to the distributions made under Section 6.2(a)(iii) or
Section 6.2(b); and
(I) thereafter, to the General Partner.
(ii) Net Loss. Except as otherwise provided herein, Net
Loss of the Partnership for each fiscal year or other applicable period shall be
allocated in the following order and priority:
(A) first, to the General Partner, until the
Capital Account balance of the General Partner has been reduced to the
minimum capital account balance required pursuant to Section 4.1(b)
hereof;
(B) second, to the holders of OP Units in
accordance with their respective holdings of OP Units, provided that
Net Losses shall not be allocated pursuant to this Section
6.1(a)(ii)(B) to the extent that such allocations would cause any
Limited Partner to have an Adjusted Capital Account Deficit as of the
end of the fiscal year to which such Net Loss relates; and
(C) the balance, if any, to the General Partner.
(b) Special Allocations. Notwithstanding any provisions of
Section 6.1(a) hereof, the following special allocations shall be made in the
following order:
(i) Minimum Gain Chargeback. Notwithstanding any other
provision of this Article 6, if there is a net decrease in Partnership Minimum
Gain for any Partnership fiscal year (except as a result of conversion or
refinancing of Partnership indebtedness, certain capital contributions or
revaluation of the Partnership property as further outlined in Section
1.704-2(f) of the Regulations), each holder of OP Units shall be specially
allocated items of Partnership income and gain for such year (and, if necessary,
subsequent years) in an amount equal to that holder's share of the net decrease
in Partnership Minimum Gain as determined under Section 1.704-2(g) of the
Regulations. The items to be so allocated shall be determined in accordance with
Section 1.704-2(f) of the Regulations. This clause (i) is intended to comply
with the minimum gain chargeback requirement in said section of the Regulations
and shall be interpreted consistently therewith. Allocations pursuant to this
clause (i) shall be made in proportion to the respective amounts required to be
allocated to each holder of OP Units pursuant hereto.
(ii) Minimum Gain Chargeback Attributable to Partner
Nonrecourse Debt. Notwithstanding any other provision of this Article 6, if
there is a net decrease in Minimum Gain Attributable to Partner Nonrecourse Debt
during any fiscal year (other than due to the conversion, refinancing or other
change in the debt instrument causing it to become partially or wholly
nonrecourse, certain capital contributions, or certain revaluations of
Partnership property (as further outlined in Section 1.704-2(i)(4) of the
Regulations), each holder of OP Units shall be specially allocated items of
Partnership income and gain for such year (and, if
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necessary, subsequent years) in an amount equal to the holder's share of the net
decrease in the Minimum Gain Attributable to Partner Nonrecourse Debt as
determined under Section 1.704-2(i) of the Regulations. The items to be so
allocated shall be determined in accordance with Sections 1.704-2(i)(4) and
(j)(2) of the Regulations. This clause (ii) is intended to comply with the
minimum gain chargeback requirement with respect to Partner Nonrecourse Debt
contained in said section of the Regulations and shall be interpreted
consistently therewith. Allocations pursuant to this clause (ii) shall be made
in proportion to the respective amounts required to be allocated to each holder
of OP Units.
(iii) Qualified Income Offset. In the event a holder of
OP Units unexpectedly receives any adjustments, allocations or distributions
described in Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6) of the Regulations,
and such holder has an Adjusted Capital Account Deficit, items of Partnership
income and gain shall be specially allocated to such holder in an amount and
manner sufficient to eliminate the Adjusted Capital Account Deficit as quickly
as possible, provided that an allocation pursuant to this Section 6.1(b)(iii)
shall be made only if and to the extent that such holder would have Adjusted
Capital Account Deficit after all other allocations provided for in this Article
6 have been tentatively made as if this Section 6.1(b)(iii) were not in the
Agreement. This clause (iii) is intended to constitute a "qualified income
offset" under Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be
interpreted consistently therewith.
(iv) Gross Income Allocation. In the event any holder
of OP Units has a deficit Capital Account at the end of any fiscal year which is
in excess of the sum of (A) the amount such holder is obligated to restore
pursuant to any provision of this Agreement, and (B) the amount such holder is
deemed to be obligated to restore pursuant to the penultimate sentences of
Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each such holder
shall be specially allocated items of Partnership income and gain in the amount
of such excess as quickly as possible, provided that an allocation pursuant to
this Section 6.1(b)(iv) shall be made only if and to the extent that such holder
would have a Capital Account Deficit in excess of such sum after all other
allocations provided for in this Article 6 have been made as if Section
6.1(b)(iii) hereof and this Section 6.1(b)(iv) were not in the Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for
any fiscal year or other applicable period shall be allocated to the holders of
OP Units in accordance with their respective holdings of OP Units. For purposes
of Section 1.752-3(a)(3) of the Regulations, "excess nonrecourse liabilities"
shall be allocated among the holders of OP Units in proportion to their
respective holdings of OP Units.
(vi) Partner Nonrecourse Deductions. Partner
Nonrecourse Deductions for any fiscal year or other applicable period shall be
specially allocated to the holder of OP Units that bears the economic risk of
loss with respect to the Partner Nonrecourse Debt in respect of which such
Partner Nonrecourse Deductions are attributable (as determined under Sections
1.704-2(b)(4) and (i)(1) of the Regulations).
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(vii) Section 754 Adjustments. To the extent an
adjustment to the adjusted tax basis of any Partnership asset pursuant to
Section 734(b) or Section 743(b) of the Code is required, pursuant to Section
1.704-1(b)(2)(iv)(m)(2) or Section 1.704-1(b)(2)(iv)(m)(4) of the Regulations,
to be taken into account in determining Capital Accounts, the amount of such
adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to
holders of OP Units in accordance with their interests in a manner consistent
with the manner in which their Capital Accounts are required to be adjusted
pursuant to such sections of the Regulations.
(viii) Curative Allocations. The Regulatory Allocations
shall be taken into account in allocating other items of income, gain, loss, and
deduction among the holders of OP Units so that, to the extent possible, the
cumulative net amount of allocations of Partnership items under Sections 6.1(a)
and 6.1(b) hereof shall be equal to the net amount that would have been
allocated to each holder of OP Units if the Regulatory Allocations had not
occurred. This subparagraph (viii) is intended to minimize to the extent
possible and to the extent necessary any economic distortions which may result
from application of the Regulatory Allocations and shall be interpreted in a
manner consistent therewith. For purposes hereof, "Regulatory Allocations" shall
mean the allocations provided under this Section 6.1(b) (other than this
subparagraph) and allocations pursuant to the last sentence of Section
6.1(a)(ii) hereof.
(ix) Varying Interests. In the event the number of OP
Units outstanding during a fiscal year changes, the allocations pursuant to this
Article 6 shall be made by the General Partner to take such varying interests
into account in any reasonable manner permitted under the Code and the
Regulations.
(c) Tax Allocations.
(i) Generally. Subject to clauses (ii) and (iii)
hereof, items of income, gain, loss, deduction and credit to be allocated for
income tax purposes (collectively, "Tax Items") shall be allocated among the
holders of OP Units on the same basis as their respective book items.
(ii) Sections 1245/1250 Recapture. If any portion of
gain from the sale of property is treated as gain which is ordinary income by
virtue of the application of Sections 1245 or 1250 of the Code ("Affected
Gain"), then (A) such Affected Gain shall be allocated among the holders of OP
Units in the same proportion that the depreciation and amortization deductions
giving rise to the Affected Gain were allocated and (B) other Tax Items of gain
of the same character that would have been recognized, but for the application
of Sections 1245 and/or 1250 of the Code, shall be allocated away from those
holders of OP Units who are allocated Affected Gain pursuant to clause (A) so
that, to the extent possible, the other holders of OP Units are allocated the
same amount, and type, of capital gain that would have been allocated to them
had Sections 1245 and/or 1250 of the Code not applied. For purposes hereof, in
order to determine the proportionate allocations of depreciation and
amortization deductions for each
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fiscal year or other applicable period, such deductions shall be deemed
allocated on the same basis as Net Income or Net Loss for such respective
period.
(iii) Allocations Respecting Section 704(c) of the Code
and Revaluations. Property contributed to the Partnership shall be subject to
Section 704(c) of the Code and the Regulations thereunder so that,
notwithstanding paragraph (b) hereof, taxable gain from disposition, taxable
loss from disposition and tax depreciation with respect to Partnership property
that is subject to Section 704(c) of the Code and/or Section 1.704-1(b)(2)
(iv)(f) of the Regulations (collectively "Section 704(c) Tax Items") shall be
allocated on a property by property basis in accordance with said Code Section
and/or the Regulations thereunder, as the case may be. The allocation of Section
704(c) Tax Items shall be made pursuant to any reasonable method selected by the
General Partner in its discretion authorized under Section 1.704-3 of the
Regulations. Allocations pursuant to this Section 6.1(c)(iii) are solely for
purposes of federal, state, and local taxes and shall not affect, or in any way
be taken into account in computing, the Capital Account or share of Net Income,
Net Loss, other items, or distributions of any holder of OP Units pursuant to
any provision of this Agreement.
(iv) Tax Credits and Other Items. Tax credits and other
items shall be allocated in accordance with the holdings of OP Units to the
extent permitted under Section 1.704-1(b)(4)(ii) of the Regulations or other
applicable provision of the Code and Regulations and otherwise in accordance
with such provisions.
(v) Ancillary Notes. Income, gain, loss or correlative
adjustments, if any, relating to the Suites Ancillary Notes or the disposition
thereof shall be specially allocated to HSR (or its assignees or
successors-in-interest). Income, gain, loss or correlative adjustments, if any,
relating to the Inns Ancillary Notes or the disposition thereof shall be
specially allocated to HSR (or its assignees or successors-in-interest).
(vi) Allocations on Liquidation. If the distributions
to holders of OP Units pursuant to Section 8.2(a) hereof would otherwise not be
in accordance with the positive balances in their Capital Accounts (after taking
into account all adjustments to such Capital Accounts for all periods), then
items of gross income and gross deduction for the fiscal year with respect to
which such distributions are being made (and, if necessary, for prior fiscal
years for which amended tax returns can and shall be filed) shall be reallocated
among the holders of OP Units such that the distributions to holders of OP Units
pursuant to Section 8.2(a) hereof are in accordance with the positive balances
in their Capital Accounts (after taking into account all adjustments to such
Capital Accounts for all periods).
6.2 Distributions.
(a) The General Partner shall cause the Partnership to
distribute all, or such portion as the General Partner may in its reasonable
discretion determine, of Net Cash Flow in accordance with the distribution rules
described below to the General Partner and to the holders of the applicable OP
Units who are holders on the Partnership Record Date with respect
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to such distribution. From and after the date first above written, Net Cash Flow
shall be distributed:
(i) first, to the holders of Class A OP Units, pro rata
in accordance with holders' ownership of Class A OP Units, in an amount equal to
the excess, if any, of (A)(1) the cumulative Class A Preferred Return from
February 14, 1997 to the end of such fiscal year or other applicable period
ending on the Partnership Record Date, over (2) the sum of all prior
distributions to the holders of Class A OP Units pursuant to this Section
6.2(a)(i)(A), and then (B)(1) the cumulative Special Class A Distributions from
February 14, 1997 to the end of such fiscal year or other applicable period
ending on the Partnership Record Date, over (2) the sum of all prior
distributions to the holders of Class A OP Units pursuant to this Section
6.2(a)(i)(B), treating the distributed amounts as paying the oldest amounts due
first;
(ii) second, to the holders of Class B OP Units, pro
rata in accordance with the holders' ownership of Class B OP Units, in an amount
equal to the excess, if any, of (A) the total of all Class B OP Special
Distributions that have accrued as of the date of payment of such distribution,
less (B) the total of all previous distributions to the holders of Class B OP
Units in respect of such Class B OP Special Distributions pursuant to Section
8.2(a)(v) hereof, if any, and this Section 6.2(a)(ii);
(iii) third, to each holder of OP Units, in an amount
equal to the excess, if any, of (A) all distributions made or to be made as of
the Partnership Record Date by the General Partner to holders of Shares (on a
per Share to per OP Unit basis) over (B) the total amount of all previous
distributions made to the holders of OP Units pursuant to this Section
6.2(a)(iii); and
(iv) thereafter, to the General Partner.
(b) If, as of any Partnership Record Date, the Net Cash Flow of
the Partnership is insufficient to make the distributions provided for under
Section 6.2(a)(i), (ii) or (iii) hereof, the General Partner shall ensure that
sufficient Net Cash Flow is available by reducing the amounts distributable to
it under Section 6.2(a) hereof and increasing the amount otherwise distributable
to holders of OP Units, and, to the extent necessary, by contributing additional
capital to the Partnership.
6.3 Books of Account. At all times during the continuance of the
Partnership, the General Partner shall maintain or cause to be maintained full,
true, complete and correct books of account in accordance with GAAP, using the
calendar year as the fiscal and taxable year of the Partnership. In addition,
the Partnership shall keep all records required to be kept pursuant to the Act.
6.4 Reports. The General Partner shall cause to be sent to the
Partners promptly after receipt of the same from the Accountants and in no event
later than one hundred five (105) days after the close of each fiscal year of
the Partnership, copies of Audited Financial Statements for the Partnership, or
of the General Partner if such statements are prepared solely on
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a consolidated basis with the General Partner, for the immediately preceding
fiscal year of the Partnership. The Partnership shall also cause to be prepared
such reports and/or information as are necessary for SLT to determine its
qualification as a REIT and its compliance with REIT Requirements.
6.5 Tax Elections and Returns. All elections required or
permitted to be made by the Partnership under any applicable tax law shall be
made by the General Partner in its sole and absolute discretion, except that the
General Partner shall, if requested by a Limited Partner, file an election on
behalf of the Partnership pursuant to Section 754 of the Code to adjust the
basis of the Partnership property in the case of a transfer of a Partnership
Interest or distribution from the Partnership, including transfers made in
connection with the exercise of the Rights, made in accordance with the
provisions of the Agreement. The General Partner shall be responsible for
preparing and filing all federal and state tax returns for the Partnership and
furnishing copies thereof to the Partners, together with required Partnership
schedules showing allocations of tax items, copies of all within the period of
time prescribed by law. The General Partner shall use reasonable efforts to make
available to the holders of OP Units final K-1's not later than September 15 of
each year.
6.6 Tax Matters Partner. The General Partner is hereby designated as
the Tax Matters Partner within the meaning of Section 6231(a)(7) of the Code
(and any corresponding provisions of state and local law) for the Partnership;
provided, however, that (a) in exercising its authority as Tax Matters Partner,
the General Partner shall be limited by the provisions of this Agreement
affecting tax aspects of the Partnership; and (b) the General Partner shall give
prompt notice to any notice partners under Section 6231 of the Code of the
receipt of any written notice that the Internal Revenue Service intends to
examine or audit Partnership income tax returns for any year, receipt of written
notice of the beginning of an administrative proceeding at the Partnership level
relating to the Partnership under Section 6223 of the Code, receipt of written
notice of the final Partnership administrative adjustment relating to the
Partnership pursuant to Section 6223 of the Code, and receipt of any request
from the Internal Revenue Service for waiver of any applicable statute of
limitations with respect to the filing of any tax return by the Partnership.
6.7 Withholding Payments Required By Law.
(a) Unless treated as a Tax Payment Loan (as hereinafter
defined), any amount paid by the Partnership for or with respect to any holder
of OP Units on account of any withholding tax or other tax payable with respect
to the income, profits or distributions of the Partnership pursuant to the Code,
the Regulations, or any state or local statute, regulation, notice, ruling or
ordinance requiring such payment (a "Withholding Tax Act") shall be treated as a
distribution to such holder for all purposes of this Agreement, consistent with
the character or source of the income, profits or cash which gave rise to the
payment or withholding obligation. To the extent that the amount required to be
remitted by the Partnership under the Withholding Tax Act exceeds the amount
then otherwise distributable to such holder, unless and to the extent that funds
shall have been provided by such holder pursuant to the last sentence of this
Section 6.7(a), the excess shall constitute a loan from the Partnership to such
holder (a "Tax Payment
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Loan") which shall be payable upon demand and shall bear interest, from the date
that the Partnership makes the payment to the relevant taxing authority, at the
rate announced from time to time by Citibank, N.A. (or any successor thereto) as
its "prime rate," plus 4% per annum, compounded monthly (but in no event higher
than the highest interest rate permitted by applicable law). So long as any Tax
Payment Loan to any holder of OP Units or the interest thereon remains unpaid,
the Partnership shall make future distributions due to such holder under this
Agreement by applying the amount of any such distributions first to the payment
of any unpaid interest on such Tax Payment Loan and then to the repayment of the
principal thereof, and no such future distributions shall be paid to such holder
until all of such principal and interest has been paid in full. If the amount
required to be remitted by the Partnership under the Withholding Tax Act exceeds
the amount then otherwise distributable to a holder of OP Units, the Partnership
shall notify such holder at least five (5) Business Days in advance of the date
upon which the Partnership would be required to make a Tax Payment Loan under
this Section 6.7(a) (the "Tax Payment Loan Date") and provide such holder the
opportunity to pay to the Partnership, on or before the Tax Payment Loan Date,
all or a portion of such deficit.
(b) The General Partner shall have the authority to take all
actions necessary to enable the Partnership to comply with the provisions of any
Withholding Tax Act applicable to the Partnership and to carry out the
provisions of this Section 6.7. Nothing in this Section 6.7 shall create any
obligation on the General Partner to advance funds to the Partnership or to
borrow funds from third parties in order to make any payments on account of any
liability of the Partnership under a Withholding Tax Act.
(c) In the event that a Tax Payment Loan is not paid by a holder
of OP Units within thirty (30) days after written demand therefor is made by the
General Partner, the General Partner may cause all distributions that would
otherwise be made to such holder to be retained by the Partnership, or sell such
holder's OP Units for sale proceeds, in each case up to the amount necessary to
repay such Tax Payment Loan, including all accrued and unpaid interest therein,
and such retained distributions or sale proceeds shall be applied against,
first, the accrued interest on and, second, the principal of, such Tax Payment
Loan.
ARTICLE 7
Rights, Duties and Restrictions of the General Partner
7.1 Powers and Duties of the General Partner.
(a) Subject to Section 7.11 hereof, the General Partner shall be
responsible for the management of the Partnership's business and affairs. Except
as otherwise herein expressly provided, the General Partner shall have, and is
hereby granted, full and complete power, authority and discretion to take such
action for and on behalf of the Partnership and in its name as the General
Partner shall, in its sole and absolute discretion, deem necessary or
appropriate to carry out the Partnership's business and the purposes for which
the Partnership was
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organized. Except as otherwise expressly provided herein, the General Partner
shall, on behalf of, and at the expense of, the Partnership, have the right,
power and authority:
(i) to manage, control, invest, reinvest, acquire by
purchase, lease or otherwise, sell, contract to purchase or sell, grant, obtain,
or exercise options to purchase, options to sell or conversion rights, assign,
transfer, convey, deliver, endorse, exchange, pledge, mortgage, abandon,
improve, repair, maintain, insure, lease for any term and otherwise deal with
any and all property of whatsoever kind and nature, and wheresoever situated, in
furtherance of the business or purposes of the Partnership;
(ii) to acquire, directly or indirectly, interests in
real estate of any kind and of any type, and any and all kinds of interests
therein (including, without limitation, Entities investing therein), and to
determine the manner in which title thereto is to be held; to manage (directly
or through property managers), insure against loss, protect and subdivide any of
the real estate, interests therein or parts thereof; to improve, develop or
redevelop any such real estate; to participate in the ownership and development
of any property; to dedicate for public use, to vacate any subdivisions or parts
thereof, to resubdivide, to contract to sell, to grant options to purchase or
lease, to sell on any terms; to convey, mortgage, pledge or otherwise encumber
said property, or any part thereof; to lease said property or any part thereof
from time to time, upon any terms and for any period of time, and to renew or
extend leases, to amend, change or modify the terms and provisions of any leases
and to grant options to lease and options to renew leases and options to
purchase; to partition or to exchange said real property, or any part thereof,
for other real or personal property; to grant easements or charges of any kind;
to release, convey or assign any right, title or interest in or about or
easement appurtenant to said property or any part thereof; to construct and
reconstruct, remodel, alter, repair, add to or take from buildings on any
property in which the Partnership owns an interest; to insure any Person having
an interest in or responsibility for the care, management or repair of such
property; to direct the trustee of any land trust to mortgage, lease, convey or
contract to convey the real estate held in such land trust or to execute and
deliver deeds, mortgages, notes and any and all documents pertaining to the
property subject to such land trust or in any matter regarding such trust; and
to execute assignments of all or any part of the beneficial interest in such
land trust;
(iii) to employ, engage, indemnify or contract with or
dismiss from employment or engagement Persons to the extent deemed necessary or
appropriate by the General Partner for the operation and management of the
Partnership business, including but not limited to contractors, subcontractors,
engineers, architects, surveyors, mechanics, consultants, accountants,
attorneys, insurance brokers, real estate brokers and others;
(iv) to enter into contracts on behalf of the
Partnership, and to cause all Administrative Expenses to be paid;
(v) to borrow or loan money, obtain or make loans and
advances from and to any Person for Partnership purposes and to apply for and
secure from or accept and grant to any Person credit or accommodations; to
contract liabilities and obligations (including interest rate swaps, caps and
hedges) of every kind and nature with or without security;
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and to repay, collect, discharge, settle, adjust, compromise or liquidate any
such loan, advance, obligation or liability; provided, however, without the
Consent of the Class A Limited Partners, the Partnership shall not borrow from
the Realty Partnership or SLT such that neither the Realty Partnership nor SLT
has lending capacity under Section 856(c)(5)(B) of the Code to lend an amount to
the Partnership to allow the Partnership to discharge its and the General
Partner's obligations to the Class A Limited Partners under this Agreement and
under that certain Class A Exchange Rights Agreement dated February 14, 1997, by
and among SLC, the Partnership, and the Class A Limited Partners;
(vi) to grant security interests, mortgage, assign,
deposit, deliver, enter into sale and leaseback arrangements or otherwise give
as security or as additional or substitute security or for sale or other
disposition any and all Partnership property, tangible or intangible, including,
but not limited to, personal property and real estate and interests in land
trusts, and to make substitutions thereof, and to receive any proceeds thereof
upon the release or surrender thereof; to sign, execute and deliver any and all
assignments, deeds, bills of sale and contracts and instruments in writing; to
authorize, give, make, procure, accept and receive moneys, payments, property
notices, demands, protests and authorize and execute waivers of every kind and
nature; to enter into, make, execute, deliver and receive agreements,
undertakings and instruments of every kind and nature; and generally to do any
and all other acts and things incidental to any of the foregoing or with
reference to any dealings or transactions which the General Partner may deem
necessary, proper or advisable to effect or accomplish any of the foregoing or
to carry out the business and purposes of the Partnership;
(vii) to acquire and enter into any contract of
insurance (including, without limitation, general partner liability and
partnership reimbursement insurance policies) which the General Partner may deem
necessary or appropriate;
(viii) to conduct any and all banking transactions on
behalf of the Partnership; to adjust and settle checking, savings and other
accounts with such institutions as the General Partner shall deem appropriate;
to draw, sign, execute, accept, endorse, guarantee, deliver, receive and pay any
checks, drafts, bills of exchange, acceptances, notes, obligations, undertakings
and other instruments for or relating to the payment of money in, into or from
any account in the Partnership's name; to make deposits into and withdrawals
from the Partnership's bank accounts and to negotiate or discount commercial
paper, acceptances, negotiable instruments, bills of exchange and dollar drafts;
(ix) to demand, sue for, receive and otherwise take
steps to collect or recover all debts, rents, proceeds, interests, dividends,
goods, chattels, income from property, damages and all other property, to which
the Partnership may be entitled or which are or may become due the Partnership
from any Person; to commence, prosecute or enforce, or to defend, answer or
oppose, contest and abandon all legal proceedings in which the Partnership is or
may hereafter be interested; and to settle, compromise or submit to arbitration
any accounts, debts, claims, disputes and matters which may arise between the
Partnership and any other Person and to grant an extension of time for the
payment or satisfaction thereof on any terms, with or without security;
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(x) to acquire interests in and contribute money or
property to any limited or general partnerships, joint ventures, subsidiaries or
other entities as the General Partner deems desirable;
(xi) to maintain or cause to be maintained the
Partnership's books and records;
(xii) to prepare and deliver, or cause to be prepared
and delivered, all financial and other reports with respect to the operations of
the Partnership, and preparation and filing of all tax returns and reports;
(xiii) to do all things which are necessary or
advisable for the protection and preservation of the Partnership's business and
assets, and to execute and deliver such further instruments and undertake such
further acts as may be necessary or desirable to carry out the intent and
purposes of this Agreement and as are not inconsistent with the terms hereof;
(xiv) subject to Section 7.4 hereof, to lease real or
personal property from the Realty Partnership or its Affiliates or to any other
Person on such terms and conditions as the General Partner may from time to time
determine;
(xv) subject to Section 11.3 hereof, to authorize and
cause mergers between the Partnership and other Entities in which the
Partnership is the surviving Entity; and
(xvi) in general, to exercise all of the general
rights, privileges and powers permitted to be had and exercised under the Act.
To the extent the duties of the General Partner require expenditures of funds to
be paid to third parties, the General Partner shall not have any obligations
hereunder except to the extent that Partnership funds are reasonably available
to it for the performance of such duties, and nothing herein contained shall be
deemed to require the General Partner, in its capacity as such, to expend its
individual funds for payment to third parties or to undertake any specific
liability or litigation on behalf of the Partnership.
(b) Notwithstanding the provisions of Section 7.1(a) hereof, the
Partnership shall not take any action which (or fail to take any action, the
omission of which) the General Partner believes, in its sole and absolute
discretion, (i) could adversely affect the ability of SLT to qualify or continue
to qualify as a REIT, (ii) could otherwise cause SLT to violate the REIT
Requirements or (iii) could violate any law or regulation of any governmental
body or agency having jurisdiction over the General Partner or its securities,
unless such action (or inaction) shall have been specifically consented to by
the General Partner.
(c) Notwithstanding the provisions of Section 7.1(a) hereof, the
Partnership shall not commingle its funds with those of any Affiliate or other
entity; funds and other assets of the Partnership shall be separately identified
and segregated; all of the Partnership's
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assets shall at all times be held by or on behalf of the Partnership, and, if
held on behalf of the Partnership by another entity, shall at all times be kept
identifiable (in accordance with customary usages) as assets owned by the
Partnership; and the Partnership shall maintain its own separate bank accounts,
payroll and books of account.
(d) Without the consent of the Limited Partners, the General
Partner shall have no power to do any act in contravention of this Agreement or
possess any Partnership property for other than a partnership purpose.
7.2 Reimbursement of the General Partner.
(a) Except as provided in this Section 7.2 and elsewhere in this
Agreement (including the provisions of Articles 5, 6 and 8 hereof regarding
distributions, payments and allocations to which it may be entitled), the
General Partner shall not receive payments from or be compensated for its
services as general partner of the Partnership.
(b) The General Partner shall be reimbursed on a monthly basis,
or such other basis as the General Partner may determine in its sole and
absolute discretion, for all expenses it incurs relating to the ownership and
operation of, or for the benefit of, the Partnership, including, without
limitation, the Administrative Expenses. Such reimbursements shall be in
addition to any reimbursement to the General Partner as a result of
indemnification pursuant to Section 5.1 hereof.
(c) The General Partner shall also be reimbursed for all
expenses incurred relating to the organization and formation of the Partnership,
the General Partner's share of public offerings of Starwood Units by the General
Partner and SLT to the extent included in Administrative Expenses, and any other
issuance of additional Partnership Interests.
7.3 Outside Activities of the General Partner. The General Partner
shall not be restricted in its outside activities or investments if the General
Partner makes such arrangements as are reasonably necessary, including but not
limited to distributions and/or Rights, to prevent such activities or
investments from having a material adverse impact on the Limited Partners and to
assure that the Limited Partners share in the economic benefits of such
activities or investments in a fair and equitable manner as compared to holders
of Starwood Units. For purposes of Section 7.3, the interests of the holders of
OP Ordinary Units in the Realty Partnership shall be taken into account.
7.4 Contracts with Affiliates. The Partnership may engage in
transactions, enter into contracts with Affiliates, and lend money to or borrow
money from Affiliates which are on terms fair and reasonable to the Partnership
and no less favorable to the Partnership than would be obtained from
unaffiliated third parties. The Partners hereby agree that the Partnership's
leases and loans with the Realty Partnership, as in effect on the date first
above written, are on terms fair and reasonable to the Partnership and such
terms are no less favorable to the Partnership than would be obtained from
unaffiliated third parties.
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7.5 Title to Partnership Assets. Title to Partnership assets,
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, individually
or collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby acknowledges and confirms that any Partnership assets
for which legal title is held in the name of the General Partner or any nominee
or Affiliate of the General Partner shall be held by the General Partner for the
use and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use its best
efforts to cause beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably practicable. All Partnership assets shall be
recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.
7.6 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority to
encumber, sell or otherwise use in any manner any and all assets of the
Partnership and to enter into any contracts on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if it were the
Partnership's sole party in interest, both legally and beneficially. In no event
shall any Person dealing with the General Partner or its representatives be
obligated to ascertain that the terms of this Agreement have been complied with
or to inquire into the necessity or expedience of any act or action of the
General Partner or its representatives. Each and every certificate, document or
other instrument executed on behalf of the Partnership by the General Partner
shall be conclusive evidence in favor of any and every Person relying thereon or
claiming thereunder that (a) at the time of the execution and delivery of such
certificate, document or instrument, this Agreement was in full force and
effect, (b) the Person executing and delivering such certificate, document or
instrument was duly authorized and empowered to do so for and on behalf of the
Partnership and (c) such certificate, document or instrument was duly executed
and delivered in accordance with the terms and provisions of this Agreement and
is binding upon the Partnership.
7.7 Liability of the General Partner.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary or other damages
to the Partnership, any of the Partners or any assignee of any interest of any
Partner for losses sustained or liabilities incurred as a result of errors in
judgment or of any act or omission if the General Partner acted without fraud,
gross negligence or willful misconduct.
(b) The Limited Partners expressly acknowledge (i) that the
General Partner is acting on behalf of the Partnership and the General Partner's
shareholders collectively, (ii) that, subject to the terms and conditions of
this Agreement, the General Partner may, but is under no obligation to, consider
the separate interests of the Limited Partners (including, without limitation,
the tax consequences to Limited Partners or any assignees thereof except as
provided in this Agreement) in deciding whether to cause the Partnership to take
(or decline to take) any
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actions, and (iii) that the General Partner shall not be liable for monetary
damages for losses sustained, liabilities incurred, or benefits not derived by
Limited Partners in connection with such decisions, provided that the General
Partner acted without fraud, gross negligence or willful misconduct.
(c) Subject to its obligations and duties as General Partner set
forth in Section 7.1 hereof, the General Partner may exercise any of the powers
granted to it by this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through agents. The General Partner shall not
be responsible for any fraud, willful misconduct or gross negligence on the part
of any such agent appointed by it without fraud, gross negligence or willful
misconduct.
(d) Any amendment, modification or repeal of this Section 7.7 or
any provision hereof shall be prospective only and shall not in any way affect
the limitations on the General Partner's liability to the Partnership and the
Partners under this Section 7.7 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may be asserted.
7.8 Other Matters Concerning the General Partner.
(a) The General Partner may rely and shall be protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, or other document reasonably believed by it to be
genuine and to have been signed or presented by the proper party or parties.
(b) The General Partner may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisers selected by it, and any act taken or omitted to be
taken in reliance upon the advice or opinion of such Persons as to matters which
the General Partner reasonably believes to be within such Person's professional
or expert competence and in accordance with such advice or opinion shall be
prima facie evidence that such actions have been done or omitted in good faith.
(c) The General Partner shall have the right, in respect of any
of its powers or obligations hereunder, to act through any of its duly
authorized officers and any attorney or attorneys-in-fact duly appointed by the
General Partner. Each such attorney shall, to the extent provided by the General
Partner in the power of attorney, have full power and authority to do and
perform all and every act and duty which is permitted or required to be done by
the General Partner hereunder.
7.9 Operation of SLT in Accordance with REIT Requirements.
(a) The Partners acknowledge and agree that the ability of SLT
to satisfy the REIT Requirements is a material inducement for the Realty
Partnership to lease its real and personal property to the Partnership, the
General Partner or Affiliates of either of them, and
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that the failure of SLT to satisfy the REIT Requirements is likely to have a
material adverse effect on the Partnership. The Partners therefore acknowledge
and agree that, in addition to the other provisions of this Agreement, so long
as SLT desires to elect to be taxed as a REIT, the Partnership shall be operated
in a manner that will enable SLT to satisfy the REIT Requirements. So long as
SLT desires to elect to be taxed as a REIT, the Partnership shall avoid taking
any action which would result in SLT ceasing to satisfy the REIT Requirements.
(b) Without the prior consent of the General Partner, no
Limited Partner or holder of OP Units or any Affiliate shall take any action,
including acquiring, directly or indirectly, an interest in any tenant of a
property owned by the Realty Partnership or by an Entity owned by the Realty
Partnership (including, but not limited to, the Operating Partnership, SLC or an
Affiliate of either), which would have, through the actual or constructive
ownership of any tenant of any property, the effect of causing the percentage of
the gross income of SLT that fails to be treated as "rents from real property"
within the meaning of Section 856(d)(2) of the Code to exceed such percentage on
the date first above written. Each Limited Partner and holder of OP Units shall
use its best efforts to notify the General Partner on a timely basis of any
direct or indirect acquisition or potential direct or indirect acquisition of
Starwood Units by such Limited Partner or holder or any Affiliate or direct or
indirect owner of an interest in such Limited Partner or holder that could
reasonably be expected to have such effect.
7.10 Replacement of General Partner. In the event the General
Partner is no longer a Partner (whether in accordance with the provisions of
this Agreement or otherwise), a successor General Partner shall be appointed by
a vote of a Majority-in-Interest of the Limited Partners.
ARTICLE 8
Dissolution, Liquidation and Winding-Up
8.1 Accounting. In the event of the dissolution, liquidation and
winding-up of the Partnership, a proper accounting shall be made of the Capital
Account of each holder of OP Units and of the Net Income or Net Loss of the
Partnership from the date of the last previous accounting to the date of
dissolution.
8.2 Distributions on Dissolution.
(a) In the event of the dissolution and liquidation of the
Partnership for any reason, the assets of the Partnership shall be liquidated
for distribution in the following rank and order:
(i) payment of creditors of the Partnership, including
creditors who are Partners or former Partners;
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(ii) establishment of reserves as provided by the
Liquidating Trustee to provide for contingent liabilities, if any;
(iii) to the holders of Class A OP Units, pro rata in
accordance with the holders' ownership of Class A OP Units, in an amount equal
to the excess, if any, of (A) the cumulative distributions under Section 8.2(a)
of the Realty Partnership Agreement for an equivalent number of RP Ordinary
Units from February 14, 1997 to the date on which a distribution under this
Section 8.2(a) is made, over (B) the sum of all prior distributions to the
holders of Class A OP Units pursuant to this Section 8.2(a)(iii);
(iv) to the holders of Class B OP Units, pro rata in
accordance with the holders' ownership of Class B OP Units, in an amount equal
to the excess, if any, of (A) the Class B Liquidation Preference Distribution,
over (B) the sum of all prior distributions to holders of Class B OP Units
pursuant to this Section 8.2(a)(iv);
(v) to the holders of Class B OP Units, pro rata in
accordance with the holders' ownership of Class B OP Units, in an amount equal
to the excess, if any, of (A) the total of all Class B Special Distributions
that have accrued as of the date of payment of such liquidating distribution,
less (B) the total of all previous distributions made to the holders of Class B
OP Units in respect of such Class B OP Special Distributions pursuant to Section
6.2(a) hereof and this Section 8.2(a)(v); and
(vi) to the holders of OP Units and the General Partner, in
accordance with their respective holdings of OP Units.
Whenever the Liquidating Trustee reasonably determines that any reserves
established pursuant to paragraph (ii) above are in excess of the reasonable
requirements of the Partnership, the amount determined to be excess shall be
distributed to the Partners in accordance with the provisions of this Section
8.2(a). No Partner or holder of OP Units shall be liable to any other Partner or
holder of OP Units for a deficit balance in its Capital Account.
(b) Notwithstanding the provisions of Section 8.2(a) hereof
which require liquidation of the assets of the Partnership, but subject to the
order of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidating Trustee determines that an immediate sale of part or
all of the Partnership's assets would be impractical or would cause undue loss
to the Partners, the Liquidating Trustee may, in its sole and absolute
discretion, defer for a reasonable time liquidation of any assets except those
necessary to satisfy liabilities of the Partnership (including to those Partners
which are creditors of the Partnership) and/or, with the Consent of the Limited
Partners, distribute to the Partners, in lieu of cash, as tenants in common and
in accordance with the provisions of Section 8.2(a) hereof, undivided interests
in such Partnership assets as the Liquidating Trustee deems not suitable for
liquidation. Any such distributions in kind shall be made only if, in the good
faith judgment of the Liquidating Trustee, such distributions in kind are in the
best interest of the Partners, and shall be subject to such conditions relating
to the disposition and management of such properties as the Liquidating Trustee
deems reasonable and equitable and to any agreements governing the operation of
such
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properties at such time. The Liquidating Trustee shall determine the fair market
value of any property distributed in kind using such reasonable method of
valuation as it may adopt.
8.3 Documentation of Liquidation. Upon the completion of the
dissolution and liquidation of the Partnership, the Partnership shall terminate
and the Liquidating Trustee shall have the authority to execute and record any
and all documents or instruments required to effect the dissolution, liquidation
and termination of the Partnership.
ARTICLE 9
Transfer
9.1 General Partner. The General Partner shall not withdraw from the
Partnership and shall not sell, assign, pledge, encumber or otherwise dispose of
all or any portion of its Partnership Interest or OP Units without the Consent
of the Limited Partners, which consent may be given or withheld in each Limited
Partner's sole and absolute discretion. Upon any transfer of a Partnership
Interest in accordance with the provisions of this Section 9.1, the transferee
General Partner shall become vested with the powers and rights of the transferor
General Partner, and shall be liable for all obligations and responsible for all
duties of the General Partner under this Agreement, once such transferee has
executed such instruments as may be necessary to effectuate such admission and
to confirm the agreement of such transferee to be bound by all the terms and
provisions of this Agreement with respect to the Partnership interest so
acquired. It shall be a condition to any transfer permitted hereunder that the
transferee assumes by express agreement (or pursuant to a statutory merger or
consolidation wherein all obligations and liabilities of the General Partner are
assumed by a successor trust or corporation by operation of law) all of the
obligations of the transferor General Partner under this Agreement with respect
to such transferred Partnership Interest and no such transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor General Partner are assumed by a successor trust
or corporation by operation of law) shall relieve the transferor General Partner
of its obligations under this Agreement without the Consent of the Limited
Partners. In connection with any such permitted transfer, the successor General
Partner shall be deemed admitted as such immediately prior to the effective time
of the transfer from the transferor General Partner and shall continue the
business of the Partnership without dissolution. If the General Partner
withdraws or retires from the Partnership, in violation of this Agreement or
otherwise, or dissolves, terminates or upon the Bankruptcy of the General
Partner, within ninety (90) days thereafter, at least a Majority-in-Interest of
the Limited Partners may elect to continue the Partnership business by selecting
a substitute General Partner, which substitute General Partner accepts such
election and agrees to serve as General Partner. Such successor General Partner
shall thereupon succeed to the rights and obligations of the General Partner as
provided in this Section 9.1.
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9.2 Transfers by Limited Partners.
(a) No Limited Partner shall have the right, directly or
indirectly, to transfer all or any part of his Partnership Interest or OP Units
to any Person without the prior written consent of the General Partner, which
consent may be given or withheld by the General Partner in its sole and absolute
discretion. The foregoing notwithstanding, the General Partner hereby grants the
consents described in this Section 9.2 to transfers of Partnership Interests
pursuant to an exercise of Rights, provided that any such transfer otherwise
complies with all of the other provisions of this Article 9 (including, but not
limited to, any additional consents required hereunder).
(b) It shall be a condition to any transfer by a Limited Partner
(other than a pledge, encumbrance, hypothecation or mortgage) otherwise
permitted hereunder that the transferee assume by operation of law or express
agreement all of the obligations of the transferor under this Agreement
(including, without limitation, under this Article 9) with respect to such
transferred Partnership Interest or OP Units and no such transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor are assumed by a successor corporation by
operation of law) shall relieve the transferor of its obligations under this
Agreement without the approval of the General Partner, in its reasonable
discretion (it being understood that a transferor shall be deemed relieved from
such obligations, without the necessity of any such approval, in respect of
Partnership Interests transferred to the General Partner or the Partnership
pursuant to an Exchange Rights Agreement). Upon such transfer, the transferee of
a Partnership Interest shall be admitted as a Limited Partner and shall succeed
to all of the rights of the transferor Limited Partner under this Agreement in
the place and stead of such transferor Limited Partner (which succession, in the
event of a pledge, may be entered into and become effective at the time of
foreclosure or other realization of such pledge). The foregoing notwithstanding,
a transferee of an OP Unit shall not be admitted as a substituted Limited
Partner unless the General Partner consents, which consent may be given or
withheld by the General Partner in its sole and absolute discretion. Any
transferee, whether or not admitted as a substituted Limited Partner, shall
succeed to the obligations of the transferor hereunder (unless such transfer is
a pledge, encumbrance, hypothecation or mortgage or except as otherwise provided
herein).
(c) In addition to any other restrictions on transfer provided
herein, no Partnership Interest or OP Units shall be transferable by a Limited
Partner unless the transferor gives written notice of the proposed transfer
which notice shall state to the best of its knowledge that such transfer will
not violate any of the restrictions set forth in Section 9.3 hereof.
(d) Any permitted transferee under this Section 9.2 who is not
admitted as a Limited Partner in accordance with this Article 9 or a transferee
who only holds OP Units shall be considered an assignee for purposes of this
Agreement. An assignee shall be deemed to have had assigned to it, and shall be
entitled to receive, distributions from the Partnership and the share of Net
Income, Net Loss, and any other items of income, gain, loss, deduction and
credit of the Partnership and rights attributable to the Partnership Interests
assigned to such transferee, but shall not be deemed to be a holder of
Partnership Interests for any other purpose under this
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Agreement, and shall not be entitled to vote such Partnership Interests in any
matter presented to the Limited Partners for a vote. In the event any such
transferee desires to make a further assignment of any such Partnership
Interests, such transferee shall be subject to all the provisions of this
Article 9 to the same extent and in the same manner as any Limited Partner
desiring to make an assignment of Partnership Interests.
(e) The Limited Partners acknowledge that neither the
Partnership Interests nor the OP Units have been registered under any federal or
state securities laws and, as a result thereof, they may not be sold or
otherwise transferred, except in compliance with such laws. Notwithstanding
anything to the contrary contained in this Agreement, no Partnership Interest or
OP Units may be sold or otherwise transferred unless such transfer is exempt
from registration under any applicable securities laws or such transfer is
registered under such laws, it being acknowledged that the Partnership has no
obligation to take any action which would cause any such Partnership Interests
or OP Units to be registered.
9.3 Certain Restrictions on Transfer. In addition to any other
restrictions on transfer herein contained, except with the consent of the
General Partner, in no event may any transfer of a Partnership Interest or OP
Units by any Person be made (a) to any person or Entity that lacks the legal
right, power or capacity to own a Partnership Interest or OP Units; (b) in the
event such transfer would be substantially likely to cause SLT to cease to
comply with the REIT Requirements; (c) if such transfer would be substantially
likely to cause a termination of the Partnership for federal income tax
purposes; (d) if such transfer would be substantially likely to, in the opinion
of counsel to the Partnership, cause the Partnership to cease to be classified
as a Partnership for federal income tax purposes; (e) if such transfer would be
substantially likely to result in the Partnership being treated as a "publicly
traded partnership" or is effectuated through an "established securities market"
or a "secondary market (or the substantial equivalent thereof)" within the
meaning of Section 7704 of the Code and the Regulations thereunder; (f) in
violation of the Hart-Scott-Rodino Antitrust Improvements Act of 1976; (g) if
the General Partner reasonably believes that such transfer may (i) cause any
portion or all of the assets of the Partnership to be deemed pursuant to United
States Department of Labor Regulation Section 2510.3-101 or otherwise pursuant
to ERISA or the Code to be for any purpose of ERISA or Section 4975 of the Code
assets of any Restricted Entity, or (ii) cause a "prohibited transaction" (as
defined in Section 4975(c) of the Code or within the meaning of Section 406 of
ERISA) to occur, or (iii) cause the Partnership to become with respect to any
Restricted Entity a "party in interest" (as defined in Section 3(14) of ERISA)
or a "disqualified person" (as defined in Section 4975(e) of the Code) or (iv)
cause the Partnership to be jointly and severally liable for any obligation
arising under ERISA or the Code with respect to any "employee benefit plan" as
defined in and subject to ERISA or any "plan" as defined in Section 4975 of the
Code; or (h) if the intended transferee is a Restricted Entity. Any purported
transfer described in this Section 9.3 shall be void ab initio.
9.4 Effective Dates of Transfers.
(a) Transfers pursuant to this Article 9 may be made on any day,
but for purposes of this Agreement, the effective date of any such transfer
shall be (i) the first day of the month in which such transfer occurred if such
transfer occurred on or prior to the fifteenth
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calendar day of a month, or (ii) the first day of the month immediately
following the month in which such transfer occurred, if such transfer occurred
after the fifteenth calendar day of a month, or such other date determined by
the General Partner pursuant to such convention as may be administratively
feasible and consistent with applicable law.
(b) If any Partnership Interest or OP Unit is transferred or
assigned in compliance with the provisions of this Article 9, on any day other
than the first day of a calendar year, then Net Income, Net Loss, each item
thereof and all other items attributable to such Partnership Interest or OP Unit
for such year shall be allocated to the transferor, and, in the case of a
transfer or assignment other than a redemption, to the transferee, by taking
into account their varying interests during such year in accordance with Section
706(d) of the Code, using any method permitted thereunder. All distributions
pursuant to Section 6.2 hereof attributable to such transferred Partnership
Interests or OP Units (i) with respect to which the Partnership Record Date is
before the effective date of such transfer (other than a pledge, encumbrance,
hypothecation or mortgage) shall be made to the transferor, and (ii) with
respect to any Partnership Record Date after the effective date of such transfer
(other than a pledge, encumbrance, hypothecation or mortgage) shall be paid to
the transferee.
9.5 Transfer.
(a) The term "transfer," when used in this Article 9 with
respect to a Partnership Interest, shall be deemed to refer to a transaction by
which a Person purports to assign its Partnership Interest or any portion
thereof (including OP Units) to another Person, and includes a sale, assignment,
gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other
disposition by law or otherwise.
(b) No Partnership Interest or OP Unit shall be transferred, in
whole or in part, except in accordance with the terms and conditions set forth
in this Article 9. Any transfer or purported transfer of a Partnership Interest
not made in accordance with this Article 9 shall be null and void.
9.6 Nevada Gaming Control Act.
(a) Notwithstanding anything to the contrary expressed or
implied in this Agreement, the sale, assignment, transfer, pledge or other
disposition of any interest in the Partnership is void unless approved in
advance by the Commission. If at any time the Commission finds that an
individual owner of any interest in the Partnership is unsuitable to hold that
interest, the Commission shall immediately notify the Partnership of that fact.
The Partnership shall, within ten (10) days from the date that it receives the
notice from the Commission, return to the unsuitable owner the amount of his
capital account as reflected on the books of the Partnership. Beginning on the
date when the Commission serves notice of a determination of unsuitability,
pursuant to the preceding sentence, on the Partnership, it is unlawful for the
unsuitable owner: (i) to receive any share of the profits or distributions of
any cash or other property other than a return of capital as described above;
(ii) to exercise,
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directly or through any trust or nominee, any voting right conferred by such
interest; or (iii) to receive any remuneration in any form from the Partnership
for services rendered or otherwise.
(b) Any Limited Partner granted a delayed licensing by the
Commission which Limited Partner is later found unsuitable by the Commission
shall return all evidence of any ownership in the Partnership to the
Partnership, at which time the Partnership shall refund to the unsuitable
Limited Partner no more than the amount that such Limited Partner paid for his
ownership interest in the Partnership, and the unsuitable Limited Partner shall
no longer have any direct or indirect interest in the Partnership.
(c) This Section 9.6 shall apply only if the Partnership
applies for and obtains a Nevada state gaming license and only while such
license is in effect. No such license shall be applied for or obtained by the
Partnership without the Consent of the Limited Partners.
ARTICLE 10
Rights and Obligations of the Limited Partners
10.1 No Participation in Management. No Limited Partner, in its
capacity as such, shall take part in the management of the Partnership's
business, transact any business in the Partnership's name or have the power to
sign documents for or otherwise bind the Partnership. Any rights expressly
granted to the Limited Partners in this Agreement shall not be deemed to be
rights relating to the management of the Partnership's business.
10.2 Bankruptcy of a Limited Partner. The Bankruptcy of any Limited
Partner shall not cause a dissolution of the Partnership, but the rights of such
Limited Partner to share in the Net Profits or Net Losses of the Partnership and
to receive distributions of Partnership funds shall, on the happening of such
event, devolve on its successors or assigns, subject to the terms and conditions
of this Agreement, and the Partnership shall continue as a limited partnership.
In no event, however, shall such assignee(s) become a substituted Limited
Partner except in accordance with Article 9 hereof.
10.3 No Withdrawal. No Limited Partner may withdraw from the
Partnership without the prior written consent of the General Partner, other than
as provided in Article 9 hereof.
10.4 Conflicts. The Partners recognize that the Limited Partners and
their Affiliates have or may have other business interests, activities and
investments, some of which may be in conflict or competition with the business
of the Partnership, and that such Persons are entitled to carry on such other
business interests, activities and investments. In deciding whether to take any
actions in such capacity, such Limited Partners and their Affiliates may, but
shall be under no obligation to, consider the separate interests of the
Partnership and shall have no fiduciary obligations to the Partnership and shall
not be liable for monetary damages for losses
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sustained, liabilities incurred or benefits not derived by the other Partners in
connection with such actions except for damages for losses sustained or
liabilities incurred which result from a Limited Partner breaching a
representation, warranty or covenant hereunder or to the extent provided in the
Formation Agreement; nor shall the Partnership or the General Partner be under
any obligation to consider the separate interests of the Limited Partners and
their Affiliates in such capacity or have any fiduciary obligations to the
Limited Partners and their Affiliates in such capacity or be liable for monetary
damages for losses sustained, liabilities incurred or benefits not derived by
the Limited Partners and their Affiliates in such capacity arising from actions
or omissions taken by the Partnership. The Limited Partners and their Affiliates
may engage in or possess an interest in any other business or venture of any
kind, independently or with others, on their own behalf or on behalf of other
entities with which they are affiliated or associated, and such persons may
engage in any activities, whether or not competitive with the Partnership,
without any obligation to offer any interest in such activities to the
Partnership or to any Partner. Neither the Partnership nor any Partner shall
have any right, by virtue of this Agreement, in or to such activities, or the
income or profits derived therefrom, and the pursuit of such activities, even if
competitive with the business of the Partnership, shall not be deemed wrongful
or improper. Notwithstanding the foregoing, the provisions of this Section 10.4
shall not negate or impair any other written agreement between one or more of
the Limited Partners and the General Partner or the Partnership (including
Section 6.6 of the Formation Agreement) or any duties which a Limited Partner
may have in such Limited Partner's capacity as an officer or director of the
General Partner.
10.5 Provision of Information.
(a) With respect to any information required to be provided to
the Limited Partners pursuant to Section 17-305 (or any successor thereto) of
the Act: (i) the cost of preparing or providing any such information (including,
without limitation, fees paid to any person or entity in connection therewith)
shall be paid by the requesting Partner and in no event shall such information
be required to be given to the requesting Partner until such payment has been
made to the Partnership; (ii) in no event shall any financial statements of the
Partnership be required to be provided except for such statements as have
already been prepared or are otherwise required to be provided to the Limited
Partners under this Agreement and in no event shall any statements which have
been prepared be required to be audited, reviewed or otherwise examined by a
certified public accountant, if the statements are not otherwise required to be
so audited, reviewed or examined pursuant to the provisions of this Agreement;
and (iii) in no event shall such information be required to be furnished until
forty-five (45) days after such request and unless the information is already in
the possession of the Partnership.
(b) In addition to other rights provided by this Agreement or
by the Act, each Limited Partner shall have the right, for a purpose reasonably
related to such Limited Partner's interest as a limited partner in the
Partnership, upon written demand with a statement of the purpose of such demand
and at such Limited Partner's own expense (excluding copying and administrative
expenses of the General Partner):
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(i) to obtain a copy of the most recent annual and
quarterly reports and current reports on Form 8-K filed with the SEC by the
General Partner pursuant to the Securities Exchange Act of 1934;
(ii) to obtain a copy of the Partnership's federal, state
and local income tax returns for each fiscal year of the Partnership;
(iii) to obtain a current list of the name and last known
business, residence or mailing address of each Partner; and
(iv) to obtain a copy of this Agreement and the
Certificate, together with executed copies of all powers of attorney pursuant to
which this Agreement and the Certificate have been executed.
(c) Notwithstanding any other provision of this Section 10.5,
the General Partner may keep confidential from the Limited Partners, for such
period of time as the General Partner determines in its sole and absolute
discretion to be reasonable, any information that is not material to the Limited
Partners and that (i) the General Partner reasonably believes to be in the
nature of trade secrets or other information the disclosure of which the General
Partner in good faith believes is not in the best interests of the Partnership
or could damage the Partnership or its business or (ii) the Partnership is
required by law or by agreements with an unaffiliated third party to keep
confidential.
10.6 Power of Attorney.
(a) Each Limited Partner constitutes and appoints the General
Partner, any Liquidating Trustee and authorized officers and attorneys-in-fact
of each, and each of those acting singly, in each case with full power of
substitution, as its true and lawful agent and attorney-in-fact, with full power
and authority in its name, place and stead to: execute, swear to, acknowledge,
deliver, file and record in the appropriate public offices (i) all certificates,
documents and other instruments (including, without limitation, this Agreement
and the Certificate and all amendments or restatements thereof) that the General
Partner or the Liquidating Trustee deems appropriate or necessary to form,
qualify or continue the existence or qualification of the Partnership as a
limited partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware and in all other jurisdictions in which the
Partnership may conduct business or own property; (ii) all instruments that the
General Partner deems appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with its terms;
(iii) all conveyances and other instruments or documents that the General
Partner deems appropriate or necessary to reflect the dissolution and
liquidation of the Partnership pursuant to the terms of this Agreement,
including, without limitation, a certificate of cancellation; and (iv) all
instruments relating to the admission, withdrawal, removal or substitution of
any Partner pursuant to the provisions of this Agreement or the Capital
Contribution of any Partner.
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(b) The foregoing power of attorney is irrevocable and a power
coupled with an interest, in recognition of the fact that each of the Limited
Partners will be relying upon the power of the General Partner to act as
contemplated by this Agreement in any filing or other action by it on behalf of
the Partnership, and it shall survive the death or incompetency of a Limited
Partner to the effect and extent permitted by law, subsequent incapacity of any
Limited Partner and the transfer of all or any portion of such Partner's
Partnership Interests and shall extend to such Limited Partner's heirs,
successors, assigns and personal representatives.
(c) Nothing contained in this Section 10.6 shall be construed
as authorizing the General Partner to amend this Agreement except in accordance
with Article 11 hereof.
10.7 Ownership of Starwood Units.
(a) Each Limited Partner and holder of OP Units hereby agrees
to provide the General Partner within fifteen (15) days of any written request
therefor, a statement, to the best of its knowledge, describing the number of
Starwood Units actually or constructively owned by such Limited Partner or
holder of OP Units and all direct and indirect owners of such Limited Partner or
holder for purposes of the REIT Requirements as determined under 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.
(b) Each Limited Partner and holder of OP Units, except to the
extent that the General Partner provides prior written consent, hereby
represents, warrants and covenants that (A) it is not and will not become a
Restricted Entity, (B) no "prohibited transaction" (as defined in Section
4975(c) of the Code or within the meaning of Section 406 of ERISA) has occurred
or will occur that would not have occurred or occur if the Limited Partner or
holder of OP Units and its Affiliates were not Limited Partners and were not
holders of OP Units, (C) the Partnership has not become and will not become with
respect to any Restricted Entity a "party in interest" (as defined in Section
3(14) of ERISA) or a "disqualified person" (as defined in Section 4975(e) of the
Code) which the Partnership would not have become or be if the Limited Partner
or holder of OP Units and its Affiliates were not Limited Partners and were not
holders of OP Units, and (D) the Partnership has not and will not become jointly
and severally liable for any obligations arising under ERISA or the Code with
respect to any "employee benefit plan" as defined in and subject to ERISA or any
"plan" as defined in the Code for which the Partnership has not become or would
not be liable if the Limited Partner or holder of OP Units and its Affiliate
were not Limited Partners and were not holders of OP Units.
10.8 Waiver of Fiduciary Duty. Each Limited Partner and holder of OP
Units hereby waives, to the maximum extent permitted under law, any and all
fiduciary duties of the General Partner to each, all or any combination of them
and hereby agrees that the General Partner may, but is under no obligation to,
take their interests into account in performing or refraining from performing
any act permitted under this Agreement.
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ARTICLE 11
Amendment of Partnership Agreement, Meetings
11.1 Amendments.
(a) This Agreement may not be amended unless such amendment is
approved by the General Partner with the Consent of the Limited Partners, except
as provided below in this Section 11.1.
(b) Notwithstanding Section 11.1(a) hereof, the General Partner
shall have the power, without the Consent of the Limited Partners but after five
(5) Business Days notice to the Limited Partners, to amend this Agreement as may
be required to facilitate or implement any of the following purposes:
(i) to add to the obligations of the General Partner for
the benefit of the Limited Partners;
(ii) to reflect the admission, substitution, termination or
withdrawal of Partners after the date hereof in accordance with Section 4.1(d)
or Article 9 of this Agreement, provided that the General Partner shall not be
required to give the notice referred to in the first paragraph of this
subsection (b) in respect of the transactions described in this Paragraph (ii);
(iii) to set forth the rights, powers, duties, and
preferences of the holders of any additional Partnership Interests issued
pursuant to Article 4 hereof;
(iv) to reflect a change that is of an inconsequential
nature and does not materially adversely affect the Limited Partners, or to cure
any ambiguity, correct or supplement any provision of this Agreement not
inconsistent with law or with other provisions, or make other changes with
respect to matters arising under this Agreement that will not be inconsistent
with law or with the provisions of this Agreement;
(v) to satisfy any requirements, conditions, or guidelines
contained in any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law;
(vi) to prevent all or any portion of the assets of the
Partnership from being deemed pursuant to United States Department of Labor
Regulation Section 2510.3- 101 or otherwise pursuant to ERISA or the Code to be,
for any purpose of ERISA or Section 4975 of the Code, assets of any Restricted
Entity;
(vii) to prevent the Partnership from being characterized
as a "publicly traded partnership" pursuant to Section 7704 of the Code and
Regulations;
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(viii) to enable SLT to satisfy the REIT Requirements; and
(ix) to maintain the Partnership's characterization as a
partnership for tax purposes.
(c) Notwithstanding Sections 11.1(a) and 11.1(b) hereof, this
Agreement shall not be amended without the prior written consent of each Partner
adversely affected if such amendment would (i) convert a Limited Partner's
interest in the Partnership into a general partner's interest, (ii) modify the
limited liability of a Limited Partner, (iii) alter rights of the Partners to
receive allocations and distributions pursuant to Article 6 or Section 8.2
hereof (except as permitted pursuant to Article 4 and Sections 11.1(b)(iii) and
11.1(d) hereof), (iv) alter or modify the Rights set forth in an Exchange Rights
Agreement or a Registration Rights Agreement except in compliance therewith, (v)
except in furtherance of Sections 11.1(b)(vii), (viii) or (ix) hereof, alter
such Partner's rights to transfer its Partnership Interest; (vi) amend Sections
7.7, 7.8 or 10.7 hereof or (vii) amend Sections 11.1(c) or 11.1(d) hereof.
(d) Notwithstanding Section 11.1(c) hereof and subject to (but
not in limitation of) the rights granted to the General Partner pursuant to
Article 4 hereof and this Article 11, this Agreement may be amended to (i) alter
the rights of any or all of the Partners to receive allocations and
distributions pursuant to Article 6 or Section 8.2 hereof or (ii) alter the
rights of any or all of the Partners to transfer their Partnership Interests if
such amendment is approved by the prior written consent of a majority of each
class or group of Partnership Interests that is treated in a uniform or pro rata
basis by such amendment.
11.2 Meetings of the Partners; Notices to Partners.
(a) Meetings of Partners may be called by the General Partner
or by Limited Partners holding at least 1% of the Percentage Interests to act on
any matter specified herein or in the Act to be voted on or consented to by the
Partners. The call shall state the nature of the business to be transacted.
Notice of any such meeting shall be given to all Partners not less than seven
(7) Business Days prior to the date of such meeting. Partners may vote in person
or by proxy at such meeting. Whenever the vote or Consent of the Limited
Partners is permitted or required under this Agreement, such vote or consent may
be given at a meeting of Limited Partners or may be given in accordance with the
procedure prescribed in Section 11.2(b) hereof.
(b) Any action required or permitted to be taken at a meeting
of the Partners may be taken without a meeting if a written consent setting
forth the action so taken is signed by the General Partner and such percentage
or number of the Limited Partners as is expressly required by this Agreement.
Such consent may be in one instrument or in several instruments, and shall have
the same force and effect as a vote of the Partners. Such consent shall be filed
with the General Partner and copies thereof delivered to all Partners. An action
so taken shall be deemed to have been taken at a meeting held on the effective
date so certified.
(c) Each Limited Partner may authorize any Person or Persons to
act for him by proxy on all matters in which a Limited Partner is entitled to
participate, including
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waiving notice of any meeting, or voting or participating at a meeting. Every
proxy must be signed by the Limited Partner or his attorney-in-fact. No proxy
shall be valid after the expiration of eleven (11) months from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the Limited Partner executing it. No such proxy and no such
revocation shall be effective unless a copy thereof has been delivered to the
General Partner.
(d) Whenever the Consent of the Limited Partners is required
hereunder, the General Partner shall provide a notice to each Partner who is a
Limited Partner on the date the notice is given setting forth the matter(s) as
to which it proposes to seek such consent at least five (5) Business Days in
advance of the date upon which such consent is sought.
11.3 Mergers. Notwithstanding Section 7.1(a)(xv) hereof, the General
Partner may not authorize or cause a merger between the Partnership and another
Entity (a) if the Partnership is not the surviving Entity in the merger, or (b)
without the prior written consent of the Limited Partners whose consent would
have been required pursuant to Section 11.1(c) and (d) hereof if such merger had
been an amendment to this Agreement or (c) without the Consent of the Limited
Partners if such merger would otherwise have a material adverse impact on the
rights, duties or obligations of the Limited Partners
ARTICLE 12
General Provisions
12.1 No Liability of Directors and Others. Notwithstanding anything
to the contrary contained herein, no recourse shall be had by the Partnership or
any Partner against any trustee, director, shareholder, officer, employee, agent
or attorney of the General Partner for any act or omission of the General
Partner or any obligation or liability of the General Partner under this
Agreement, and none of the foregoing shall have any personal liability for or
with respect to any of the foregoing; provided that the foregoing shall not
relieve any trustee, officer or director of the General Partner of any liability
in his capacity as such.
12.2 Notices. All notices, offers or other communications required
or permitted to be given pursuant to this Agreement shall be in writing and may
be personally served, sent by United States mail, or sent via facsimile. A
notice shall be deemed to have been given when delivered in person or, if sent
by United States mail, three business days after deposit in United States mail,
registered or certified, postage prepaid, and properly addressed, by or to the
appropriate party, or, if sent via facsimile, upon receipt by the sending party
of verification of transmission. For purposes of this Section 12.2, the
addresses of the parties hereto shall be as set forth on Exhibit B hereto. The
address of any party hereto may be changed by a notice in writing given in
accordance with the provisions hereof.
12.3 Controlling Law. This Agreement and all questions relating to
its validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning
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limitations of actions), shall be governed by and construed in accordance with
the laws of the State of Delaware, notwithstanding any conflict-of-laws
doctrines of such state or other jurisdiction to the contrary. Each of the
parties hereto irrevocably submits and consents to the jurisdiction of the
United States District Court for the Southern District of New York in connection
with any action or proceeding arising out of or relating to this Agreement and
irrevocably waives any immunity from jurisdiction thereof and any claim of
proper venue, forum non conveniens or any similar basis to which it might
otherwise be entitled in any such action or proceeding.
12.4 Execution of Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
12.5 Severability. The provisions of this Agreement are independent
of and separable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole or in part.
12.6 Entire Agreement. This Agreement (together with the Exhibits
hereto) and the Formation Agreement contain the entire understanding among the
parties hereto with respect to the subject matter hereof, and supersede all
prior and contemporaneous agreements and understandings, inducements or
conditions, express or implied, oral or written, except as herein contained. The
parties hereto intend that this Agreement be treated as a separate and distinct
agreement and as not being part of any other agreement (other than the Formation
Agreement), arrangement, partnership or joint venture. The express terms hereof
control and supersede any course of performance and/or usage of the trade
inconsistent with any of the terms hereof. This Agreement may not be modified or
amended other than by an agreement in writing.
12.7 Paragraph Headings. The paragraph headings in this Agreement
are for convenience and they form no part of this Agreement and shall not affect
its interpretation.
12.8 Gender, Etc. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context indicates is appropriate. The term "including" shall mean
"including, but not limited to."
12.9 Number of Days. In computing the number of days (other than
Business Days) for purposes of this Agreement, all days shall be counted,
including Saturdays, Sundays and holidays; provided, however, that if the final
day of any time period falls on a Saturday, Sunday or holiday on which national
banks are or may elect to be closed, then the final day shall be deemed to be
the next day which is not a Saturday, Sunday or such holiday.
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12.10 Partners Not Agents. Nothing contained herein shall be
construed to constitute any Partner the agent of another Partner, except as
specifically provided herein, or in any manner to limit the Limited Partners in
the carrying on of their own respective businesses or activities.
12.11 Assurances. Each of the Partners shall hereafter execute and
deliver such further instruments and do such further acts and things as may be
reasonably required or useful to carry out the intent and purpose of this
Agreement and as are not inconsistent with the terms hereof.
12.12 Waiver of Partition. Each Partner hereby waives any right such
Partner may have to partition its interest in the Partnership or any property of
the Partnership.
-55-
<PAGE> 61
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or caused this Agreement to be executed on their behalf as of the date
first above written.
GENERAL PARTNER:
STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., a Maryland corporation
By: /s/ Thomas C. Janson, Jr.
-------------------------------------------
Name: Thomas C. Janson, Jr.
Title: Executive Vice President and General
Counsel
LIMITED PARTNERS:
STARWOOD HOTEL INVESTORS II, L.P.
By: STARWOOD CAPITAL GROUP I, L.P.
By: BSS CAPITAL PARTNERS, L.P.,
General Partner
By: STERNLICHT HOLDINGS II, Inc.
General Partner
By: /s/ Madison F. Grose
-------------------------------------------
Name: Madison F. Grose
Title:
FIREBIRD CONSOLIDATED PARTNERS, L.P.
By: /s/ Madison F. Grose
-------------------------------------------
Name: Madison F. Grose
Title: Authorized by General Partner
-56-
<PAGE> 62
APPOLLO REAL ESTATE INVESTMENT
FUND, L.P.
By: APPOLLO REAL ESTATE ADVISORS, L.P.
By: APPOLLO REAL ESTATE MANAGEMENT,
INC.
By: /s/ Ronald J. Solotrub
-------------------------------------------
Name: Ronald J. Solotrub
Title: Vice President and Controller
PHILADELPHIA HSR LIMITED PARTNERSHIP
By: /s/ Edwin Sidman
-------------------------------------------
Name: Edwin Sidman
Title: General Partner
STARWOOD OPPORTUNITY FUND II, L.P.
By: STARWOOD CAPITAL GROUP I, L.P.
General Partner
By: BSS CAPITAL PARTNERS, L.P.,
General Partner
By: STERNLICHT HOLDINGS II, Inc.
General Partner
By: /s/ Madison F. Grose
-------------------------------------------
Name: Madison F. Grose
Title:
-----------------------------------------------
EDWARD J. ROHLING
-57-
<PAGE> 63
ZIFF INVESTORS PARTNERSHIP, L.P. II
By: /s/ Mark A. Beaudoin
-------------------------------------------
Name: Mark A. Beaudoin
Title: Treasurer
MONTROSE CORPORATION
By:
-------------------------------------------
Name:
Title:
HARVEYWOOD HOTEL INVESTORS, L.P.
By: /s/ Madison F. Grose
-------------------------------------------
Name: Madison F. Grose
Title: Authorized by General Partner
THE HERMITAGE, L.P.
By: HERMITAGE OF NASHVILLE, INC.
General Partner
By:
-------------------------------------------
Name:
Title:
BRAINARD HOLDINGS, INC.
By: /s/ Robert K. Hamshaw
-------------------------------------------
Name: Robert K. Hamshaw
Title: Secretary
/s/ Barry S. Sternlicht
-----------------------------------------------
BARRY S. STERNLICHT
-58-
<PAGE> 64
THE BARRY S. STERNLICHT FAMILY SPRAY
TRUST I
By: /s/ Barry S. Sternlicht
-------------------------------------------
Name: Barry S. Sternlicht
Title: Trustee
THE BARRY S. STERNLICHT FAMILY SPRAY
TRUST II
By: /s/ Barry S. Sternlicht
-------------------------------------------
Name: Barry S. Sternlicht
Title: Trustee
THE BARRY S. STERNLICHT FAMILY SPRAY
TRUST III
By: /s/ Barry S. Sternlicht
-------------------------------------------
Name: Barry S. Sternlicht
Title: Trustee
/s/ Jack Nash
-----------------------------------------------
JACK NASH
THE NASH FAMILY PARTNERSHIP
By: /s/ Joshua Nash
-------------------------------------------
Name: Joshua Nash
Title: General Partner
/s/ Madison F. Grose
-----------------------------------------------
MADISON F. GROSE
-59-
<PAGE> 65
THE MADISON F. GROSE IRREVOCABLE
INSURANCE TRUST
By:
-------------------------------------------
Name:
Title: Trustee
-----------------------------------------------
MAX C. CHAPMAN
/s/ Merrick R. Kleeman
-----------------------------------------------
MERRICK R. KLEEMAN
/s/ James R. Gates
-----------------------------------------------
JAMES R. GATES
-----------------------------------------------
CARLY SIMON
/s/ Steven R. Goldman
-----------------------------------------------
STEVEN R. GOLDMAN
/s/ Alan Schwartz
-----------------------------------------------
ALAN SCHWARTZ
-----------------------------------------------
JAY SUGARMAN
/s/ John Z. Kukral
-----------------------------------------------
JOHN Z. KUKRAL
/s/ Jerome C. Silvey
-----------------------------------------------
JEROME C. SILVEY
-60-
<PAGE> 66
-----------------------------------------------
MICHAEL MUELLER
/s/ James G. Babb, III
-----------------------------------------------
JAMES G. BABB, III
LAMBSTER PARTNERS LIMITED
PARTNERSHIP
By: STER, INC.
General Partner
By: /s/ Neil G. Bluhm
-------------------------------------------
Name: Neil G. Bluhm
Title: President
-----------------------------------------------
JEFF DISHNER
-----------------------------------------------
GEOFFREY BEER
/s/ Lowell D. Kraff
-----------------------------------------------
LOWELL D. KRAFF
-----------------------------------------------
STEPHEN FIORE
/s/ Jennifer Albero
-----------------------------------------------
JENNIFER ALBERO
/s/ James A. Kleeman, M.D., P.C.
-----------------------------------------------
JAMES A. KLEEMAN, M.D., PC
-----------------------------------------------
ELLIS F. RINALDI
-61-
<PAGE> 67
-----------------------------------------------
J. PETER PAGANELLI
/s/ John F. Couture
-----------------------------------------------
JOHN F. COUTURE
/s/ James Oldham
-----------------------------------------------
JAMES OLDHAM
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA, on behalf of Prudential Property
Investment Separate Account II
By: /s/ Roger S. Pratt
-------------------------------------------
Name: Roger S. Pratt
Title: Managing Director
GARY MENDELL FAMILY PARTNERSHIP
By:
-------------------------------------------
Name:
Title:
-----------------------------------------------
GARY MENDELL
-----------------------------------------------
ELLEN-JO MENDELL
-----------------------------------------------
STEPHEN MENDELL
/s/ Murray Dow II
-----------------------------------------------
MURRAY DOW II
-62-
<PAGE> 68
WESTPORT HOSPITALITY, INC.
By:
-------------------------------------------
Name:
Title:
ZAPCO HOLDINGS, INC.
By: /s/ [illegible]
-------------------------------------------
Name:
Title:
ZAPCO HOLDINGS, INC. DEFERRED
COMPENSATION PLAN TRUST
By: /s/ Nancy S. Heinrich
-------------------------------------------
Name: Nancy S. Heinrich
Title: Trustee
/s/ Orna L. Shulman
-----------------------------------------------
ORNA L. SHULMAN
/s/ Arthur Green
-----------------------------------------------
ARTHUR GREEN
-----------------------------------------------
MICHAEL HALL
/s/ Mark Rosinsky
-----------------------------------------------
MARK ROSINSKY
/s/ Randi Rosinsky
-----------------------------------------------
RANDI ROSINSKY
-63-
<PAGE> 69
/s/ John Daily
-----------------------------------------------
JOHN DAILY
/s/ Felix Cacciato
-----------------------------------------------
FELIX CACCIATO
/s/ Thomas Clearwater
-----------------------------------------------
THOMAS CLEARWATER
-----------------------------------------------
HARVEY MOORE
-----------------------------------------------
TRACY DRISCOLL
GEOFFREY T. BOISI REVOCABLE TRUST
By:
-------------------------------------------
Name:
Title:
/s/ Daniel Stern
-----------------------------------------------
DANIEL STERN
WILLIAM A.M. BURDEN & CO., L.P.
By: BURDEN BROTHERS, INC.,
-------------------------------------------
General Partner
By: /s/ Jeffrey A. Weber
-------------------------------------------
Name: Jeffrey A. Weber
Title: President and CEO
JAW HOLDINGS I, L.L.C.
By: /s/ Jeffrey A. Weber
-------------------------------------------
Name: Jeffrey A. Weber
Title: Member
-64-
<PAGE> 70
WHWE L.L.C.
By: WHITEHALL STREET REAL ESTATE
LIMITED PARTNERSHIP V,
Member and Manager
By: /s/ Stuart M. Rothenberg
-------------------------------------------
Name: Stuart M. Rothenberg
Title: Vice President
WOODSTAR INVESTOR PARTNERSHIP
By: MARSWOOD INVESTORS, L.P.,
General Partner
By: STARWOOD CAPITAL GROUP, L.P.,
General Partner
By: BSS CAPITAL PARTNERS, L.P.,
General Partner
By: STERNLICHT HOLDINGS II, INC.,
General Partner
By: Madison F. Grose
-------------------------------------------
Name: Madison F. Grose
Title:
NOMURA ASSET CAPITAL CORPORATION
By:
-------------------------------------------
Name:
Title:
-65-
<PAGE> 71
EXHIBIT A
LIST OF PARTNERS, PERCENTAGE INTERESTS AND OP UNITS
[To Be Provided]
-66-
<PAGE> 72
EXHIBIT A-1
LIST OF CLASS A LIMITED PARTNERS, PERCENTAGE INTERESTS AND CLASS A OP UNITS
[To Be Provided]
-67-
<PAGE> 73
EXHIBIT A-2
LIST OF CLASS B LIMITED PARTNERS, PERCENTAGE INTERESTS AND CLASS B OP UNITS
[To Be Provided]
-68-
<PAGE> 74
EXHIBIT B
NOTICE ADDRESSES OF PARTNERS
[To Be Provided]
-69-
<PAGE> 1
EXHIBIT 10.9
[Starwood Logo]
PERSONAL & CONFIDENTIAL
January 12, 1999
Mr. Thomas C. Janson, Jr.
1736 Michael Lane
Pacific Palisades, CA 90272
Dear Tom:
We are very pleased to extend this offer of Executive Vice President, General
Counsel for Starwood Hotels & Resorts Worldwide, Inc. ("Starwood"). The
following will outline the specifics of your offer of employment:
START DATE:
Your employment with Starwood will begin on October 1, 1998.
POSITION:
You shall be the Executive Vice President, General Counsel and shall perform
such duties and services consistent with such position as may be assigned to
you. Further, you shall devote your full time and attention to the affairs of
the Company and to your duties as Executive Vice President, General Counsel.
Starwood recognizes that as a result of the professional obligations associated
with your previous position, it may be necessary from time to time to devote
some time to follow-up and transition issues to your former clients; provided
that such activities shall not materially interfere with the performance of your
duties.
BASE SALARY:
Your initial base salary, expressed in semi-monthly terms, will be $18,750 (on
an annualized basis equivalent to $450,000), and will be subject to the
appropriate withholdings for FICA, state and federal taxes, and Medicare.
BONUS:
You will be eligible to receive a performance bonus based upon achieving
specified performance criteria, which will be established and approved. The
target bonus shall be 75% to 100% of your base salary. The maximum bonus will be
defined in accordance with
<PAGE> 2
January 12, 1999
Page 2
the Company's new plan, which will be recommended and must be approved by the
Board of Directors. However, for 1998 you will be guaranteed a minimum bonus of
$150,000.
RETENTION BONUS:
You will be paid a retention bonus of $250,000, payable within your first 30
days of employment.
OPTIONS:
The Company will recommend to the Options Committee a grant of options for
100,000 Paired Shares for you in accordance with the Long Term Incentive Plan
(the "LTIP"), at an exercise price of $42.3125, which reflects the fair market
value of paired shares under the LTIP at the close of business on August 11,
1998. The options would vest in accordance with the provisions of the LTIP.
RESTRICTED STOCK:
You will be awarded 5,000 shares of restricted stock. These shares will vest 25%
on each of the first four (4) anniversaries of your start date.
EMPLOYEE BENEFITS:
You shall be eligible to participate in all employee benefit programs as are
generally available to other key executives of the Company. The effective date
of coverage on the Starwood medical and dental plans is the first of the month
following your first ninety days of employment. In addition, Starwood agrees to
reimburse you for the costs and expenses required to elect COBRA coverage for
the benefits provided by your previous employer for the first ninety days of
your employment. In the event that changes are made to any of the above benefit
plans, compensation and bonus programs, or standard operating procedures, the
changes will apply to you as they do other key executives of the company.
RELOCATION EXPENSES:
The Company will pay the reasonable, out-of-pocket costs of relocating your
household furnishings and family from Pacific Palisades, CA to the
Fairfield/Westchester County area according to the provisions of Starwood's
Group Move Relocation Policy; all relocation expenses will be grossed up. Upon
your move to the Fairfield/Westchester County area, the Company will make a
second mortgage home loan available to you in the amount of $500,000 which would
be due in five years or upon termination of employment for Cause (as defined
below). The loan would be non-interest bearing and will be secured by a second
mortgage on your home in Fairfield/Westchester County. Further details of
Starwood's Group Move policy are enclosed. To initiate the move process, please
contact Helen Azevedo at the Corporate Office.
TERMINATION/SEVERANCE:
The Company reserves the right to terminate your employment with or without
Cause at any time. In the event of an involuntary termination without Cause, you
shall receive, as your sole right, exclusive remedy and liquidated damages, a
one time termination payment
<PAGE> 3
January 12, 1999
Page 3
equal to twelve (12) months base salary. The Company will also continue to
provide medical benefits coverage during the 12-month period subsequent to the
termination of your employment.
Cause shall mean gross misconduct, which continues after written notice from the
Board of Directors or the Chief Executive Officer. A reduction in the duties or
responsibilities of your position or relocation of Starwood outside of the White
Plains or Greenwich metropolitan areas shall be considered a constructive
termination without Cause.
No severance shall be due in the event that you are terminated for Cause or in
the event that you leave the full-time employ of the Company voluntarily.
In the event of any employment-related disputes with respect to your employment
by the Company, you and the Company agree that the same shall be resolved
through binding arbitration in the jurisdiction of the Company's headquarters
and in accordance with the rules and procedures from time to time of the
American Arbitration Association.
This letter and the plans and policies referred to herein represents the
entirety of our agreement with respect to your employment and any prior
discussions or negotiations are hereby merged herein.
If this offer is acceptable to you, please sign this letter in the space
provided below and send it to my attention.
Very truly yours,
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
/s/ RICHARD NANULA
Richard Nanula
President & Chief Operating Officer
ACCEPTED AND AGREED TO:
/s/ Thomas C. Janson, Jr. January 12, 1999
- ------------------------------ --------------------
Thomas C. Janson, Jr. Date
<PAGE> 1
EXHIBIT 10.50
SIXTH AMENDMENT TO CREDIT AGREEMENT
SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
December 15, 1998, among STARWOOD HOTELS & RESORTS, a Maryland real estate
investment trust ("Starwood REIT"), SLT REALTY LIMITED PARTNERSHIP, a Delaware
limited partnership ("SLT RLP"), STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a
Maryland corporation (the "Corporation"), ITT CORPORATION, a Nevada corporation
("ITT" and, together with Starwood REIT, SLT RLP and the Corporation, the
"Borrowers"), the lenders from time to time party to the Credit Agreement
referred to below (the "Lenders"), BANKERS TRUST COMPANY and THE CHASE MANHATTAN
BANK, as Administrative Agents (in such capacity, the "Administrative Agents")
and LEHMAN COMMERCIAL PAPER INC. and BANK OF MONTREAL, as Syndication Agents (in
such capacity, the "Syndication Agents"). Unless otherwise defined herein, all
capitalized terms used herein shall have the respective meanings provided such
terms in the Credit Agreement referred to below.
W I T N E S S E T H:
WHEREAS, the Borrowers, the Lenders, the Administrative Agents and
the Syndication Agents are parties to a certain Credit Agreement, dated as of
February 23, 1998 (as amended, modified or supplemented to the date hereof, the
"Credit Agreement");
WHEREAS, certain Credit Parties have entered into (i) that certain
Third Amendment and Waiver (the "Westin Debt Amendment"), dated as of December
1, 1998, among Westin Hotels & Resorts Worldwide, Inc., W&S Lauderdale Corp.,
W&S Seattle Corp., W&S Atlanta Corp., W&S Denver Corp., W&S Hotel Holding Corp.,
Westin Hotel Company ("WHC"), certain subsidiaries of WHC, the lenders party to
the credit agreement referred to therein, BT Alex. Brown Incorporated and Chase
Securities, Inc., as Arranging Agents, and Bankers Trust Company and The Chase
Manhattan Bank, as Administrative Agents (collectively, the "Westin Lenders"),
amending the existing Credit Agreement dated as of December 2, 1997 (the "First
Westin Credit Agreement"), (ii) that certain loan agreement dated December 29,
1997 among WHWE L.L.C and the Westin Lenders (the "Second Westin Credit
Agreement") and (iii) that certain loan agreement dated December 29, 1997 among
Woodstar Investor Partnership and the Westin Lenders (the "Third Westin Credit
Agreement"; together with the First Westin Credit Agreement and the Second
Westin Credit Agreement, collectively, the "Westin Credit Agreements"), each
relating to certain Existing Indebtedness, and in connection with the Westin
Credit Agreements, the Parent Companies are requesting that the Lenders permit
certain Guarantors to be added as guarantors under each Starwood Guaranty (as
defined in each of the Westin Credit Agreements);
WHEREAS, the Corporation intends to sell a portion of the Capital
Stock of ITT held by the Corporation, consisting of up to but not in excess of
ten (10%) percent of the Capital
- 1 -
<PAGE> 2
Stock of ITT (having a value of approximately $200 to $400 Million) to SLT RLP
(the "Stock Sale"), and the Parent Companies are requesting the Lenders' consent
to the Stock Sale;
WHEREAS, the Parent Companies are requesting the Lenders' consent to
ITT assuming all or a portion of the Corporation's obligations under the
Intercompany Mortgage Note and are further requesting the Lenders' consent to
certain additional intercompany indebtedness;
WHEREAS, the Borrowers wish to request certain one time waivers from
certain restrictions set forth in certain sections of the Credit Agreement in
order to permit the Stock Sale, and certain other transactions described herein;
WHEREAS, the Borrowers wish to request the Lenders' consent to a
structuring of the Proposed Mexico Refinancing permitted under the Fourth
Amendment as a trust transaction more particularly described below; and
WHEREAS, the parties hereto wish to amend the Credit Agreement in
certain respects as herein provided;
NOW, THEREFORE, it is agreed:
I. Waivers, Amendments and Agreements with Respect to the Credit
Agreement
SECTION 1. Consent to Addition of Westin Guarantors. Notwithstanding
anything to the contrary contained in the Credit Agreement or the other Credit
Documents, but subject to the terms of this Amendment, the Lenders hereby
consent to the execution, delivery and assumption by each Guarantor that is not
presently a party to the Starwood Guaranty (as such term is defined in each of
the Westin Credit Agreements) of each Starwood Guaranty so that each such
Guarantor shall assume all of the obligations under such Starwood Guaranty. In
addition, from and after the date hereof, any new Guarantor added to the
Guaranty under the Credit Agreement shall be permitted to join in and assume all
of the obligations under each Starwood Guaranty.
SECTION 2. Section 8.17; Ownership of Certain Subsidiaries.
Effective as of the consummation of the Stock Sale, clause (iii) of Section 8.17
of the Credit Agreement shall be deemed amended and restated in its entirety to
read as follows:
"(iii) (A) the Corporation shall directly own at least ninety
percent (90%) of the equity interests in ITT and (B) SLT RLP shall
directly own all of the equity interests in ITT not owned by the
Corporation."
The Lenders hereby consent to the Stock Sale and agree that SLT RLP shall have
the right to pay the consideration for the Stock Sale by one or more of the
following methods (provided the total consideration shall equal the sales price
for the Stock Sale):
- 2 -
<PAGE> 3
(1) reducing the outstanding principal balance of the Intercompany
Mortgage Note by an amount equal to all or any portion of the consideration for
the Stock Sale (between $200 Million and $400 Million), if and to the extent the
Corporation continues to be the obligor on all or an equivalent portion of the
Intercompany Mortgage Note at the time of the Stock Sale, or
(2) issuing a new note payable to the Corporation in the amount of all or
a portion of the sales price for the Stock Sale; provided that the Borrowers
comply with the requirements of Section 9.05(viii) and the last paragraph of
Section 9.04 and deliver a Subordination Agreement substantially in the form of
Exhibit L to the Credit Agreement, or
(3) transferring certain personal property, including furniture, fixtures
and equipment, ("FF&E") having a value equal to all or a portion of the
consideration for the Stock Sale from SLT RLP or Starwood REIT to the
Corporation.
SECTION 3. Section 9.02 Consolidation, Merger, etc. Notwithstanding
anything to the contrary contained in Section 9.02 or elsewhere in the Credit
Agreement, (a) the Parent Companies and the Borrowers shall be permitted to
merge or consolidate any of the Preferred Stock Subsidiaries into other
Preferred Stock Subsidiaries, and (b) SLT RLP and Starwood REIT shall have the
right to transfer FF&E to the Corporation either as consideration for all or any
portion of the Stock Sale or as an intercompany loan to the Corporation under
the Intercompany Mortgage Note (provided all requirements set forth in the
Credit Agreement with respect to such additional intercompany debt are
satisfied), with any such intercompany loan deemed to be a loan of cash in an
amount equal to the fair market value (as agreed to by Starwood REIT and the
Corporation) of the FF&E so transferred.
SECTION 4. Confirmation of Pledge. The Parent Companies, SLT RLP and
the other Credit Parties hereby confirm that, both before and after giving
effect to the Stock Sale, 100% of the Stock of ITT Corporation shall continue to
be pledged to the Lenders pursuant to the Pledge and Security Agreement and the
other Credit Documents.
SECTION 5. Section 9.03; Restricted Payments; and Section 9.12;
Limitations on Voluntary Payments and Modifications of Indebtedness; Etc.
Notwithstanding anything to the contrary contained in the Credit Agreement, the
Lenders hereby consent to and waive the restrictions contained in clause (ii)(x)
of Section 9.12 of the Credit Agreement with respect to the assumption by ITT of
all or any portion of the Corporation's obligations under the Intercompany
Mortgage Note; provided such assumption shall be made subject to the
subordination provisions applicable to the Intercompany Mortgage Note. The
transfer and assumption of the obligations under the Intercompany Mortgage Note
from the Corporation to ITT for book and tax purposes shall constitute a
dividend by ITT to the Corporation and the Lenders confirm that such dividend
shall not violate the provisions of Section 9.03 of the Credit Agreement.
SECTION 6. Section 9.04; Indebtedness. The term "CMBS Transaction"
as used in the Credit Agreement shall include any loan transactions secured by
mortgages that satisfy the provisions of Subsection 9.04(xiv) of the Credit
Agreement. The Borrowers confirm that any such loan transactions constituting a
CMBS Transaction shall be a Loan made to a Subsidiary or
- 3 -
<PAGE> 4
to Subsidiaries secured by the only assets of the Subsidiary or Subsidiaries,
which assets shall be security for the loan and which loan shall be non-recourse
on a basis and on terms reasonably satisfactory to the Lead Agents.
SECTION 7. Additional Intercompany Indebtedness. Notwithstanding
anything to the contrary contained in the Credit Agreement, the Corporation
shall be permitted to make an intercompany loan to ITT, which intercompany loan
shall have an outstanding principal balance of up to $1.5 Billion. Such note (in
lieu of cash) shall constitute a dividend paid by ITT to the Corporation and the
Lenders hereby consent to such transaction and confirm that such dividend shall
not violate the provisions of Section 9.03 of the Credit Agreement, provided
that the Borrowers comply with the requirements of Section 9.05(viii) and the
last paragraph of Section 9.04 regarding the subordination of intercompany
indebtedness.
SECTION 8. Section 11; Definitions. The following definitions in
Section 11 of the Credit Agreement are amended as set forth below:
(a) Intercompany Mortgage Note. Effective as of the date hereof, the
definition of "Intercompany Mortgage Note" shall be amended by deleting the
reference to "Corporation" and by inserting in lieu thereof "ITT and/or the
Corporation."
(b) Proposed Mexico Refinancing. The Lenders hereby confirm and
agree that the term "Proposed Mexico Refinancing" (in accordance with the terms
and provisions of the Fourth Amendment) may include a transaction whereby (i) a
special trust entity (the "Mexico Trust") is formed and the Mexico Sheratons and
the Mexico Regina Hotels are transferred to the Mexico Trust; (ii) the Lender
under the Proposed Mexico Refinancing (the "Mexico Lender") on the one hand, and
the current owners of the Mexico Sheratons and the Mexico Regina Hotels, on the
other hand, each own Fifty (50%) percent of the equity interests in the Mexico
Trust, (iii) upon a default by the borrowers under the Proposed Mexico
Refinancing, the Mexico Lender shall have the right to receive the borrowers'
Fifty (50%) percent interest in the Mexico Trust; and (iv) upon repayment in
full of the Proposed Mexico Refinancing, the Mexico Lender's Fifty (50%) percent
interest in the Mexico Trust is reconveyed to the borrowers. Such transaction
shall be deemed to be a secured financing. The Lenders further consent to the
Corporation being added as a guarantor of the Proposed Mexico Refinancing.
(c) Change of Control. Effective as of the date hereof, the
definition of "Change of Control" contained in Section 11 of the Credit
Agreement is modified by inserting, immediately after the phrase "100% of the
Capital Stock of ITT" appearing therein the phrase "(except that up to 10% of
the Capital Stock of ITT may instead be owned by SLT RLP)".
SECTION 9. Confirmation of Certain Matters. (a) Each Guarantor and
each Borrower, by their signatures below, hereby confirm that (x) the Guaranty
shall remain in full force and effect and the Guaranty covers the obligations of
each of the Borrowers under the Credit Agreement, as modified and amended by
this Sixth Amendment, as provided in the Guaranty, and (y) the Pledge and
Security Agreement shall remain in full force and effect as
- 4 -
<PAGE> 5
security for the obligations under the Credit Agreement, as modified and amended
by this Sixth Amendment.
(b) At the time any transactions described in Section 5 or Section 7
of this Amendment is affected, the Corporation shall have reviewed the solvency
of ITT and its Subsidiaries and shall have concluded, and shall be deemed to
have represented and warranted that (i) the sum of the assets, at fair
valuation, of ITT and its Subsidiaries, taken as a whole and ITT on a stand
alone basis, will exceed their respective debts, and (ii) ITT and its
Subsidiaries, taken as a whole and ITT on a stand alone basis, (x) have not
incurred and do not intend to incur, and do not believe that they will incur,
debts beyond their ability to pay such debts as such debts mature and (y) will
have sufficient capital with which to conduct their respective businesses.
SECTION 10. Miscellaneous Provisions
A. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
B. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrowers and the Paying Agent.
C. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
D. This Amendment shall become effective on the date (the "Amendment
Effective Date") when each of the Borrowers, each Guarantor and the Required
Lenders shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Paying Agent at its Notice Office.
E. From and after the Amendment Effective Date, all references in
the Credit Agreement and each of the other Credit Documents to the Credit
Agreement shall be deemed to be references to the Credit Agreement as modified
hereby.
- 5 -
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Amendment as of the date first above
written.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland
corporation
By: /s/ Mark D. Rozells
-------------------------------------------------
Title: Senior Vice President Finance and Treasurer
STARWOOD HOTELS & RESORTS,
a Maryland real estate investment trust
By: /s/ Steven Goldman
-------------------------------------------------
Title: Vice President
SLT REALTY LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Starwood Hotels & Resorts, a Maryland real estate investment
trust, its general partner
By: /s/ Steven Goldman
-------------------------------------------------
Title: Vice President
ITT CORPORATION, a Nevada corporation
By: /s/ Mark D. Rozells
-------------------------------------------------
Title: Senior Vice President Finance and Treasurer
-6-
<PAGE> 7
CHARLESTON HOTEL ASSOCIATES, LLC,
a New Jersey limited liability company,
CRYSTAL CITY HOTEL ASSOCIATES, LLC,
a New Jersey limited liability company,
LONG BEACH HOTEL ASSOCIATES, LLC,
a New Jersey limited liability company,
SANTA ROSA HOTEL ASSOCIATES, LLC,
a New Jersey limited liability company,
SLT ALLENTOWN LLC,
a Delaware limited liability company,
SLT ARLINGTON LLC,
a Delaware limited liability company,
SLT ASPEN DEAN STREET, LLC,
a Delaware limited liability company,
SLT BLOOMINGTON LLC,
a Delaware limited liability company,
SLT CENTRAL PARK SOUTH, LLC,
a Delaware limited liability company,
SLT DANIA LLC,
a Delaware limited liability company,
SLT DC MASSACHUSETTS AVENUE, LLC,
a Delaware limited liability company,
SLT INDIANAPOLIS LLC,
a Delaware limited liability company,
SLT KANSAS CITY LLC,
a Delaware limited liability company,
SLT LOS ANGELES LLC,
a Delaware limited liability company,
-7-
<PAGE> 8
SLT MINNEAPOLIS LLC,
a Delaware limited liability company,
SLT PALM DESERT LLC,
a Delaware limited liability company,
SLT PHILADELPHIA LLC,
a Delaware limited liability company,
SLT REALTY COMPANY, LLC,
a Delaware limited liability company,
SLT SAN DIEGO LLC,
a Delaware limited liability company,
SLT SOUTHFIELD LLC,
a Delaware limited liability company,
SLT ST. LOUIS LLC,
a Delaware limited liability company,
SLT TUCSON LLC,
a Delaware limited liability company,
STARLEX LLC,
a New York limited liability company,
STARWOOD ATLANTA II LLC,
a Delaware limited liability company,
STARWOOD ATLANTA LLC,
a Delaware limited liability company,
STARWOOD MISSION HILLS, L.L.C.,
a Delaware limited liability company,
STARWOOD NEEDHAM LLC,
a Delaware limited liability company,
-8-
<PAGE> 9
STARWOOD WALTHAM LLC,
a Delaware limited liability company,
By: SLT Realty Limited Partnership,
a Delaware limited partnership, the managing member of each of
the above listed entities
By: Starwood Hotels & Resorts,
a Maryland real estate investment trust,
its general partner
By: /s/ Steven Goldman
-------------------------------------
Title: Vice President
BW HOTEL REALTY, LP,
a Maryland limited partnership,
CP HOTEL REALTY, LP,
a Maryland limited partnership,
EDISON HOTEL ASSOCIATES, LP,
a New Jersey limited partnership,
NOVI HOTEL ASSOCIATES, LP,
a Delaware limited partnership,
PARK RIDGE HOTEL ASSOCIATES LP,
a Delaware limited partnership,
SLT FINANCING PARTNERSHIP,
a Delaware general partnership,
SLT HOUSTON BRIAR OAKS, LP,
a Delaware limited partnership,
VIRGINIA HOTEL ASSOCIATES, LP,
a Delaware limited partnership,
-9-
<PAGE> 10
PRUDENTIAL HEI JOINT VENTURE,
a Georgia general partnership,
By: SLT Realty Limited Partnership,
a Delaware limited partnership, the general partner of each of
the above listed entities
By: Starwood Hotels & Resorts,
a Maryland real estate investment trust,
its general partner
By: /s/ Steven Goldman
-------------------------------------------
Title: Vice President
HEI HOTELS, L.L.C.,
a Delaware limited liability company,
OPERATING PHILADELPHIA LLC,
a Delaware limited liability company,
SLC ALLENTOWN LLC,
a Delaware limited liability company,
SLC ARLINGTON LLC,
a Delaware limited liability company,
SLC ASPEN DEAN STREET, LLC,
a Delaware limited liability company,
SLC ATLANTA II LLC,
a Delaware limited liability company,
SLC ATLANTA LLC,
a Delaware limited liability company,
SLC BLOOMINGTON LLC,
a Delaware limited liability company,
SLC CENTRAL PARK SOUTH, LLC,
a Delaware limited liability company,
-10-
<PAGE> 11
SLC DANIA LLC,
a Delaware limited liability company,
SLC DC MASSACHUSETTS AVENUE, LLC,
a Delaware limited liability company,
SLC INDIANAPOLIS LLC,
a Delaware limited liability company,
SLC KANSAS CITY L.L.C.,
a Delaware limited liability company,
SLC LOS ANGELES LLC,
a Delaware limited liability company,
SLC MINNEAPOLIS LLC,
a Delaware limited liability company,
SLC NEEDHAM LLC,
a Delaware limited liability company,
SLC PALM DESERT LLC,
a Delaware limited liability company,
SLC SAN DIEGO LLC,
a Delaware limited liability company,
SLC SOUTHFIELD LLC,
a Delaware limited liability company,
SLC ST. LOUIS LLC,
a Delaware limited liability company,
SLC TUCSON LLC,
a Delaware limited liability company,
SLC WALTHAM LLC,
a Delaware limited liability company,
-11-
<PAGE> 12
STARWOOD MANAGEMENT COMPANY, LLC,
a Delaware limited liability company,
By: SLC Operating Limited Partnership,
a Delaware limited partnership, the managing member of each of
the above listed entities
By: Starwood Hotels & Resorts
Worldwide, Inc., a Maryland corporation, its
general partner
By: /s/ Mark D. Rozells
--------------------------------------------------
Title: Senior Vice President Finance and Treasurer
SLC OPERATING LIMITED PARTNERSHIP,
a Delaware limited partnership,
By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland
corporation, its general partner
By: /s/ Mark D. Rozells
--------------------------------------------------
Title: Senior Vice President Finance and Treasurer
MILWAUKEE BROOKFIELD LP,
a Wisconsin limited partnership,
SLC-CALVERTON LP,
a Delaware limited partnership,
SLC HOUSTON BRIAR OAKS, LP,
a Delaware limited partnership,
By: SLC Operating Limited Partnership,
a Delaware limited partnership, the general partner of each of
the above listed entities
By: Starwood Hotels & Resorts Worldwide, Inc.,
a Maryland corporation, its general partner
By: /s/ Mark D. Rozells
--------------------------------------------------
Title: Senior Vice President Finance and Treasurer
-12-
<PAGE> 13
MOORLAND HOTEL LP,
a Wisconsin limited partnership,
By: Milwaukee Brookfield LP,
a Wisconsin limited partnership, its general partner
By: SLC Operating Limited Partnership,
a Delaware limited partnership, its general partner
By: Starwood Hotels & Resorts Worldwide, Inc.,
a Maryland corporation, its general partner
By: /s/ Mark D. Rozells
-------------------------------------------------
Title: Senior Vice President Finance
and Treasurer
ITT BROADCASTING CORP.,
a Delaware corporation
By: /s/ Mark D. Rozells
----------------------------------------------
Title: Senior Vice President Finance and Treasurer
MIDLAND BUILDING CORPORATION,
an Illinois corporation,
MIDLAND HOLDING CORPORATION,
an Illinois corporation,
MIDLAND HOTEL CORPORATION,
an Illinois corporation,
By: /s/ Steven Goldman
----------------------------------------------
Title: Vice President
-13-
<PAGE> 14
ITT SHERATON CORPORATION,
a Delaware corporation,
DESTINATION SERVICES OF SCOTTSDALE, INC.,
a Delaware corporation,
GENERAL FIDUCIARY CORPORATION,
a Massachusetts corporation,
GLOBAL CONNEXIONS INC.,
a Delaware corporation,
ITT SHERATON RESERVATIONS CORPORATION,
a Delaware corporation,
MANHATTAN SHERATON CORPORATION,
a New York corporation,
SAN DIEGO SHERATON CORPORATION,
a Delaware corporation,
SAN FERNANDO SHERATON CORPORATION,
a Delaware corporation,
SHERATON ARIZONA CORPORATION,
a Delaware corporation,
SHERATON 45 PARK CORPORATION,
a Delaware corporation,
SHERATON ASIA-PACIFIC CORPORATION,
a Delaware corporation,
SHERATON BLACKSTONE CORPORATION,
a Delaware corporation,
SHERATON BOSTON CORPORATION
a Massachusetts corporation,
SHERATON CALIFORNIA CORPORATION,
a Delaware corporation,
-14-
<PAGE> 15
SHERATON CAMELBACK CORPORATION,
a Delaware corporation,
SHERATON FLORIDA CORPORATION,
a Delaware corporation,
SHERATON HARBOR ISLAND CORPORATION,
a Delaware corporation,
SHERATON HARTFORD CORPORATION,
a Connecticut corporation,
SHERATON HAWAII HOTELS CORPORATION,
a Hawaii corporation,
SHERATON INTERNATIONAL, INC.,
a Delaware corporation,
SHERATON INTER-AMERICAS, LTD.,
a Delaware corporation,
SHERATON INTERNATIONAL DE MEXICO, INC.,
a Delaware corporation,
SHERATON MANAGEMENT CORPORATION,
a Delaware corporation,
SHERATON OVERSEAS MANAGEMENT CORPORATION,
a Delaware corporation,
SHERATON WARSAW CORPORATION,
a Delaware corporation,
SHERATON MARKETING CORPORATION,
a Delaware corporation,
SHERATON MIAMI CORPORATION,
a Delaware corporation,
SHERATON MIDDLE EAST MANAGEMENT CORPORATION,
a Delaware corporation,
-15-
<PAGE> 16
SHERATON NEW YORK CORPORATION,
a New York corporation,
SHERATON OVERSEAS TECHNICAL SERVICES CORPORATION,
a Delaware corporation,
SHERATON PEACHTREE CORPORATION,
a Delaware corporation,
SHERATON PHOENICIAN CORPORATION,
a Delaware corporation,
SHERATON SAVANNAH CORPORATION,
a Delaware corporation,
SHERATON SERVICES CORPORATION,
a Delaware corporation,
SOUTH CAROLINA SHERATON CORPORATION,
a Delaware corporation,
ST. REGIS SHERATON CORPORATION,
a New York corporation,
WORLDWIDE FRANCHISE SYSTEMS, INC.,
a Delaware corporation,
SHERATON VERMONT CORPORATION,
a Vermont corporation,
By: /s/ Mark D. Rozells
-----------------------------------------
Title: Senior Vice President Finance and Treasurer
HUDSON SHERATON CORPORATION LLC,
a Delaware limited liability company
By: ITT SHERATON CORPORATION
a Delaware corporation, its managing member
By: /s/ Mark D. Rozells
-----------------------------------------
Title: Senior Vice President Finance and Treasurer
-16-
<PAGE> 17
W&S DENVER CORP.,
a Delaware corporation,
W&S REALTY CORPORATION OF DELAWARE,
a Delaware corporation,
BENJAMIN FRANKLIN HOTEL, INC.,
a Washington corporation,
LAUDERDALE HOTEL COMPANY,
a Delaware corporation,
WESTIN BAY HOTEL COMPANY,
a Delaware corporation,
CINCINNATI PLAZA COMPANY,
a Delaware corporation,
SOUTH COAST WESTIN HOTEL COMPANY,
a Delaware corporation,
TOWNHOUSE MANAGEMENT INC.,
a Delaware corporation,
WVC RANCHO MIRAGE, INC.,
a Delaware corporation,
WESTIN ASSET MANAGEMENT COMPANY,
a Delaware corporation,
WESTIN HOTEL COMPANY,
a Delaware corporation,
W&S ATLANTA CORP.,
a Delaware corporation,
By: /s/ Steven Goldman
------------------------------------------
Title: Vice President
-17-
<PAGE> 18
WESTIN SEATTLE HOTEL COMPANY,
a Washington general partnership,
By: Benjamin Franklin Hotel, Inc.,
its general partner
By: /s/ Steven Goldman
-----------------------------------
Title: Vice President
By: W&S Realty Corporation of Delaware,
its general partner
By: /s/ Steven Goldman
-----------------------------------
Title: Vice President
WESTIN PREMIER, INC.,
a Delaware corporation,
WESTIN VACATION MANAGEMENT CORPORATION,
a Delaware corporation,
WESTIN VACATION EXCHANGE COMPANY,
a Delaware corporation,
By: Starwood Hotels & Resorts Worldwide, Inc.,
a Maryland corporation, the sole stockholder of each of the
above listed entities
By: /s/ Mark D. Rozells
-----------------------------------
Title: Senior Vice President Finance and Treasurer
-18-
<PAGE> 19
W&S LAUDERDALE CORP.,
a Delaware corporation,
W&S SEATTLE CORP.,
a Delaware corporation,
By: SLT Realty Limited Partnership,
a Delaware limited partnership, the sole stockholder of each
of the above listed entities
By: Starwood Hotels & Resorts
a Maryland real estate investment trust,
its general partner
By: /s/ Steven Goldman
---------------------------------------
Title: Vice President
BANKERS TRUST COMPANY,
Individually and as Administrative Agent and as Paying Agent
By: /s/ Laura S. Bukwick
------------------------------------------
Title: Principal
THE CHASE MANHATTAN BANK,
Individually and as Administrative Agent
By:
------------------------------------------
Name:
Title:
LEHMAN COMMERCIAL PAPER, INC.,
Individually and as Syndication Agent
By: /s/ Michael E. O'Brien
------------------------------------------
Title: Authorized Signatory
-19-
<PAGE> 20
BANK OF MONTREAL, CHICAGO BRANCH,
Individually and as Syndication Agent
By: /s/ Richard W. Camm
------------------------------------------
Title: Managing Director
ARAB BANKING CORPORATION (B.S.C.)
By: /s/ Louise Bilbro
------------------------------------------
Title: Vice President
BANCA POPOLARE DI MILANO
By: /s/ Fulvio Montanari
------------------------------------------
Title: First Vice President
By: /s/ Patrick F. Dillon
------------------------------------------
Title: Vice President, Chief Credit Officer
BANKBOSTON, N.A.
By: /s/ Kathleen M. Ahern
------------------------------------------
Title: Vice President
BANK LEUMI USA
By: /s/ Joung Hee Hovg
------------------------------------------
Title: Vice President
THE BANK OF TOKYO-MITSUBISHI, LIMITED,
NEW YORK BRANCH
By:
------------------------------------------
Name:
Title:
-20-
<PAGE> 21
BANK POLSKA KASA OPIEKI S.A. PEKAO S.A.
GROUP, NEW YORK BRANCH
By: /s/ B.W. Henry
------------------------------------------
Title: Vice President
BANQUE PARIBAS
By: /s/ F. Garnet
------------------------------------------
Title: Senior Vice President
By: /s/ Constance de Klerk
------------------------------------------
Title: Vice President
BANQUE WORMS CAPITAL CORP.
By:
------------------------------------------
Name:
Title:
BEAR STEARNS INVESTMENT PRODUCTS INC.
By: /s/ Harry Rosenberg
------------------------------------------
Title: Authorized Signatory
BARCLAYS BANK PLC
By: /s/ John Giannone
------------------------------------------
Title: Director
CHANG HWA COMMERCIAL BANK, LTD., NEW
YORK BRANCH
By:
------------------------------------------
Name:
Title:
-21-
<PAGE> 22
CHIAO TUNG BANK CO., LTD. NEW YORK AGENCY
By:
------------------------------------------
Name:
Title:
CIBC INC.
By:
------------------------------------------
Name:
Title:
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION
EUROPEENNE
By:
------------------------------------------
Name:
Title:
By:
------------------------------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By:
------------------------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON
By: /s/ Chris T. Horgan
------------------------------------------
Title: Vice President
By: /s/ Kristin Lepri
------------------------------------------
Title: Associate
-22-
<PAGE> 23
CREDITO ITALIANO
By:
------------------------------------------
Name:
Title:
DEUTSCHE BANK AG NEW YORK AND/OR
CAYMAN ISLANDS BRANCH
By: /s/ Stephan A. Wiedemann
------------------------------------------
Title: Director
By: /s/ Susan L. Pearson
------------------------------------------
Title: Director
DOMINION BANK
By:
------------------------------------------
Name:
Title:
ERSTE BANK DER OESTERREICHISCHEN
SPARKASSEN AG
By: /s/ Paul Judicke
------------------------------------------
Title: Vice President
Erste Bank New York Branch
By: /s/ John S. Runnion
------------------------------------------
Title: First Vice President
FIRST COMMERCIAL BANK
By: /s/ Vincent T.C. Chen
------------------------------------------
Title: Senior Vice President & General Manager
-23-
<PAGE> 24
THE INDUSTRIAL BANK OF JAPAN, LIMITED NEW
YORK BRANCH
By:
------------------------------------------
Title:
ISTITUTO BANCARIO DI TORINO SpA
By: /s/ W. Jones
------------------------------------------
Title: Vice President
By: /s/ Robert Wurster
------------------------------------------
Title: First Vice President
KZH CNC LLC
By: /s/ Virginia Conway
------------------------------------------
Title: Authorized Agent
LAND BANK OF TAIWAN, LOS ANGELES BRANCH
By:
------------------------------------------
Name:
Title:
THE LONG TERM CREDIT BANK
OF JAPAN, LTD.
By:
------------------------------------------
Name:
Title:
MITSUBISHI TRUST & BANKING CORPORATION
By: /s/ Toshihiro Hayashi
------------------------------------------
Title: Senior Vice President
-24-
<PAGE> 25
ML CLO STERLING (Cayman) LTD.
By:
------------------------------------------
Name:
Title:
NATIONSBANK, N.A.
By: /s/ Terence J. Hatton
------------------------------------------
Title: Senior Vice President
THE ROYAL BANK OF SCOTLAND, PLC
By: /s/ Derek Bonnar
------------------------------------------
Title: Vice President
SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ Thomas K. Day
------------------------------------------
Title: Director
SOUTHERN PACIFIC BANK
By: /s/ Cheryl A. Wasilewski
------------------------------------------
Title: Vice President
THE SUMITOMO BANK, LIMITED, NEW YORK
BRANCH
By:
------------------------------------------
Name:
Title:
-25-
<PAGE> 26
MC CLO XIX STERLING (Cayman) Ltd.
Sterling Asset Manager, L.L.C.,
as its Investment Advisor
By:
------------------------------------------
Name:
Title:
WACHOVIA BANK, N.A.
By:
------------------------------------------
Name:
Title:
WESTDEUTSCHE LANDESBANK GIROZENTRALE
By: /s/ Bridgitte Thieme
------------------------------------------
Title: Managing Director
By: /s/ Mark H. Lanspa
------------------------------------------
Title: Vice President
VAN KAMPEN
PRIME RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
------------------------------------------
Title: Senior Vice President & Director
VAN KAMPEN CLO I, LIMITED
By: VAN KAMPEN MANAGEMENT INC.,
as Collateral Manager
By: /s/ Jeffrey W. Maillet
------------------------------------------
Title: Senior Vice President
-26-
<PAGE> 27
VAN KAMPEN
SENIOR INCOME TRUST
By: /s/ Jeffrey W. Maillet
------------------------------------------
Title: Senior Vice President
THE TORONTO DOMINION BANK
By: /s/ Jorge A. Gargic
------------------------------------------
Title: Manager Cr./Admin.
MELLON BANK, N.A., solely in its capacity as Trustee for the GENERAL
MOTORS CASH MANAGEMENT MASTER TRUST, (as directed by Shenkman
Capital Management, Inc.), and not in its individual capacity
By:
------------------------------------------
Name:
Title:
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By:
------------------------------------------
Name:
Title:
OXFORD STRATEGIC INCOME FUND
By: EATON VANCE MANAGEMENT,
as Investment Advisor
By:
------------------------------------------
Name:
Title:
FIRST SECURITY BANK, N.A.
By: /s/ David P. Williams
------------------------------------------
Title: Vice President
-27-
<PAGE> 28
FLEET BANK, N.A.
By: /s/ John F. Cullinan
------------------------------------------
Title: Senior Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By:
------------------------------------------
Name:
Title:
GOLDMAN SACHS CREDIT PARTNERS L.P.
By: /s/ Stephen J. McGuinness
------------------------------------------
Title: Authorized Signatory
GULF INTERNATIONAL BANK B.S.C.
By: /s/ Abdel-Fattah Tahoun
------------------------------------------
Title: Senior Vice President
By: /s/ Thomas E. Fitzherbert
------------------------------------------
Title: Vice President
HUA NAN COMMERCIAL BANK, LTD. NEW YORK
AGENCY
By:
------------------------------------------
Name:
Title:
BANK OF HAWAII
By: /s/ Donna R. Parker
------------------------------------------
Title: Vice President
-28-
<PAGE> 1
EXHIBIT 10.51
SEVENTH AMENDMENT TO CREDIT AGREEMENT
SEVENTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as
of March 5, 1999, among STARWOOD HOTELS & RESORTS, a Maryland real estate
investment trust ("Starwood REIT"), SLT REALTY LIMITED PARTNERSHIP, a Delaware
limited partnership ("SLT RLP"), STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a
Maryland corporation (the "Corporation"), ITT CORPORATION, a Nevada corporation
("ITT" and, together with Starwood REIT, SLT RLP and the Corporation, the
"Borrowers"), the lenders from time to time party to the Credit Agreement
referred to below (the "Lenders"), BANKERS TRUST COMPANY and THE CHASE MANHATTAN
BANK, as Administrative Agents (in such capacity, the "Administrative Agents")
and LEHMAN COMMERCIAL PAPER INC. and BANK OF MONTREAL, as Syndication Agents (in
such capacity, the "Syndication Agents"). Unless otherwise defined herein, all
capitalized terms used herein shall have the respective meanings provided such
terms in the Credit Agreement referred to below.
W I T N E S S E T H:
WHEREAS, the Borrowers, the Lenders, the Administrative Agents and
the Syndication Agents are parties to a certain Credit Agreement, dated as of
February 23, 1998 (as amended, modified or supplemented to the date hereof, the
"Credit Agreement");
WHEREAS, the parties hereto wish to amend the Credit Agreement in
certain respects as herein provided;
NOW, THEREFORE, it is agreed:
I. Waivers, Amendments and Agreements with Respect to the Credit
Agreement
SECTION 1. Section 9.04 Indebtedness. Notwithstanding anything to
the contrary contained in Section 9.04 and Section 9.12 of the Credit Agreement
or in the other Credit Documents, but subject to the terms of this Amendment,
the amount "$1.0 billion" appearing in Section 9.04(viii)(B) shall be changed to
read "$2.0 billion" so as to permit the Corporation to issue up to $2.0 billion
of additional Senior Secured Bridge Notes or Permanent Senior Notes, but only so
long as the Borrowers shall use all Net Proceeds from the issuance of such
additional $1.0 billion of Senior Secured Bridge Notes or additional Permanent
Senior Notes pursuant to Section 9.04(viii)(B) of the Credit Agreement to
permanently repay the currently outstanding Senior Secured Bridge Notes, and,
provided further that, to the extent additional Senior Secured Bridge Notes or
Permanent Senior Notes are issued under Section 9.04(viii)(B) in an amount in
excess of $1.0 billion (such amount in excess of $1.0 billion, the "Excess
Amount") then the amount "$2.5 billion" appearing in Section 9.04(viii)(A) shall
be deemed reduced by the Excess Amount.
<PAGE> 2
SECTION 2. Proposed Mexico Refinancing. Notwithstanding the terms
and provisions of the Fourth Amendment and the definition of "Proposed Mexico
Refinancing" set forth therein, the terms and provisions of the Proposed Mexico
Refinancing shall not be required to be substantially the same as the terms of
the former Bancomer Financing, provided that any such terms and provisions that
are substantially different from the Bancomer Financing shall be subject to the
reasonable written approval of the Lead Agents.
SECTION 3. REIT Qualification, Intercompany Mortgage Note and
Assigned Starwood Note; and Rights Agreement. To the extent the Parent Companies
and their Subsidiaries desire to either (i) enter into intercompany transactions
for purposes of Starwood REIT maintaining its status as a real estate investment
trust under the Code, and such transactions are prohibited by the terms of the
Credit Agreement, (ii) amend, modify or change the terms of the Intercompany
Mortgage Note, to the extent such transaction shall not have a material effect
on the rights of the Lenders under the Credit Agreement or the other Credit
Documents, the Assigned Starwood Note or any documents evidencing or relating to
the Intercompany Mortgage Note or the Assigned Starwood Note, or (iii) amend,
modify or change the terms of the Rights Agreement, the Lead Agents shall have
the right to grant waivers or consents with respect to such transactions on
behalf of all Lenders, such waivers or consents to be granted unanimously and in
the reasonable discretion of the Lead Agents, or, if the Lead Agents are unable
to agree unanimously on such waivers or consents or if any Lead Agent determines
that such waivers, consents or transactions are material, with the prior
approval of the Required Lenders; provided, that the Parent Companies and their
Subsidiaries deliver to the Lead Agents an officer's certificate confirming that
any such transaction, modification, amendment or change complies with the terms
of this Section 3 and does not have a material effect on the right of the
Lenders under the Credit Agreement or the other Credit Documents and provided,
further, that the Lead Agents shall be entitled to (though not be required to)
rely on such certificate for purposes hereof.
SECTION 4. Section 11; Definitions. (a) The following definitions in
Section 11 of the Credit Agreement are amended as set forth below:
(i) Scheduled Asset Disposition. Effective as of the date hereof,
the definition of "Scheduled Asset Disposition" shall be amended and restated in
its entirety to read as follows: "Scheduled Asset Disposition" shall mean the
Asset Sales described on Schedule 11.01C of the Credit Agreement. In addition,
effective as of the date hereof the entire text of Schedule 11.01C. of the
Credit Agreement shall be deemed deleted in its entirety and replaced with
"None" and all Assets on such Schedule 11.01C be deemed Assets for purposes of
the definition of Asset Sales and shall be subject to the definition of
Applicable Asset Sale Percentage. Accordingly, from and after the date hereof,
no Asset Sale shall be deemed to be a "Scheduled Asset Disposition".
(ii) Dividend. Effective as of the date hereof, the definition of
"Dividend" contained in Section 11 of the Credit Agreement is amended and
restated in its entirety to read as follows:
- 2 -
<PAGE> 3
""Dividend" with respect to any Person shall mean that such Person
has declared or paid a dividend or distribution or returned any equity
capital to its stockholders, partners or other holders of its Capital
Stock or authorized or made any other distribution, payment or delivery of
property or cash to its holders of Capital Stock as such, or redeemed,
retired, purchased or otherwise acquired, directly or indirectly, for a
consideration any shares of any class of its Capital Stock outstanding on
or after the Initial Borrowing Date (or any options or warrants issued by
such Person with respect to its Capital Stock), or set aside any funds for
any of the foregoing purposes, or shall have permitted any of its
Subsidiaries to purchase or otherwise acquire for a consideration any
shares of any class of the Capital Stock of such Person outstanding on or
after the Initial Borrowing Date (or any options or warrants issued by
such Person with respect to its Capital Stock); provided, however, that a
dividend or distribution by such Person to the holders of one or more
classes or series of its Capital Stock, shall not be deemed to be a
dividend, if such dividend or distribution is payable solely in (i) shares
of Capital Stock (which term includes Class B Shares) that is not
Preferred Stock (which term does not include Class B Shares), or in
rights, warrants or options to purchase such shares, or (ii) Rights.
Without limiting the foregoing, "Dividends" with respect to any Person
shall also include (i) all payments made or required to be made by such
Person with respect to any stock appreciation rights, plans, equity
incentive or achievement plans or any similar plans or setting aside of
any funds for the foregoing purposes, in each case except to the extent
(x) the same are paid in common stock of the Corporation or Class B Shares
or (y) such payments reduced Consolidated EBITDA and (ii) all payments
(other than payments made in common stock of the Corporation or Class B
Shares) made at any time in respect of any Forward Equity Transactions."
(b) The following new definitions shall be added to Section 11 of the
Credit Agreement:
"Rights" shall have the meaning specified in the Rights Agreement.
"Rights Agreement" shall mean the Rights Agreement between the
Corporation and a Rights Agent to be identified, substantially in the form of
the draft dated February 2, 1999, submitted to the Lead Agents.
SECTION 5. Section 9.12; Modifications of Certain Other Agreements.
Section 9.12(ii) shall hereby be amended by inserting, immediately prior to
subsection (w), the following:
"(v) the Rights Agreement (other than amendments, modifications or
changes which are ministerial in nature and immaterial to the Required
Lenders),".
SECTION 6. Confirmation of Certain Matters. Each Guarantor and each
Borrower, by their signatures below, hereby confirm that (x) the Guaranty shall
remain in full force and effect and the Guaranty covers the obligations of each
of the Borrowers under the Credit Agreement, as modified and amended by this
Seventh Amendment, as provided in the
- 3 -
<PAGE> 4
Guaranty, and (y) the Pledge and Security Agreement shall remain in full force
and effect as security for the obligations under the Credit Agreement, as
modified and amended by this Seventh Amendment.
SECTION 7. Miscellaneous Provisions
A. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
B. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrowers and the Paying Agent.
C. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
D. This Amendment shall become effective on the date (the "Amendment
Effective Date") when each of the Borrowers, each Guarantor and the Required
Lenders shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Paying Agent at its Notice Office. The Borrowers
hereby covenant and agree that, so long as the Amendment Effective Date occurs,
they shall pay (and shall be jointly and severally obligated to pay) each Lender
which executes and delivers to the Paying Agent a counterpart hereof by the
later to occur of (x) the close of business on the Amendment Effective Date or
(y) 12:00 p.m. (New York time) on March 5, 1999, a cash fee in an amount equal
to 7.5 basis points (0.075%) of an amount equal to the sum of the outstanding
principal amount of Term Loans of such Lender and the Revolving Loan Commitment
of such consenting Lender, in each case as same is in effect on the Amendment
Effective Date. All fees payable pursuant to this clause D shall be paid by the
Borrowers to the Paying Agent for distribution to the Lenders not later than the
first Business Day following the later date specified in the immediately
preceding sentence.
E. From and after the Amendment Effective Date, all references in
the Credit Agreement and each of the other Credit Documents to the Credit
Agreement shall be deemed to be references to the Credit Agreement as modified
hereby.
F. All of the representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all material
respects as of the Amendment Effective Date, both before and after giving effect
to this Amendment, with the same effect as though such representations and
warranties had been made on and as of the Amendment Effective Date (it being
understood that any representation of warranty made as of a specific date shall
be true and correct in all material respects as of such specific date). No
- 4 -
<PAGE> 5
Default or Event of Default exists as of the Amendment Effective Date, both
before and after giving effect to this Amendment.
- 5 -
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland
corporation
By: /s/ Mark D. Rozells
------------------------------------------------------
Title: Senior Vice President Finance and Treasurer
STARWOOD HOTELS & RESORTS,
a Maryland real estate investment trust
By: /s/ Alan M. Schnaid
------------------------------------------------------
Title: Vice President and Corporate Controller
SLT REALTY LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Starwood Hotels & Resorts, a Maryland real estate investment
trust, its general partner
By: /s/ Alan M. Schnaid
------------------------------------------------------
Title: Vice President and Corporate Controller
ITT CORPORATION, a Nevada corporation
By: /s/ Mark D. Rozells
------------------------------------------------------
Title: Senior Vice President Finance and Treasurer
- 6 -
<PAGE> 7
CHARLESTON HOTEL ASSOCIATES, LLC,
a New Jersey limited liability company,
CRYSTAL CITY HOTEL ASSOCIATES, LLC,
a New Jersey limited liability company,
LONG BEACH HOTEL ASSOCIATES, LLC,
a New Jersey limited liability company,
SANTA ROSA HOTEL ASSOCIATES, LLC,
a New Jersey limited liability company,
SLT ALLENTOWN LLC,
a Delaware limited liability company,
SLT ARLINGTON LLC,
a Delaware limited liability company,
SLT ASPEN DEAN STREET, LLC,
a Delaware limited liability company,
SLT BLOOMINGTON LLC,
a Delaware limited liability company,
SLT CENTRAL PARK SOUTH, LLC,
a Delaware limited liability company,
SLT DANIA LLC,
a Delaware limited liability company,
SLT DC MASSACHUSETTS AVENUE, LLC,
a Delaware limited liability company,
SLT INDIANAPOLIS LLC,
a Delaware limited liability company,
SLT KANSAS CITY LLC,
a Delaware limited liability company,
SLT LOS ANGELES LLC,
a Delaware limited liability company,
- 7 -
<PAGE> 8
SLT MINNEAPOLIS LLC,
a Delaware limited liability company,
SLT PALM DESERT LLC,
a Delaware limited liability company,
SLT PHILADELPHIA LLC,
a Delaware limited liability company,
SLT REALTY COMPANY, LLC,
a Delaware limited liability company,
SLT SAN DIEGO LLC,
a Delaware limited liability company,
SLT SOUTHFIELD LLC,
a Delaware limited liability company,
SLT ST. LOUIS LLC,
a Delaware limited liability company,
SLT TUCSON LLC,
a Delaware limited liability company,
STARLEX LLC,
a New York limited liability company,
STARWOOD ATLANTA II LLC,
a Delaware limited liability company,
STARWOOD ATLANTA LLC,
a Delaware limited liability company,
STARWOOD MISSION HILLS, L.L.C.,
a Delaware limited liability company,
STARWOOD NEEDHAM LLC,
a Delaware limited liability company,
- 8 -
<PAGE> 9
STARWOOD WALTHAM LLC,
a Delaware limited liability company,
By: SLT Realty Limited Partnership,
a Delaware limited partnership, the managing member of each of
the above listed entities
By: Starwood Hotels & Resorts,
a Maryland real estate investment trust,
its general partner
By: /s/ Ronald C. Brown
---------------------------------------
Title: Executive Vice President and CFO
BW HOTEL REALTY, LP,
a Maryland limited partnership,
CP HOTEL REALTY, LP,
a Maryland limited partnership,
EDISON HOTEL ASSOCIATES, LP,
a New Jersey limited partnership,
NOVI HOTEL ASSOCIATES, LP,
a Delaware limited partnership,
PARK RIDGE HOTEL ASSOCIATES LP,
a Delaware limited partnership,
SLT FINANCING PARTNERSHIP,
a Delaware general partnership,
SLT HOUSTON BRIAR OAKS, LP,
a Delaware limited partnership,
VIRGINIA HOTEL ASSOCIATES, LP,
a Delaware limited partnership,
- 9 -
<PAGE> 10
PRUDENTIAL HEI JOINT VENTURE,
a Georgia general partnership,
By: SLT Realty Limited Partnership,
a Delaware limited partnership, the general partner of each
of the above listed entities
By: Starwood Hotels & Resorts,
a Maryland real estate investment trust,
its general partner
By: /s/ Ronald C. Brown
---------------------------------------
Title: Executive Vice President and CFO
HEI HOTELS, L.L.C.,
a Delaware limited liability company,
OPERATING PHILADELPHIA LLC,
a Delaware limited liability company,
SLC ALLENTOWN LLC,
a Delaware limited liability company,
SLC ARLINGTON LLC,
a Delaware limited liability company,
SLC ASPEN DEAN STREET, LLC,
a Delaware limited liability company,
SLC ATLANTA II LLC,
a Delaware limited liability company,
SLC ATLANTA LLC,
a Delaware limited liability company,
SLC BLOOMINGTON LLC,
a Delaware limited liability company,
SLC CENTRAL PARK SOUTH, LLC,
a Delaware limited liability company,
- 10 -
<PAGE> 11
SLC DANIA LLC,
a Delaware limited liability company,
SLC DC MASSACHUSETTS AVENUE, LLC,
a Delaware limited liability company,
SLC INDIANAPOLIS LLC,
a Delaware limited liability company,
SLC KANSAS CITY L.L.C.,
a Delaware limited liability company,
SLC LOS ANGELES LLC,
a Delaware limited liability company,
SLC MINNEAPOLIS LLC,
a Delaware limited liability company,
SLC NEEDHAM LLC,
a Delaware limited liability company,
SLC PALM DESERT LLC,
a Delaware limited liability company,
SLC SAN DIEGO LLC,
a Delaware limited liability company,
SLC SOUTHFIELD LLC,
a Delaware limited liability company,
SLC ST. LOUIS LLC,
a Delaware limited liability company,
SLC TUCSON LLC,
a Delaware limited liability company,
SLC WALTHAM LLC,
a Delaware limited liability company,
- 11 -
<PAGE> 12
STARWOOD MANAGEMENT COMPANY, LLC,
a Delaware limited liability company,
By: SLC Operating Limited Partnership,
a Delaware limited partnership, the managing member of each of
the above listed entities
By: Starwood Hotels & Resorts Worldwide, Inc.,
a Maryland corporation, its general partner
By: /s/ Mark D. Rozells
--------------------------------------------------
Title: Senior Vice President Finance and Treasurer
SLC OPERATING LIMITED PARTNERSHIP,
a Delaware limited partnership,
By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland
corporation, its general partner
By: /s/ Mark D. Rozells
--------------------------------------------------
Title: Senior Vice President Finance and Treasurer
MILWAUKEE BROOKFIELD LP,
a Wisconsin limited partnership,
SLC-CALVERTON LP,
a Delaware limited partnership,
SLC HOUSTON BRIAR OAKS, LP,
a Delaware limited partnership,
By: SLC Operating Limited Partnership,
a Delaware limited partnership, the general partner of each
of the above listed entities
By: Starwood Hotels & Resorts Worldwide, Inc.,
a Maryland corporation, its general partner
By: /s/ Mark D. Rozells
--------------------------------------------------
Title: Senior Vice President Finance and Treasurer
- 12 -
<PAGE> 13
MOORLAND HOTEL LP,
a Wisconsin limited partnership,
By: Milwaukee Brookfield LP,
a Wisconsin limited partnership, its general partner
By:SLC Operating Limited Partnership,
a Delaware limited partnership, its general partner
By: Starwood Hotels & Resorts Worldwide, Inc.,
a Maryland corporation, its general partner
By: /s/ Mark D. Rozells
-------------------------------------------------
Title: Senior Vice President Finance and Treasurer
ITT BROADCASTING CORP.,
a Delaware corporation
By: /s/ Mark D. Rozells
--------------------------------------------------
Title: Senior Vice President Finance and Treasurer
MIDLAND BUILDING CORPORATION,
an Illinois corporation,
MIDLAND HOLDING CORPORATION,
an Illinois corporation,
MIDLAND HOTEL CORPORATION,
an Illinois corporation,
By: /s/ Mark D. Rozells
--------------------------------------------------
Title: Senior Vice President Finance and Treasurer
- 13 -
<PAGE> 14
ITT SHERATON CORPORATION,
a Delaware corporation,
DESTINATION SERVICES OF SCOTTSDALE, INC.,
a Delaware corporation,
GENERAL FIDUCIARY CORPORATION,
a Massachusetts corporation,
GLOBAL CONNEXIONS INC.,
a Delaware corporation,
ITT SHERATON RESERVATIONS CORPORATION,
a Delaware corporation,
MANHATTAN SHERATON CORPORATION,
a New York corporation,
SAN DIEGO SHERATON CORPORATION,
a Delaware corporation,
SAN FERNANDO SHERATON CORPORATION,
a Delaware corporation,
SHERATON ARIZONA CORPORATION,
a Delaware corporation,
SHERATON 45 PARK CORPORATION,
a Delaware corporation,
SHERATON ASIA-PACIFIC CORPORATION,
a Delaware corporation,
SHERATON BLACKSTONE CORPORATION,
a Delaware corporation,
SHERATON BOSTON CORPORATION
a Massachusetts corporation,
SHERATON CALIFORNIA CORPORATION,
a Delaware corporation,
- 14 -
<PAGE> 15
SHERATON CAMELBACK CORPORATION,
a Delaware corporation,
SHERATON FLORIDA CORPORATION,
a Delaware corporation,
SHERATON HARBOR ISLAND CORPORATION,
a Delaware corporation,
SHERATON HARTFORD CORPORATION,
a Connecticut corporation,
SHERATON HAWAII HOTELS CORPORATION,
a Hawaii corporation,
SHERATON INTERNATIONAL, INC.,
a Delaware corporation,
SHERATON INTER-AMERICAS, LTD.,
a Delaware corporation,
SHERATON INTERNATIONAL DE MEXICO, INC.,
a Delaware corporation,
SHERATON MANAGEMENT CORPORATION,
a Delaware corporation,
SHERATON OVERSEAS MANAGEMENT CORPORATION,
a Delaware corporation,
SHERATON WARSAW CORPORATION,
a Delaware corporation,
SHERATON MARKETING CORPORATION,
a Delaware corporation,
SHERATON MIAMI CORPORATION,
a Delaware corporation,
SHERATON MIDDLE EAST MANAGEMENT CORPORATION,
a Delaware corporation,
- 15 -
<PAGE> 16
SHERATON NEW YORK CORPORATION,
a New York corporation,
SHERATON OVERSEAS TECHNICAL SERVICES CORPORATION,
a Delaware corporation,
SHERATON PEACHTREE CORPORATION,
a Delaware corporation,
SHERATON PHOENICIAN CORPORATION,
a Delaware corporation,
SHERATON SAVANNAH CORPORATION,
a Delaware corporation,
SHERATON SERVICES CORPORATION,
a Delaware corporation,
SOUTH CAROLINA SHERATON CORPORATION,
a Delaware corporation,
ST. REGIS SHERATON CORPORATION,
a New York corporation,
WORLDWIDE FRANCHISE SYSTEMS, INC.,
a Delaware corporation,
SHERATON VERMONT CORPORATION,
a Vermont corporation,
By: /s/ Mark D. Rozells
--------------------------------------------------
Title: Senior Vice President Finance and Treasurer
HUDSON SHERATON CORPORATION LLC,
a Delaware limited liability company
By: ITT SHERATON CORPORATION
a Delaware corporation, its managing member
By: /s/ Mark D. Rozells
--------------------------------------------------
Title: Senior Vice President Finance and Treasurer
- 16 -
<PAGE> 17
W&S DENVER CORP.,
a Delaware corporation,
W&S REALTY CORPORATION OF DELAWARE,
a Delaware corporation,
BENJAMIN FRANKLIN HOTEL, INC.,
a Washington corporation,
LAUDERDALE HOTEL COMPANY,
a Delaware corporation,
WESTIN BAY HOTEL COMPANY,
a Delaware corporation,
CINCINNATI PLAZA COMPANY,
a Delaware corporation,
SOUTH COAST WESTIN HOTEL COMPANY,
a Delaware corporation,
TOWNHOUSE MANAGEMENT INC.,
a Delaware corporation,
WVC RANCHO MIRAGE, INC.,
a Delaware corporation,
WESTIN ASSET MANAGEMENT COMPANY,
a Delaware corporation,
WESTIN HOTEL COMPANY,
a Delaware corporation,
W&S ATLANTA CORP.,
a Delaware corporation,
By: /s/ Ronald C. Brown
--------------------------------------------------
Title: Executive Vice President and CFO
- 17 -
<PAGE> 18
WESTIN SEATTLE HOTEL COMPANY,
a Washington general partnership,
By: Benjamin Franklin Hotel, Inc.,
its general partner
By: /s/ Ronald C. Brown
--------------------------------------------------
Title: Executive Vice President and CFO
By: W&S Realty Corporation of Delaware,
its general partner
By: /s/ Ronald C. Brown
--------------------------------------------------
Title: Executive Vice President and CFO
WESTIN PREMIER, INC.,
a Delaware corporation,
WESTIN VACATION MANAGEMENT CORPORATION,
a Delaware corporation,
WESTIN VACATION EXCHANGE COMPANY,
a Delaware corporation,
By: Starwood Hotels & Resorts Worldwide, Inc.,
a Maryland corporation, the sole stockholder of each of the
above listed entities
By: /s/ Mark D. Rozells
--------------------------------------------------
Title: Senior Vice President Finance and Treasurer
- 18 -
<PAGE> 19
W&S LAUDERDALE CORP.,
a Delaware corporation,
W&S SEATTLE CORP.,
a Delaware corporation,
By: SLT Realty Limited Partnership,
a Delaware limited partnership, the sole stockholder of each
of the above listed entities
By: Starwood Hotels & Resorts
a Maryland real estate investment trust,
its general partner
By: /s/ Alan M. Schnaid
----------------------------------------------
Title: Vice President and Corporate Controller
BANKERS TRUST COMPANY,
Individually and as Administrative Agent and as Paying Agent
By: /s/ Laura S. Burwick
---------------------------------
Title: Principal
THE CHASE MANHATTAN BANK,
Individually and as Administrative Agent
By: /s/ Alan Breindel
---------------------------------
Title: Managing Director
LEHMAN COMMERCIAL PAPER, INC.,
Individually and as Syndication Agent
By: /s/ William J. Gallagher
---------------------------------
Title: Authorized Signatory
- 19 -
<PAGE> 20
BANK OF MONTREAL, CHICAGO BRANCH,
Individually and as Syndication Agent
By: /s/ Heather L. Turf
---------------------------------
Title: Director
ARAB BANKING CORPORATION (B.S.C.)
By: /s/ Louise Bilbro
---------------------------------
Title: Vice President
BANCA POPOLARE DI MILANO
By: /s/ Fulvio Montanari
---------------------------------
Title: First Vice President
By: /s/ Patrick F. Dillon
---------------------------------
Title: Vice President
Chief Credit Officer
BANKBOSTON, N.A.
By: /s/ Kathleen M. Ahern
---------------------------------
Title: Authorized Officer
BANK LEUMI USA
By: /s/ Gloria Bucher
---------------------------------
Title: First Vice President
- 20 -
<PAGE> 21
THE BANK OF TOKYO-MITSUBISHI, LIMITED,
NEW YORK BRANCH
By: /s/ Jim Brown
---------------------------------
Title: Vice President
BANK OF HAWAII
By: /s/ Donna R. Parker
---------------------------------
Title: Vice President
BANK POLSKA KASA OPIEKI S.A. PEKAO S.A.
GROUP, NEW YORK BRANCH
By: /s/ Barry W. Henry
---------------------------------
Title: Vice President
Senior Lending Officer
BANQUE PARIBAS
By: /s/ John W. Kopcha
---------------------------------
Title: Director
By: /s/ Marc A. Preiser
---------------------------------
Title: Vice President
BANQUE WORMS CAPITAL CORP.
By: /s/ F. Garnet
---------------------------------
Title: Senior Vice President
By: /s/ Leleh Vell
---------------------------------
Title: Constence de Klerk
Vice President
- 21 -
<PAGE> 22
BEAR STEARNS INVESTMENT PRODUCTS INC.
By: /s/ Harry Rosenberg
---------------------------------
Title: Authorized Signatory
BARCLAYS BANK PLC
By: /s/ John Giannone
---------------------------------
Title: Director
CHANG HWA COMMERCIAL BANK, LTD., NEW
YORK BRANCH
By: /s/ Wan-Tu Yeh
---------------------------------
Title: Vice President and General Manager
CHIAO TUNG BANK CO., LTD. NEW YORK AGENCY
By: /s/ Kuang Si Shiu
---------------------------------
Title: Senior Vice President and General Manager
CIBC INC.
By: /s/ Dean Decker
---------------------------------
Title: Executive Director
CIBC Oppenheimer Corp., AS AGENT
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION
EUROPEENNE
By: /s/ Marcus Edward
---------------------------------
Title: Vice President
By: /s/ Sean Mounier
---------------------------------
Title: First Vice President
- 22 -
<PAGE> 23
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Mary P. Daly
---------------------------------
Title: Vice President
CREDIT SUISSE FIRST BOSTON
By: /s/ Chris T. Horgan
---------------------------------
Title: Vice President
By: /s/ Kristin Lepri
---------------------------------
Title: Associate
CREDITO ITALIANO
By: /s/ Gianfranco Bisagni
---------------------------------
Title: First Vice President
By: /s/ Saiyed A. Abbas
---------------------------------
Title: Assistant Vice President
DEUTSCHE BANK AG NEW YORK AND/OR
CAYMAN ISLANDS BRANCH
By: /s/ Hans-Josef Thiele
---------------------------------
Title: Director
By: /s/ Stephan A. Wiedemann
---------------------------------
Title: Director
DOMINION BANK
By:
---------------------------------
Name:
Title:
- 23 -
<PAGE> 24
ERSTE BANK DER OESTERREICHISCHEN
SPARKASSEN AG
By: /s/ Paul Judicke
---------------------------------
Title: Vice President
Erste Bank New York Branch
By: /s/ John S. Runnion
---------------------------------
Title: First Vice President
FIRST COMMERCIAL BANK
By: /s/ Vincent T. C. Chen
---------------------------------
Title: Senior Vice President and General Manager
FIRST SECURITY BANK, N.A.
By: /s/ David P. Williams
---------------------------------
Title: Vice President
FLEET BANK, N.A.
By: /s/ John T. Harrison
---------------------------------
Title: Senior Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Janet K. Williams
---------------------------------
Title: Duly Authorized Signatory
GOLDMAN SACHS CREDIT PARTNERS L.P.
By: /s/ Stephen McGuinness
---------------------------------
Title: Authorized Signatory
GULF INTERNATIONAL BANK B.S.C.
By: /s/ Abdel-Fattah Tahoun
---------------------------------
Title: Senior Vice President
By: /s/ Mireille Khalidi
---------------------------------
Title: Assistant Vice President
- 24 -
<PAGE> 25
HUA NAN COMMERCIAL BANK, LTD. NEW YORK
AGENCY
By: /s/ Jeffrey C.F. Lee
---------------------------------
Title: Senior Vice President and General Manager
THE INDUSTRIAL BANK OF JAPAN, LIMITED NEW
YORK BRANCH
By: /s/ William Kennedy
---------------------------------
Title: Vice President
ISTITUTO BANCARIO SAN PAOLO DI TORINO ISTITUTO
MOBILIARE ITALIANO SpA
By: /s/ Robert Wurster
---------------------------------
Title: First Vice President
By: /s/ Carlo Persico
---------------------------------
Title: Deputy General Manager
KZH CNC LLC
By: /s/ Virginia Conway
---------------------------------
Title: Authorized Agent
LAND BANK OF TAIWAN, LOS ANGELES BRANCH
By: /s/ Mayer Min-Yen Chen
---------------------------------
Title: Vice President and General Manager
THE LONG TERM CREDIT BANK
OF JAPAN, LTD.
By: /s/ Brian H. Kelley
---------------------------------
Title: Deputy General Manager
- 25 -
<PAGE> 26
MITSUBISHI TRUST and BANKING CORPORATION
By: /s/ Beatrice E. Kossodo
---------------------------------
Title: Senior Vice President
ML KZH STERLING LLC
By:
---------------------------------
Name:
Title:
NATIONSBANK, N.A.
By:
---------------------------------
Name:
Title:
THE ROYAL BANK OF SCOTLAND, PLC
By:
---------------------------------
Name:
Title:
SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ Thomas K. Day
---------------------------------
Title: Director
SOUTHERN PACIFIC BANK
By: /s/ Sean R. Walker
---------------------------------
Title: Vice President
THE SUMITOMO BANK, LIMITED, NEW YORK
BRANCH
By: /s/ Suresh S. Tata
---------------------------------
Title: Senior Vice President
- 26 -
<PAGE> 27
MC CLO XIX STERLING (Cayman) Ltd.
Sterling Asset Manager, L.L.C.,
as its Investment Advisor
By:
---------------------------------
Name:
Title:
WACHOVIA BANK, N.A.
By:
---------------------------------
Name:
Title:
WESTDEUTSCHE LANDESBANK GIROZENTRALE
By: /s/ Mark H. Lanspa
---------------------------------
Title: Vice President
By: /s/ Christa Koenigstein
---------------------------------
Title: Associate
VAN KAMPEN
PRIME RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
---------------------------------
Title: Senior Vice President and Director
VAN KAMPEN CLO I, LIMITED
By: VAN KAMPEN MANAGEMENT INC.,
as Collateral Manager
By: /s/ Jeffrey W. Maillet
---------------------------------
Title: Senior Vice President and Director
- 27 -
<PAGE> 28
VAN KAMPEN
SENIOR INCOME TRUST
By: /s/ Jeffrey W. Maillet
---------------------------------
Title: Senior Vice President and Director
THE TORONTO DOMINION BANK
By:
---------------------------------
Name:
Title:
MELLON BANK, N.A., solely in its capacity as Trustee for the GENERAL
MOTORS CASH MANAGEMENT MASTER TRUST, (as directed by Shenkman
Capital Management, Inc.), and not in its individual capacity
By:
---------------------------------
Name:
Title:
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By:
---------------------------------
Name:
Title:
OXFORD STRATEGIC INCOME FUND
By: EATON VANCE MANAGEMENT,
as Investment Advisor
By:
---------------------------------
Name:
Title:
- 28 -
<PAGE> 29
INDOSUEZ CAPITAL FUNDING IIA,
LIMITED
By: Indosuez Capital Portfolio Advisor
By: /s/ Melissa Maranu
---------------------------------
Title: Vice President
INDOSUEZ CAPITAL FUNDING III,
LIMITED
By: Indosuez Capital Portfolio Advisor
By: /s/ Melissa Maranu
---------------------------------
Title: Vice President
EATON VANCE SENIOR INCOME TRUST
By: EATON VANCE MANAGEMENT,
as Investment Advisor
By:
---------------------------------
Name:
Title:
- 29 -
<PAGE> 1
EXHIBIT 10.58
LOAN AGREEMENT
Dated as of January 27, 1999
Among
THE BORROWERS NAMED HEREIN
as Borrowers,
STARWOOD OPERATOR I LLC
as Operator,
STARWOOD OPERATOR II LLC
as Manager under the Management Contracts
and
LEHMAN BROTHERS HOLDINGS INC. D/B/A LEHMAN CAPITAL,
A DIVISION OF LEHMAN BROTHERS HOLDINGS INC.
as Lender
Secured by:
Eleven Mortgaged Properties as specified in Schedule A hereto
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS; PRINCIPLES OF CONSTRUCTION.................................................... 5
Section 1.1 Definitions................................................................................ 5
Section 1.2 Principles of Construction................................................................. 38
ARTICLE II GENERAL.................................................................................... 39
Section 2.1 The Loan................................................................................... 39
2.1.1 Commitment................................................................................. 39
2.1.2 Disbursement to Borrower and Use of Loan Proceeds.......................................... 39
2.1.3 The Notes.................................................................................. 39
Section 2.2 Principal and Interest..................................................................... 40
2.2.1 Principal and Interest..................................................................... 40
2.2.2 Default Rate............................................................................... 41
2.2.3 Late Fee................................................................................... 41
Section 2.3 Loan Repayment and Defeasance.............................................................. 41
2.3.1 Prepayment and Repayment................................................................... 41
2.3.2 Voluntary Defeasance of the Notes.......................................................... 41
2.3.3 Repayment on or After Anticipated Repayment Date........................................... 45
2.3.4 Repayment Upon Default..................................................................... 45
2.3.5 Limited Right of Prepayment................................................................ 45
2.3.6 Mandatory Prepayment upon Title Defect or Survey Defect.................................... 45
Section 2.4 Release of the Property.................................................................... 45
2.4.1 Release of All the Properties.............................................................. 46
2.4.2 Release of Individual Properties........................................................... 46
2.4.3 Release on Payment in Full................................................................. 48
2.4.4 Further Assurances......................................................................... 48
Section 2.5 Payments and Computations.................................................................. 49
2.5.1 Making of Payments......................................................................... 49
2.5.2 Computations............................................................................... 49
2.5.3 Loan Account and Computer Access to Collateral Accounts.................................... 49
Section 2.6 Substitution of Properties................................................................. 49
ARTICLE III CONDITIONS PRECEDENT....................................................................... 58
Section 3.1 Conditions Precedent to the Loan........................................................... 58
ARTICLE IV REPRESENTATIONS AND WARRANTIES............................................................. 64
Section 4.1 Obligor Representations.................................................................... 64
Section 4.2 Nonrecourse Carveout Indemnitor Representations............................................ 84
Section 4.3 Member Representations..................................................................... 86
Section 4.4 Second-Tier Member Representations......................................................... 90
Section 4.5 Survival of Representations................................................................ 90
ARTICLE V AFFIRMATIVE COVENANTS...................................................................... 91
Section 5.1 Obligor Covenants.......................................................................... 91
Section 5.2 Operator Covenants......................................................................... 107
ARTICLE VI NEGATIVE COVENANTS......................................................................... 108
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 6.1 Obligor's Negative Covenants.............................................................. 108
Section 6.2 Operator's Negative Covenants............................................................. 116
ARTICLE VII ALTERATIONS AND EXPANSIONS; LEASING....................................................... 116
Section 7.1 Alterations and Expansions................................................................ 116
Section 7.2 Inspections; Undertaking of Work.......................................................... 123
Section 7.3 Leasing................................................................................... 123
ARTICLE VIII CASUALTY AND CONDEMNATION................................................................. 124
Section 8.1 Insurance; Casualty and Condemnation...................................................... 124
8.1.1 Insurance................................................................................. 124
8.1.2 Casualty; Application of Proceeds......................................................... 129
8.1.3 Condemnation.............................................................................. 132
ARTICLE IX ACCOUNTS AND RESERVES..................................................................... 133
Section 9.1 Collection Accounts....................................................................... 133
Section 9.2 Deposit Account........................................................................... 133
Section 9.3 Reserve Account........................................................................... 137
Section 9.4 Tax, Insurance and Ground Rents Escrow Account............................................ 137
9.4.1 Application Generally..................................................................... 138
Section 9.5 FF&E Reserve Account...................................................................... 139
Section 9.6 Deferred Maintenance and Environmental Remediation
Reserve Account........................................................................... 143
Section 9.7 Earthquake Deductible Account............................................................. 144
Section 9.8. Account Collateral........................................................................ 144
Section 9.9 Remedies.................................................................................. 145
Section 9.10 Special Reserve Account................................................................... 145
ARTICLE X DEFAULTS.................................................................................. 146
Section 10.1 Event of Default.......................................................................... 146
Section 10.2 Remedies.................................................................................. 150
Section 10.3 Remedies Cumulative....................................................................... 150
ARTICLE XI PROPERTY MANAGEMENT....................................................................... 150
Section 11.1 Termination of Property Managers.......................................................... 150
ARTICLE XII MISCELLANEOUS............................................................................. 151
Section 12.1 Survival.................................................................................. 151
Section 12.2 Permitted Investments; Eligible Accounts; Eligible Institutions........................... 151
Section 12.3 Governing Law; Consent to Jurisdiction.................................................... 152
Section 12.4 Modification, Waiver in Writing........................................................... 153
Section 12.5 Delay Not a Waiver........................................................................ 153
Section 12.6 Notices................................................................................... 154
Section 12.7 Trial by Jury............................................................................. 156
Section 12.8 Headings.................................................................................. 156
Section 12.9 Severability.............................................................................. 156
Section 12.10 Preferences............................................................................... 156
Section 12.11 Waiver of Notice.......................................................................... 157
Section 12.12 Remedies of Obligor....................................................................... 157
Section 12.13 Expenses; Indemnity....................................................................... 157
Section 12.14 Exhibits and Schedules Incorporated....................................................... 158
</TABLE>
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<TABLE>
<S> <C> <C>
Section 12.15 Offsets, Counterclaims and Defenses....................................................... 158
Section 12.16 No Joint Venture or Partnership........................................................... 158
Section 12.17 Publicity................................................................................. 158
Section 12.18 Waiver of Marshalling of Assets........................................................... 159
Section 12.19 Waiver of Counterclaim.................................................................... 159
Section 12.20 Conflict; Construction of Documents....................................................... 159
Section 12.21 Brokers and Financial Advisors............................................................ 159
Section 12.22 No Third Party Beneficiaries.............................................................. 159
Section 12.23 Prior Agreements.......................................................................... 160
Section 12.24 Recourse.................................................................................. 160
Section 12.25 Loan Assignability........................................................................ 162
Section 12.26 Exculpation of Lender..................................................................... 163
Section 12.27 Exculpation of REIT Trustee............................................................... 163
ARTICLE XIII RETENTION OF SERVICER..................................................................... 163
Section 13.1 Retention of Servicer..................................................................... 163
</TABLE>
<TABLE>
<S> <C>
SCHEDULES
Schedule A - Mortgaged Properties
Schedule B - Borrower Entities, Member Entities and Second-Tier Member Entities
Schedule C - Allocated Loan Amounts
Schedule D - Management Contracts
Schedule E - Deferred Maintenance and Environmental Conditions
Schedule F - Franchise Agreements
Schedule G - Release Amounts
Schedule H - Adjusted NOI Calculation Percentages
Schedule I - Maximum Allowed Lease Payments and License Fees per Property
Schedule J - Threshold Amounts per Property
Schedule K - Liquor License Agreements
Schedule L - Intentionally Omitted
Schedule M - Intentionally Omitted
Schedule N - CMBS Agreed Upon Procedures
Schedule 3.1(p) - Properties for which Seismic Reports are Required by Lender
Schedule 3.1(u) - List of Tenants to Provide SNDAs
Schedule 4.1(d) - Litigation
Schedule 4.1(e) - Necessary Consents to Assignment
Schedule 4.1(k) - Schedule of Material Agreements
Schedule 4.1(u) - Insurance Claims or Risks of Impaired Insurance Coverage
Schedule 4.1(x)(i) - Schedule of Engineering Reports, Environmental Reports and Seismic Reports
Schedule 4.1(y) - Schedule of Tenant Security Deposits and Letters of Credit
Schedule 4.1(y)(ii) - Leases with Overdue Landlord Obligations and Pending Monetary Claims by Tenant
Schedule 4.1(y)(iii) - Leases with Outstanding Brokerage or Leasing Commissions
</TABLE>
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<TABLE>
<S> <C>
Schedule 4.1(y)(vi) - Leases with Delinquent Tenant Monetary Obligations
Schedule 4.1(gg) Compliance with ERISA
Schedule 4.1(hh) Rents Paid More Than One Month in Advance
Schedule 4.1(ii) Legal Compliance
Schedule 9.2 - Capital Budgets
Schedule 9.6 - Quarterly FF&E Reserve Amount
EXHIBITS
Exhibit A - Form of Clearing Account Agreement
Exhibit B - Form of Cooperation Agreement
Exhibit C - Form of Deposit Account Agreement
Exhibit D - Form of Subordination and Intercreditor Agreement
Exhibit E - Form of Subordination, Nondisturbance and Attornment Agreement
Exhibit F - Form of Subordination, Assignment and Attornment Agreement
Exhibit G - Form of Disbursement Request
Exhibit H - Form of Tenant Estoppel Certificate
Exhibit 2.5 - Lot Line Agreement (Mission Hills)
</TABLE>
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LOAN AGREEMENT, dated as of January 27, 1999 (as amended, restated,
replaced, supplemented or otherwise modified from time to time in accordance
with the terms hereof, this "Agreement"), among the eight entities identified as
"Borrowers" on Schedule B hereto, Starwood Operator I LLC, Starwood Operator II
LLC and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, a division of Lehman
Brothers Holdings Inc., a Delaware corporation.
All capitalized terms used herein shall have the respective meanings
set forth in Section 1.1 hereof.
W I T N E S S E T H:
WHEREAS, Borrowers desire to obtain the Loan from Lender and secure
the same by, among other things, the Borrowers' respective interests in the
eleven hotel properties identified on Schedule A hereto and the Operator's
interest in the Operating Leases and the eleven hotel properties identified in
Schedule A hereto;
WHEREAS, Lender is willing to make the Loan to Borrowers, subject to
and in accordance with the terms of this Agreement and the other Loan Documents;
NOW, THEREFORE, in consideration of the making of the Loan by Lender
and the covenants, agreements, representations and warranties set forth in this
Agreement, the parties hereto hereby covenant, agree, represent and warrant as
follows:
ARTICLE I
DEFINITIONS; PRINCIPLES OF CONSTRUCTION
Section 1.1 Definitions.
For all purposes of this Agreement, except as otherwise expressly
provided herein:
"Acceptable Franchisor" shall mean, with respect to each Property,
(i) Sheraton, Westin, Sponsor, or any Affiliate thereof (provided that at the
time such party becomes a Franchisor it meets the requirements set forth in
clause (ii)(A) hereof); or (ii) any reputable and experienced professional hotel
franchising company which (A) shall have at least five years' experience in the
franchising or licensing of upscale urban and resort hotel properties
substantially similar to the Properties and located in similar markets, (B)
shall have franchise or license agreements, at the time of its engagement as
Franchisor, with respect to not fewer than twenty full-service hotel properties
(excluding the Properties) containing not fewer than 5,000 hotel rooms, and (C)
with respect to which the Borrowers have obtained a Rating Confirmation.
"Acceptable Property Manager" shall mean (i) Sheraton, Westin,
Sponsor, or any Affiliate thereof; or (ii) any reputable and experienced
professional hotel management company which (A) shall have at least five years'
experience in the management of hotel properties substantially similar to the
Properties and located in similar markets, (B) shall have under
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<PAGE> 7
management, at the time of its engagement as Property Manager, not fewer than
twenty such full-service hotel properties (excluding the Properties) containing
not fewer than 5,000 hotel rooms, and (C) with respect to which the Borrowers
have obtained a Rating Confirmation.
"Account Collateral" means, collectively, the Collateral Accounts
and all sums at any time held, deposited or invested therein, together with any
interest or other earnings thereon, and all proceeds thereof (including, without
limitation, proceeds of sales and other dispositions), whether accounts, general
intangibles, chattel paper, deposit accounts, instruments, documents or
securities.
"Accrued Additional Interest" shall have the meaning set forth in
Section 2.2.1(d).
"Additional Interest" shall mean the excess of the amount payable as
interest under the Notes at the Revised Interest Rate over the amount that would
have been payable as interest under the Notes at the Initial Interest Rate.
"Adjusted NOI" means, for any specified period and specified
Property, Net Operating Income, less the amount which is 4% of Rents during such
period with respect to such Property (which amount is intended to approximate
FF&E expenditures payable during such period), less the greater of actual fees
payable to the applicable Property Managers and 4% of Rents received by the
applicable Obligor during such period with respect to such Property.
"Affiliate" shall mean a Person or Persons directly or indirectly,
through one or more intermediaries, Controlling, Controlled by or under common
Control with the Person or Persons in question.
"Allocated Loan Amount" means, with respect to any Property, the
portion of the Loan Amount allocated thereto, as set forth on Schedule C hereto.
"ALTA" shall mean American Land Title Association, or any successor
thereto.
"Alteration" shall mean, with respect to any Property, any single
plan of demolition, alteration, installation, improvement or decoration of or to
such Property or any part thereof or the Improvements thereon.
"Annual Budget" shall mean Borrowers' annual operating and capital
budget for any Fiscal Year setting forth, in accordance with the Uniform System
of Accounts for Hotels, current edition, and in reasonable detail Borrower's
good faith estimates of (i) all Operating Income, (ii) all Operating Expenses,
including Franchise Fees and Management Fees, (iii) all Capital Expenditures,
(iv) the Monthly FF&E Reserve Amount for each month during such Fiscal Year and
(v) Borrowers' marketing strategy for each Property. The amounts referred to in
clauses (iv) and (v) of this definition may be set forth under cover of a
separate report or reports from the amounts set forth in clauses (i) through
(iii).
"Anticipated Repayment Date" shall mean the Payment Date occurring
on February 1, 2009 (or, if such date is not a Business Day, the next preceding
Business Day).
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<PAGE> 8
"Appraisal" means an as-is appraisal of each Property, prepared not
more than thirty (30) days (or such longer period as shall be acceptable to
Lender in its sole discretion) prior to the Closing Date or other applicable
delivery date by Hospitality Valuation Services, Inc., or another member of the
American Institute of Real Estate Appraisers selected by Lender (or, if such
appraiser is selected by Obligor, such appraiser shall be independent from the
Obligors, shall be acceptable to Lender and shall have a national reputation and
at least ten (10) years' experience in evaluating and appraising properties
similar in type and geographic location as the Properties), which appraisal
shall meet the minimum appraisal standards for national banks promulgated by the
Comptroller of the Currency pursuant to Title XI of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989, as amended (FIRREA).
"Approved Banks" shall mean banks or other financial institutions
which have (i) (a) a minimum net worth of $500,000,000 or (b) total assets of
$5,000,000,000 and (ii) a minimum long-term senior unsecured debt rating from
the Rating Agencies at least equivalent to the Required Rating, in all cases
excluding any institution that owns or controls (or any institution that has an
Affiliate that owns or controls) a competitor of Sponsor.
"Approved Transferee" shall mean:
(i) any Person, or any Person that Controls, is Controlled by or is
under common Control with a Person, that satisfies each of the following two
categories, so long as such Person is not a Disqualified Transferee:
(A) any one of the following:
(1) a pension fund, pension trust or pension account; (2) an
insurance company; (3) a national money-center bank; or (4) a
Person with a long-term unsecured debt rating from the Rating
Agencies of at least investment grade; and
(B) each of the following (all of the figures in this clause (B)
are to be calculated exclusive of the Properties):
(1) a Person with a current net worth of $250 million or
more and that owns real estate assets of $500 million or more
or, if such Person is a pension fund advisor, one which Controls
$1 billion or more of real estate equity investments or (2) a
pension fund, pension trust or pension account that has total
real estate equity investments of $500 million or more, managed
by a Person that Controls at least $1 billion in real estate
equity investments; and
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<PAGE> 9
(ii) any Person approved by Lender in Lender's sole discretion
and affirmed by a Rating Confirmation.
"Assignment" shall have the meaning set forth in Section 5.1(y) hereof.
"Assignment of Agreements" shall mean, with respect to each
Property, that certain first priority Assignment of Agreements, Licenses,
Permits and Contracts dated as of the date hereof, from the Obligor that owns
and/or operates such Property, as assignor, to Lender, as assignee, assigning to
Lender as security for the Loan, to the extent assignable under law, all of such
Obligor's interest in and to the Property Management Agreement or Operating
Lease relating to such Property, the Franchise Agreement (if applicable)
relating to such Property, all other Material Agreements relating to such
Property and all other licenses, permits and contracts necessary or desirable
for the use and operation of the Property, as the same may be amended, restated,
replaced, supplemented or otherwise modified from time to time pursuant to the
provisions thereof or of the other Loan Documents.
"Assignment of Leases" shall mean, with respect to each Property,
the Assignment of Leases and Rents, dated as of the date hereof, from each
Borrower, as assignor, to Lender, as assignee, together with any amendments
thereto pursuant to the provisions thereof, assigning all the Leases and Rents
with respect to such Property, and each Operator Assignment of Leases and Rents,
dated as of the date hereof, from each Operator, as assignor, to Lender, as
assignee, together with any amendments thereto pursuant to the provisions
thereof, assigning all the Leases and Rents with respect to such Property.
"Bank Group" shall mean Bankers Trust Company and the Chase
Manhattan Bank as Administrative Agents on behalf of themselves and the other
Lenders, Lehman Commercial Paper Inc. and Bank of Montreal as Syndication Agents
on behalf of themselves and the other lenders, and the other lenders under the
Credit Agreement, dated as of February 23, 1998 (as amended through the date
hereof, the "Credit Agreement"), among Starwood Hotels & Resorts, SLT Realty
Limited Partnership, Starwood Hotels & Resorts Worldwide, Inc., Chess
Acquisition Corp. (and ITT Corporation, its successor by merger), each Alternate
Currency Revolving Borrower (as defined in the Credit Agreement) and the Bank
Group.
"Bankruptcy Code" shall mean Title 11 of the United States Code
entitled "Bankruptcy" as the same may be amended, modified, succeeded or
replaced, from time to time.
"Basic Carrying Costs" shall mean, with respect to any Property, the
sum of the following costs associated with the Property: (i) Taxes and Other
Charges, (ii) Insurance Premiums and (iii) ground rent, if any.
"Beneficial" when used in the context of beneficial ownership has
the analogous meaning to that specified in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended.
"Borrower" shall mean each of the eight limited liability companies
set forth under the caption "Borrowers" on Schedule B hereto, in each case
together with any of its
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successors and assigns as permitted hereunder, which Persons are collectively
referred to herein as "Borrower" or "Borrowers".
"Business Day" means any day other than (i) a Saturday and a Sunday
and (ii) a day on which federally insured depository institutions in the State
of New York or the state in which the offices of Lender, its Servicer or its
Special Servicer, if any, and any Trustee in any Securitization, are located are
authorized or obligated by law, governmental decree or executive order to be
closed.
"Capital Expenditures" means, with respect to each Property, hard
and soft costs incurred by the related Obligor with respect to replacements and
capital repairs made to such Property (including, without limitation, repairs
to, and replacements of, the structural components, roofs, building systems,
parking garages and parking lots, and additions to, and replacements of, FF&E),
in each case to the extent such items are capitalized in accordance with GAAP.
"Cash" shall mean coin or currency of the United States of America
or immediately available federal funds, including such funds delivered by wire
transfer.
"Cash and Cash Equivalents" shall mean (i) Cash, (ii) U.S.
Government Securities, (iii) interest bearing or discounted obligations of
federal agencies and government sponsored entities or pools of such instruments
offered by Approved Banks and dealers, including, without limitation, Federal
Home Loan Mortgage Corporation participation sale certificates, Government
National Mortgage Association modified pass-through certificates, Federal
National Mortgage Association bonds and notes, Federal Farm Credit System
securities (provided all of the obligations described in this clause (iii) shall
be rated "AAA" by the Rating Agencies or backed by the full faith and credit of
the United States government for full and timely payment), (iv) time deposits,
domestic and Eurodollar certificates of deposit, bankers acceptances or
commercial paper rated at least A-1+ (or its equivalent) by the Rating Agencies,
and/or guaranteed by an entity having a long-term rating at least equal to the
Required Rating, (v) floating rate notes, other money market instruments and
letters of credit each issued by Approved Banks (provided that if the scheduled
maturity of any such note, instrument or letter of credit is more than six (6)
months after the date of purchase of such obligation by Borrower or Lender, the
note, instrument or letter of credit must be issued by a bank having a long-term
senior unsecured debt rating from the Rating Agencies at least equal to the
Required Rating), (vi) obligations issued by state and local governments or
their agencies, carrying a rating at least equal to the Required Rating and/or
guaranteed by an irrevocable letter of credit of an Approved Bank (provided that
if the scheduled maturity of any such obligation is more than six (6) months
after the date of purchase by Borrower or Lender and such obligation is
guaranteed by a letter of credit, the letter of credit guaranteeing such
obligation must be issued by an Approved Bank having a long-term senior
unsecured debt rating from each of the Rating Agencies at least equal to the
Required Rating), (vii) repurchase agreements with major banks and primary
government securities dealers fully secured by U.S. government or agency
collateral with a value equal to or exceeding the principal amount on a daily
basis and held in safekeeping (provided that at the time of purchase the
counterparty to such repurchase agreement must have a long-term senior
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unsecured debt rating at least equal to the Required Rating), (viii) investments
in money market funds and money market mutual funds all the assets of which are
comprised of investments described in clauses (i) through vii above, and (ix)
any other investment which the Rating Agencies confirm in writing will not in
and of itself result in a downgrading, qualification or withdrawal of any of the
ratings then assigned to any Certificates; provided that prior to the
Securitization, Lender shall make such determination consistent with Rating
Agency Requirements (as defined in the Cooperation Agreement). Except as
otherwise provided in this definition, Cash and Cash Equivalents shall not
include any investments commonly known as "derivatives", any investments
requiring a payment above par for an obligation, and under no circumstances
shall Cash and Cash Equivalents include interest-only strips. Any investment in
Cash and Cash Equivalents shall have a maturity date not later than one Business
Day prior to the date that the proceeds therefrom are required hereunder.
"Casualty" means a fire, explosion, flood, collapse or other
casualty affecting any of the Properties.
"Certificates" shall have the meaning specified in the Cooperation
Agreement.
"Clearing Account" shall have the meaning given such term in Section
9.1 hereof.
"Clearing Account Agreement" shall mean a Clearing Account Agreement
among Borrowers, Operators, Lender and a depository bank for the Clearing
Accounts relating to the collection and application of all the Rents from the
Properties, in the form set forth as Exhibit A hereto.
"Close Affiliate" of a Person shall mean that such Person (i)
satisfies the definition of "Affiliate" with respect to the other Person in
question and (ii) owns 100%, is owned 100% by, or is under 100% common ownership
with, the other Person in question.
"Closing Date" shall mean January 27, 1999.
"Closing Estoppel Requirement" shall mean the estoppel letters
referred to in the Post-Closing Agreement, dated as of January 27, 1999, among
the Borrowers and Lenders, and Section 23 of the Cooperation Agreement.
"Code" means the United States Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and the rulings
issued thereunder.
"Collateral Accounts" means, collectively, the Clearing Accounts,
the Deposit Account, the Tax, Insurance and Ground Rents Escrow Account, the
FF&E Reserve Account, the Deferred Maintenance and Environmental Conditions
Reserve Account, the Special Reserve Account and the Reserve Account.
"Commitment Fee" shall have the meaning specified in the Term Sheet.
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"Condemnation" shall mean a taking or voluntary conveyance during
the term hereof of all or any part of a Property or any interest therein or
right accruing thereto or use thereof, as the result of, or in settlement of,
any condemnation or other eminent domain proceeding by any Governmental
Authority, whether or not the same shall have actually been commenced.
"Consent, Security Agreement and Agreement of Liquor Manager" shall
mean, with respect to each Property pursuant to which the related Borrower does
not own a liquor license, that certain Consent, Security Agreement and Agreement
of Liquor Manager, dated as of the date hereof, between Lender and the relevant
liquor manager.
"Control" shall mean, with respect to a Person that is a
corporation, the right to exercise, directly or indirectly, more than fifty
percent (50%) of the voting rights attributable to the shares of the controlled
corporation, including the ability to exercise a veto, and, with respect to a
Person that is not a corporation, the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of the
controlled Person. "Controlling" and "Controlled" have meanings correlative
thereto.
"Contribution Agreement" shall mean that certain Contribution
Agreement, dated as of the date hereof, among the Borrowers.
"Cooperation Agreement" shall mean that certain Mortgage Loan
Cooperation Agreement, dated as of the date hereof, in the form attached hereto
as Exhibit B.
"Credit Facility" shall mean a clean, irrevocable, unconditional
transferable letter of credit, payable on sight draft only, in respect of which
neither the Borrowers nor Obligors have any reimbursement obligation and such
reimbursement obligation is not secured directly or indirectly by any Property
or any other property pledged to secure the Loan, in favor of Lender and
entitling Lender to draw thereon in New York City or in such other city as
Lender's corporate trust office may be located at the time of the issuance of
such letter of credit, issued by either (i) a domestic bank or the U.S. agency
or branch of a foreign bank, in each case, the long-term senior unsecured debt
rating of which at the time such letter of credit is delivered and throughout
the term of such letter of credit is not less than the Required Rating, or (ii)
any other bank approved by Lender in its Discretion, and as to which Borrowers
shall have obtained a Rating Confirmation. Such Credit Facility shall provide
that it will automatically renew unless the issuer of such Credit Facility
delivers written notice to Lender, as beneficiary, and Borrowers, as account
party, at least thirty (30) days prior to its expiration that such Credit
Facility will not be renewed, and, in such case, shall provide that Lender, as
beneficiary, shall be entitled to draw upon the full amount of such Credit
Facility. Without in any way limiting the generality of the foregoing, if any
Credit Facility is not renewed or replaced with another Credit Facility prior to
the date that is thirty (30) days prior to its expiration, Lender shall be
entitled to draw upon the full amount of such Credit Facility.
"Damages" to a party means any and all liabilities, obligations,
losses, damages, penalties, assessments, actions, judgments, suits, claims,
costs, expenses (including, without
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limitation, reasonable attorneys' fees whether or not suit is brought),
settlement costs and disbursements imposed on, incurred by or asserted against
such party.
"Debt" shall mean the outstanding principal amount set forth in, and
evidenced by, the Notes, together with all interest accrued and unpaid thereon
and all other sums due to Lender in respect of the Loan, including any Yield
Maintenance Payments and any sums due under the Notes, this Agreement, the
Security Instruments or in any other Loan Document.
"Debt Securities" shall mean debt obligations, other than U.S.
Government Securities, of any Person, whether evidenced by bonds, notes,
debentures, certificates, book entry deposits, certificates of deposit,
commercial paper, bankers acceptances, reinvestment letters, funding agreements
or other instruments, which (i) are not subject to prepayment or redemption
prior to maturity and (ii) are rated not less than the then Required Rating; or
any combination of the foregoing. Any Debt Securities delivered to Lender as
collateral for an obligation shall mature not less than one (1) Business Day
prior to the due date of such obligation.
"Debt Service" shall mean, with respect to any specified date or a
particular period of time, scheduled principal, if any, and interest payments
under the Notes due as of such date or payable during such period (including the
last day thereof), as applicable.
"Debt Service Coverage Ratio" shall mean, as of any date, with
respect to a specified Property or Properties, a ratio in which (a) the
numerator is Adjusted NOI of the applicable Property or Properties for the
complete 12-month period immediately preceding such date and (b) the denominator
is the aggregate Debt Service in respect of the Notes for the complete 12-month
period immediately following such date (other than any Defeased Notes, except as
set forth in Section 2.4.2A.(c)), assuming a loan constant (comprised of
interest and amortization) of 8.5627%.
"Default" shall mean the occurrence of any event under any of the
Loan Documents which, but for the giving of notice or passage of time, or both,
would be an Event of Default.
"Default Rate" shall mean a rate per annum equal to the lesser of
(i) the maximum rate permitted by applicable law and (ii) the greater of (x) 500
basis points in excess of the applicable Interest Rate and (y) the Prime Rate
plus one (1%).
"Defeasance" shall have the meaning set forth in Section 2.3.2
hereof.
"Defeasance Deposit" shall mean an amount equal to the sum of (A)(i)
with respect to a total Defeasance, all costs and expenses incurred or to be
incurred in the purchase of U.S. Government Securities (including, without
limitation, the purchase price thereof) necessary to meet the Scheduled
Defeasance Payments, or (ii) with respect to a partial Defeasance in connection
with the release of one or more Properties, the Release Amount for such Property
or Properties plus without duplication all costs and expenses (including the
purchase price) incurred or to be incurred in the purchase of U.S. Government
Securities necessary to meet the Scheduled Defeasance Payments relating to such
Release Amount; and (B) in both cases, any revenue,
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documentary stamp or intangible taxes or any other tax or charge due in
connection with any transfer of the Notes, the creation of one or more Defeased
Notes and Undefeased Notes, if applicable, any transfer of one or more Defeased
Notes or otherwise required to accomplish the agreements of Section 2.3.2
hereof.
"Defeased Note" shall have the meaning set forth in Section
2.3.2(a)(vi) hereof.
"Deferred Maintenance Account" shall have the meaning set forth in
Section 9.6 hereof.
"Deferred Maintenance and Environmental Conditions" shall mean,
collectively, the conditions at the Properties described on Schedule E hereto as
the "Deferred Maintenance and Environmental Conditions."
"Deferred Maintenance and Environmental Conditions Reserve Amount"
shall mean $3,812,501.
"Deposit Account" shall have the meaning given such term in Section
9.1 hereof.
"Deposit Account Agreement" shall mean an agreement among Obligors,
Lender and the depositary bank, if any, for the Deposit Account, relating to the
collection and application of all the Rents from each Property, which agreement
shall be in substantially the form attached hereto as Exhibit C, with such
changes therein as shall be mutually agreeable to the parties thereto.
"Discretion" shall mean discretion exercised in a manner consistent
with that of a prudent institutional lender of a loan which would qualify for a
"shadow rating" of no less than investment grade (i.e., not less than BBB- by
S&P and Baa3 by Moody's) ("Investment Grade") intended for securitization (with
Certificates rated no less than Investment Grade) and with a principal amount
comparable to the Loan Amount, a maturity date comparable to the Maturity Date
and secured by a pool of properties comparable to the Properties.
"Disqualified Transferee" shall mean any Person that, or any Person
that Controls, is Controlled by or is under common Control with a Person that,
(i) has defaulted, or is in breach, beyond any applicable cure period, of its
obligations, under any written agreement with Lender, any Affiliate of Lender,
any financial institution or other Person providing or arranging financing; (ii)
has commenced any proceeding against Lender, any Affiliate of Lender, any
financial institution or other Person providing or arranging financing under a
commitment letter, loan agreement, letter of credit, unsecured credit facility,
mortgage loan or other written financing arrangement; (iii) has been convicted
in a criminal proceeding for a felony or a crime involving moral turpitude or
that is an organized crime figure or is reputed (as determined by Lender in its
sole discretion) to have substantial business or other affiliations with an
organized crime figure; (iv) has at any time filed a voluntary petition under
the Bankruptcy Code or any other federal or state bankruptcy or insolvency law;
(v) as to which an involuntary petition has at any time been filed under the
Bankruptcy Code or any other federal or state bankruptcy or insolvency law; (vi)
has at any time filed an answer consenting to or acquiescing in any
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involuntary petition filed against it by any other Person under the Bankruptcy
Code or any other federal or state bankruptcy or insolvency law; (vii) has at
any time consented to or acquiesced in or joined in an application for the
appointment of a custodian, receiver, trustee or examiner for itself or any of
its property; (viii) has at any time made an assignment for the benefit of
creditors, or has at any time admitted its insolvency or inability to pay its
debts as they become due; or (ix) has been found by a court of competent
jurisdiction or other Governmental Authority in a comparable proceeding to have
violated any federal or state securities laws or regulations promulgated
thereunder.
"Duff" shall mean Duff & Phelps Credit Rating Co.
"Eligible Account" shall mean (i) an account or account maintained
with a federal or state-chartered depository institution or trust company which
complies with the definition of Eligible Institution, or (ii) a segregated trust
account or accounts maintained with the corporate trust department of a federal
depository institution or state-chartered depository institution subject to
regulations regarding fiduciary funds on deposit similar to Title 12 of the Code
of Federal Regulations Section 9.10(b) which, in either case, has corporate
trust powers, acting in its fiduciary capacity.
"Eligible Collateral" shall mean U.S. Government Securities, Debt
Securities, Credit Facility or Cash and Cash Equivalents, or any combination
thereof.
"Eligible Institution" shall mean an institution whose (i)
commercial paper, short-term debt obligations or other short-term deposits are
rated at least "A-1+" or the equivalent by the Rating Agencies, if the
deposits are to be held in the account for thirty (30) days or less, or (ii)
long-term senior unsecured debt obligations are rated at least "AA" or the
equivalent, if the deposits are to be held in the account for thirty (30) days
or more.
"Employee Benefit Plan" shall mean any employee pension benefit plan
subject to the provisions of Title IV of ERISA or subject to the minimum funding
standards under Part 3 of Title I of ERISA or Section 412 of the Code or Section
302 of ERISA, and in respect of which the Obligor or any ERISA Affiliate is (or,
if such plan were terminated, would under Section 4069 of ERISA be deemed to be)
an "employer" as defined in Section 3(5) of ERISA.
"Engineer" means Law Engineering and Environmental Services Inc. or
such Independent Engineer as shall be reasonably approved by Lender.
"Engineering Report" means the structural engineering report or
reports with respect to a Property, including reports on the compliance of such
Property with the terms of the Americans with Disabilities Act and applicable
building code, prepared by an Engineer and delivered to Lender in connection
with the Loan, and any amendments or supplements thereto delivered to Lender.
"Environmental Auditor" means Law Engineering and Environmental
Services Inc. or any independent licensed or registered environmental auditor
that is licensed or registered
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in the jurisdiction where a Property is located, if required by the laws of such
jurisdiction, not affiliated with Obligor or Lender, and reasonably approved by
Lender.
"Environmental Claim" means any written notice, claim, proceeding,
investigation, demand or other communication by any Person or Governmental
Authority alleging or asserting liability with respect to Obligor or a Property
arising out of, based on or resulting from (i) the presence, Use or Release of
any Hazardous Substance, (ii) any fact, circumstance, condition or occurrence
forming the basis of any violation, or alleged violation, of any Environmental
Law, or (iii) any alleged injury or threat of injury to property, health or
safety or to the environment caused by Hazardous Substances.
"Environmental Indemnity" shall mean that certain Environmental
Indemnity Agreement, dated as of the date hereof, executed by each Obligor and
each Sponsor in connection with the Loan for the benefit of Lender.
"Environmental Laws" means any and all present and future federal,
state or local laws, statutes, ordinances or regulations, any judicial or
administrative orders, decrees or judgments thereunder, and any permits,
approvals, licenses, registrations, filings and authorizations, in each case as
now or hereafter in effect, relating to the pollution, protection or cleanup of
the environment, the impact of Hazardous Substances on property, health or
safety, or the Use or Release of Hazardous Substances.
"Environmental Reports" means a "Phase I Environmental Site
Assessment" as referred to in the ASTM Standard Practice for Environmental Site
Assessments, E 1527-97 (and, if necessary, a "Phase II Environmental Site
Assessment"), prepared by an Environmental Auditor and delivered to Lender and
any amendments or supplements thereto delivered to Lender, and shall also
include any other environmental reports delivered to Lender pursuant to this
Agreement and the Environmental Indemnity.
"Equipment" shall have the meaning set forth in the Security
Instruments.
"ERISA" means the United States Employee Retirement Income Security
Act of 1974, as amended from time to time, and the regulations promulgated and
the rulings issued thereunder.
"ERISA Affiliate" at any time, means each trade or business (whether
or not incorporated) that would, at the time, be treated together with Obligor
as a single employer under Title IV or Section 302 of ERISA or Section 412 of
the Code.
"ERISA Event" means (i) a "reportable event" described in Section
4043 of ERISA (other than a "reportable event" not subject to the provision for
30-day notice to the PBGC and other than a reportable event described in Section
4043(c)(9) through (12) of ERISA), (ii) the incurrence of a material liability
by the Borrower or any ERISA Affiliate as a result of the withdrawal of the
Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year
in which it was a "substantial employer" as defined in Section 4001(a)(2) of
ERISA or by reason of the provisions of Section 4064 of ERISA upon the
termination of a Multiple Employer
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<PAGE> 17
Plan, (iii) the provision or filing of a notice of intent to terminate a Plan
other than in a standard termination within the meaning of Section 4041 of ERISA
or the treatment of a Plan amendment as a distress termination under Section
4041 of ERISA, (iv) the institution of proceedings to terminate a Plan by the
PBGC, or (v) any other event or condition which might reasonably be expected to
constitute grounds for the termination of, or the appointment of a trustee to
administer, any Plan other than in a standard termination within the meaning of
Section 4041 of ERISA or the imposition of any lien on the assets of the
Borrower under ERISA, including as a result of the operation of Section 4069 of
ERISA.
"Event of Default" shall have the meaning set forth in Section
10.1(a) hereof.
"Expansion" shall mean any single plan of expansion or reduction of
a Property or any portion thereof or the Improvements thereon.
"Extended Maturity Date" shall mean, if Lender exercises the
Extension Option, February 1, 2024, or if such day is not a Business Day then on
the first Business Day preceding such date, or such earlier date on which the
final payment of principal of the Notes becomes due and payable as herein or
therein provided, whether at such stated maturity date, by declaration of
acceleration, or otherwise.
"Extension Option" shall have the meaning given in Section 2.1.1
hereof.
"FF&E" means furniture, fixtures and Equipment for each Property.
"FF&E Reserve Account" shall have the meaning set forth in Section
9.5(a) hereof.
"Final Completion" shall mean, with respect to any specified work,
the final completion of all such work, including the performance of all "punch
list" items, as confirmed by an Officer's Certificate and, with respect to any
Material Alteration or Material Expansion, a certificate of the Independent
Architect.
"Fiscal Year" shall mean the period commencing on the Closing Date
and ending on and including December 31 of the calendar year in which the
Closing occurs and thereafter each twelve month period commencing on January 1
and ending on December 31 until the Debt is repaid in full, or such other fiscal
year of Borrower as Borrower may select from time to time with the prior consent
of Lender, such consent not to be unreasonably withheld.
"Fitch" shall mean Fitch IBCA, Inc.
"Foreign Pension Plan" shall mean any plan, fund (including without
limitation, any superannuation fund) or other similar program established or
maintained outside the United States by any Obligor primarily for the benefit of
employees of such Obligor residing outside the United States of America, which
plan, fund or other similar program provides, or results in, retirement income,
a deferral of income in contemplation of retirement or payments to be made
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<PAGE> 18
upon termination of employment, and which plan is not subject to ERISA or the
Code and which plan, fund or similar program could result in liability or other
obligation or lien to any Obligor.
"Franchise Agreement" means, with respect to each Property, any
license or franchise agreement concerning the operation of hotel licenses or
franchises at such Property between the applicable Obligor and the applicable
Franchisor, including the License Agreements, as the same may be amended from
time to time in accordance with the provisions of this Agreement, as set forth
on Schedule F.
"Franchise Fees" means all fees, commissions, expenses and other
compensation (including, without limitation, any base fees, trade name fees,
incentive fees, marketing and advertising fees) payable by an Obligor to a
Franchisor, which Franchise Fees shall be commercially reasonable based upon the
then current market for the area in which the related Property is located for a
property of similar type and quality, but which in no event shall exceed 4% of
hotel room revenues.
"Franchisor" means the current hotel franchisor or licensor with
respect to a Property and any successor franchisor or licensor approved by
Lender in Lender's Discretion.
"Franchisor Letter" shall mean, with respect to each Property, the
Subordination, Assignment and Attornment Agreement from the related Franchisor
to Lender acknowledging the Loan and providing certain assurances, satisfactory
to Lender, with respect thereto.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as of the relevant date in question, consistently
applied.
"Governmental Authority" means any national or federal government,
any state, regional, local or other political subdivision thereof with
jurisdiction and any Person with jurisdiction exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government
or quasi-governmental issues (including, without limitation, any court).
"Ground Lease" shall mean the leases or licenses in which any
Borrower is the lessee (or licensee) thereunder relating to or affecting the use
and occupancy of the Properties, or any part thereof, as the same may be
amended, restated, replaced, supplemented or otherwise modified from time to
time in accordance with the terms hereof.
"Ground Leased Property" shall mean, with respect to any Ground
Lease and any Property, that portion of such Property demised to a Borrower
under such Ground Lease.
"Hazardous Substance" means, collectively, (i) any petroleum or
petroleum products or waste oils, explosives, radioactive materials, asbestos,
urea formaldehyde foam insulation, polychlorinated biphenyls ("PCBs"), and
lead-based paint, (ii) any chemicals or other materials or substances which are
now or hereafter become defined as or included in the definitions of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely hazardous
wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants",
"contaminants", "pollutants" or words of similar import under any Environmental
Law, and (iii)
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<PAGE> 19
any other chemical or any other material or substance, exposure to which is now
or hereafter prohibited, limited or regulated under any Environmental Law.
"Historical Calendar Years" shall mean 1996, 1997 and 1998.
"Improvements" shall have the meaning set forth in the Security
Instrument.
"Independent Architect" shall mean any reputable architecture or
construction management firm selected by Obligor that is licensed or registered
in the jurisdiction where a Property is located, if required by the laws of such
jurisdiction, and not affiliated with and is in fact independent from Lender or
Obligors.
"Independent Director" of any entity means a duly appointed member
of the board of directors of such entity reasonably satisfactory to Lender who
shall not have been at the time of such individual's appointment, and who may
not have been at any time during the preceding five years (i) a shareholder or
director (other than an independent director) of, or an officer or employee of,
an Obligor (except in the context of this transaction), a Sponsor, or any of
their respective shareholders or Affiliates, (ii) based on information provided
by such individual and reasonably believed by Obligors, a customer of, or
supplier or service provider (including a provider of professional services) to,
an Obligor, a Sponsor, or any of their respective shareholders or Affiliates
such that such individual's annual revenues derived from any or all Obligors,
Sponsors, and their respective shareholders or Affiliates exceeds five percent
(5%) of such individual's annual revenues for any of the preceding five years,
or (iii) a member of the immediate family of any such shareholder, officer,
employee, supplier or customer or a member of the immediate family of any other
director of such entity.
"Independent Engineer" shall mean any independent licensed or
registered engineering firm selected by Obligor that is licensed or registered
in the jurisdiction where a Property is located, if required by the laws of such
jurisdiction, and not affiliated with Lender or Obligors.
"Initial Interest Rate" means with respect to the Note or Notes, a
rate per annum as set forth in such Note or Notes, including Schedule A to such
Note or Notes.
"Initial Maturity Date" shall mean February 1, 2009, or if such day
is not a Business Day then on the immediately preceding Business Day, or such
earlier date on which the final payment of principal of the Notes becomes due
and payable as herein or therein provided, whether at such stated maturity date,
by declaration of acceleration, or otherwise.
"Insufficiency" means, at any time with respect to any Plan, the
amount, if any, of such Plan's unfunded benefit liabilities within the meaning
of Section 4001(a)(18) of ERISA.
"Insurance Premiums" shall have the meaning set forth in Section
8.1.1(d) hereof.
"Insurance Requirements" shall mean all terms of any insurance
policy required hereunder covering or applicable to the Properties or any part
thereof, all requirements of the
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<PAGE> 20
issuer of any such policy, and all orders, rules, regulations and other
requirements of the National Board of Fire Underwriters (or any other body
exercising similar functions) applicable to or affecting the Properties or any
part thereof or any use of the Properties or any part thereof.
"Interest Accrual Period" means, with respect to a Payment Date, the
period beginning on (and including) the first (1st) day of the month preceding
such Payment Date (or, with respect to the first Interest Accrual Period,
commencing on and including the Closing Date) and ending on (and including) the
last day of such month.
"Interest Rate" shall mean, as applicable, (i) the Initial Interest
Rate, with respect to the period from and including the Closing Date to but
excluding the first Payment Date following the tenth anniversary of the Closing
Date, and (ii) in the event that Lender exercises the Extension Option, with
respect to the period from (and including) and after the Anticipated Repayment
Date, the Revised Interest Rate.
"knowledge" or words of similar import shall mean the actual and
constructive knowledge of a Person or, if such Person is not an individual, of
such Person's representatives, agents, employees, officers or directors who
would be reasonably likely to have material information as to the relevant
subject matter.
"Lease" shall mean any lease, sublease, sub-sublease, license,
letting, concession, occupancy agreement or other agreement (whether written or
oral and whether now or hereafter in effect) (excluding the Operating Leases and
Ground Leases), existing as of the date hereof or hereafter entered into by an
Obligor, pursuant to which any Person is granted a possessory interest in, or
right to use or occupy all or any portion of any space in a Property, and every
modification, amendment or other agreement relating to such lease, sublease,
sub-sublease, or other agreement entered into, in accordance with the terms of
the Loan Documents, in connection with such lease, sublease, sub-sublease, or
other agreement and all agreements related thereto, and every guarantee of the
performance and observance of the covenants, conditions and agreements to be
performed and observed by the other party thereto.
"Leasing Commissions" shall mean leasing commissions required to be
paid by an Obligor in connection with the leasing of space to Tenants at a
Property pursuant to the Leases entered into by such Obligor in accordance with
the terms hereof and payable in accordance with either (i) a Property Management
Agreement, or (ii) third-party/arm's-length brokerage agreements, provided that
the commissions payable pursuant thereto are commercially reasonable based upon
the then current brokerage market for the area in which such Property is located
for property of a similar type and quality.
"Legal Requirements" shall mean:
(i) all governmental statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees and injunctions of Governmental
Authorities (including, without limitation, Environmental Laws)
affecting an Obligor or a Property or any part thereof or the
construction,
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<PAGE> 21
ownership, use, alteration or operation thereof, or any part thereof
(whether now or hereafter enacted and in force),
(ii) all permits, licenses and authorizations and regulations
relating thereto, and
(iii) all covenants, conditions and restrictions contained in any
instruments at any time in force (whether or not involving Governmental
Authorities) affecting a Property or any part thereof which, in the case
of this clause (iii), require repairs, modifications or alterations in
or to a Property or any part thereof, or in any material way limit or
restrict the existing use and enjoyment thereof.
"Lender" shall mean Lehman Brothers Holdings Inc. d/b/a Lehman
Capital, a division of Lehman Brothers Holdings Inc., a Delaware corporation, or
its successors or assigns.
"Lender Expenses" shall mean all origination costs and all
reasonable out-of-pocket expenses and costs incurred by Lender (or any of its
affiliates) with respect to the making of the Loan (or (if incurred prior to the
Closing) in connection with any Securitization) (as well as such costs and
expenses as Lender (or any of its affiliates) customarily includes in
reimbursables, such as the duplication and binding of presentation books),
including for preparation of audits, agreed-upon-procedures, reasonable travel
expenses, preparation of environmental, seismic and engineering reports, credit
reports, appraisals, preparation, negotiation, execution and delivery of this
Agreement and the other Loan Documents and the consummation of the transactions
contemplated hereby and thereby (including reasonable attorneys' fees and
disbursements in connection therewith and in connection with Lender's due
diligence), rating agency fees and expenses, printing costs, mortgage recording
taxes and other document filing fees and any other reasonable out-of-pocket
expenses relating to credit and collateral evaluations.
"License Agreements" shall mean those certain License Agreements,
each dated as of January 27, 1999, between Sheraton or Westin on the one hand
and Operator I (or, in the case of the Properties known as the Sheraton San
Diego and the Phoenician, the applicable Borrower) on the other hand.
"Licenses" shall have the meaning set forth in Section 4.1(v)
hereof.
"Lien" shall mean any mortgage, deed of trust, security title and/or
security interest through a security deed, lien (statutory or other), pledge,
hypothecation, assignment, preference, priority, security interest, or any other
encumbrance or charge on or affecting a Property or any portion thereof or an
Obligor, or any interest therein (including, without limitation, any conditional
sale or other title retention agreement, any sale-leaseback, any financing lease
having substantially the same economic effect as any of the foregoing, the
filing of any financing statement or similar instrument under the Uniform
Commercial Code or comparable law of any other jurisdiction, domestic or
foreign, and mechanics', materialmen's and other similar liens and
encumbrances).
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"Limited Liability Company" means, with respect to each Member, the
Obligor of which it is a Member.
"Liquor License Agreement" means those management agreements
relating to the operation of liquor sales at the Properties, set forth on
Schedule K hereto.
"Loan" shall mean the loans made to Borrowers by Lender pursuant
hereto and the other Loan Documents in the original principal amount of the Loan
Amount, and evidenced by the Notes and secured by the Security Instruments and
the other Loan Documents.
"Loan Amount" shall mean five hundred forty two million and 00/100
Dollars ($542,000,000.00).
"Loan Documents" shall mean, collectively, this Agreement, the
Notes, the Security Instruments, the Assignment of Agreements, the Assignment of
Leases, the Environmental Indemnity, the Deposit Account Agreement, the Clearing
Account Agreements, the Cooperation Agreement, the Consent, Security Agreement
and Agreement of Liquor Manager, the Subordination, Assignment and Attornment
Agreement, the Operator Guaranty, the Operator II Guaranty and any other
document now or hereafter executed and/or delivered by any Obligor or any
Sponsor or any Affiliate of such Persons pursuant to the requirements hereof or
of any other Loan Document in connection with the Loan.
"Low NOI Period" means, prior to the Initial Maturity Date, a period
(i) beginning with a Payment Date (the "Commencement Date") with respect to
which Adjusted NOI has been less than $86,407,994 for the NOI Test Period ending
on the second Payment Date preceding such Commencement Date and (ii) ending on
the last day of the second consecutive fiscal quarter following the applicable
Commencement Date for which Adjusted NOI for the related NOI Test Period is
equal to or exceeds $86,407,994.
"Major Tenant" shall mean a Tenant providing restaurant or other
food or beverage service at a Property, or any other Tenant occupying more than
2,500 rentable square feet at such Property, and/or providing for gross annual
rentals in excess of 2% of the gross annual revenues of such Property.
"Management Contracts" shall mean, with respect to each Property,
those certain Property Management Agreements, dated as of January 27, 1999, each
between Operator and Operator II as Property Manager (or, in the case of the
Properties known as the Sheraton Phoenician and the Sheraton San Diego), between
Operator II as Manager and the applicable Borrower, as set forth on Schedule D.
"Management Control" shall mean, with respect to any direct or
indirect interest in an Obligor or a Property, the primary responsibility to
make or the ability to veto all material decisions with respect to the
operation, management, financing and disposition of the specified interest.
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"Management Fees" shall mean, with respect to a Property, all fees,
commissions, expenses and other compensation (including, without limitation, any
base fees, trade name fees, incentive management fees, termination fees and all
fees in respect of liquor license operations) (and including, in the case of the
Operating Leases, any amounts to which the lessee is entitled thereunder)
payable by a Borrower to the related Property Manager or lessee under an
Operating Lease and under the Property Management Agreements, which Management
Fees shall be commercially reasonable based upon the then current market for the
area in which such Property is located for a property of similar type and
quality, but in no event (in the case of Management Fees payable to entities
which are not Affiliates of the Borrowers) to exceed 4% of the Rents of such
Property.
"Material Adverse Effect" means a material adverse effect upon (i)
the business operations, assets or condition (financial or otherwise) of an
Obligor, (ii) the ability of an Obligor to perform, or of Lender to enforce, any
material provision of any Loan Document, or (iii) with respect to a Property,
the value, use or enjoyment of such Property or the operation thereof.
"Material Agreements" means, with respect to a Property, the
Property Management Agreement relating thereto, the Franchise Agreement relating
thereto, any applicable Operating Agreement, any Ground Lease relating thereto,
any Operating Lease relating thereto, any Liquor License Agreement relating
thereto and all agreements with terms exceeding one year, requiring payments by
any Obligor per annum in excess of $100,000 and relating to the ownership,
development, use, operation, leasing, maintenance or repair of such Property.
"Material Alteration" shall mean, with respect to a Property, any
Alteration to be performed by or on behalf of the related Obligor at such
Property (other than an Alteration the cost of which a Tenant is obligated to
repay or reimburse to such Obligor and which such Obligor reasonably believes
will be so reimbursed, as applicable) the cost of which as reasonably estimated
by an Independent Architect, exceeds the Threshold Amount.
"Material Casualty" shall mean, with respect to a Property, a
Casualty where the loss (a) is in an aggregate amount equal to or in excess of
thirty percent (30%) of the outstanding Allocated Loan Amount relating to such
Property or (b) has caused material damage to thirty (30%) or more of the hotel
rooms and common areas (including banquet and conference facilities) located at
such Property.
"Material Condemnation" shall mean, with respect to a Property, a
Condemnation where the loss (a) is in an aggregate amount equal to or in excess
of thirty percent (30%) of the outstanding Allocated Loan Amount relating to
such Property or (b) has caused thirty percent (30%) of the hotel rooms and
common areas (including banquet and conference facilities) in such Property to
be unavailable for use as a hotel room.
"Material Expansion" shall mean, with respect to a Property, any
Expansion to be performed by or on behalf of the related Obligor at such
Property, the total cost of which, as reasonably estimated by an Independent
Architect, exceeds the Threshold Amount.
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"Maturity Date" shall mean the Initial Maturity Date, unless and
until Lender exercises the Extension Option, at which time it shall mean the
Extended Maturity Date.
"Member" shall mean each of the eight limited liability companies
set forth under the caption "Members" on Schedule B hereto, in each case
together with any of its successors and assigns as permitted hereunder.
"Monthly Debt Service Payment Amount" shall have the meaning set
forth in Section 2.2.1(b) hereof.
"Moody's" shall mean Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which Obligor or any ERISA Affiliate is making or
accruing an obligation to make contributions or has within any of the preceding
five plan years made or accrued an obligation to make contributions.
"Multiple Employer Plan" means an employee benefit plan, other than
a Multiemployer Plan, subject to Title IV of ERISA to which the Obligor or any
ERISA Affiliate and more than one employer other than the Obligor or an ERISA
Affiliate is making or accruing an obligation to make contributions, has within
any of the preceding five years made or accrued an obligation to make
contributions or, in the event that any such plan has been terminated, to which
the Obligor or any ERISA Affiliate made or accrued an obligation to make
contributions during any of the previous five plan years preceding the date of
termination of such plan.
"Net Operating Income" means, for any specified Property, the excess
of Operating Income over Operating Expenses for such Property for the trailing
twelve (12) month period.
"NOI Test Period" means each successive complete twelve (12) month
period ending on a Payment Date.
"Nonrecourse Carveout Indemnitor" means the Sponsors.
"Notes" shall mean collectively that certain Promissory Note or
Notes of even date herewith, each made by the Borrowers on a joint and several
basis in favor of Lender in the aggregate principal amount stated therein and
secured by all of the Properties, as the same may be amended, restated,
replaced, supplemented, consolidated or otherwise modified from time to time
pursuant to the provisions thereof or of the other Loan Documents, including any
Undefeased Notes that may exist from time to time, and "Note" shall mean any one
of the Notes.
"Obligations" means all of Borrowers' obligations with respect to
the Debt.
"Obligor" or "Obligors" shall mean the Borrowers, Operator and
Operator II.
"Officer's Certificate" shall mean a certificate made by an
individual authorized to act on behalf of an Obligor and, to the extent
applicable, any constituent Person with respect to
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<PAGE> 25
an Obligor. Without limiting the foregoing, if the individual signing the
certificate is doing so on behalf of a corporation, then such individual shall
hold the office of President, Vice President, senior or executive vice president
or Chief Financial Officer (or the equivalent) with respect to such corporation.
"Operating Agreements" shall mean, with respect to a Property,
reciprocal easement and/or operating agreements; covenants, conditions and
restrictions; and similar agreements affecting such Property and binding upon
and/or benefiting the related Obligor and/or other third parties.
"Operating Expenses" shall mean, for any specified period and any
Property, on an accrual basis, all expenses paid (or due and payable) by the
applicable Obligor (or by a Property Manager for the account of such Obligor)
during such period in connection with the operation of such Property (including
Basic Carrying Costs, Management Fees and Franchise Fees payable to
non-Affiliates, including any portion of such fees which constitute fees or
expenses charged for centralized services of the type set forth in Exhibit B of
the Management Contracts in place as of the date hereof, and also including such
centralized services fees payable to Affiliates of the Borrowers), as well as
bookkeeping, accounting, insurance costs, wages and other costs and expenses
incurred for such Property and legal expenses incurred in connection with the
operation of such Property, determined, in each case, consistently with GAAP.
"Operating Expenses" shall not include (i) depreciation or amortization or other
noncash items (other than expenses that are due and payable but not yet paid),
(ii) the principal of and interest on the Notes or any other indebtedness of the
applicable Borrower (including the Starwood Intercompany Mortgage Loan), (iii)
income taxes or other taxes in the nature of income taxes, (iv) any expenses
(including legal, accounting and other professional fees, expenses and
disbursements) incurred in connection with and allocable to the issuance of the
Notes, (v) the cost of Tenant Improvements, Leasing Commissions and any Capital
Expenditures for such Property (to the extent such items are capitalized in
accordance with GAAP), (vi) distributions to the members or partners in
Borrowers or any management or franchise fees or similar compensation payable to
any Affiliate of Borrowers (other than fees or expenses charged for centralized
services of the type set forth in Exhibit B of the Management Contracts, which
fees and expenses shall be considered to be Operating Expenses), and (vii) any
item of expense which otherwise would be considered within Operating Expenses
but is paid directly by any Tenant. Expenses that are accrued as Operating
Expenses during any period shall not be included in Operating Expenses when paid
during any subsequent period.
"Operating Income" shall mean, for any specified period and any
Property, all Rents received by the applicable Obligor (or by the applicable
Property Manager for the account of such Borrower) from any Person during such
period in connection with the operation of such Property, determined on a cash
receipts basis, other than:
(i) any Proceeds (other than business interruption insurance
proceeds or Condemnation Proceeds with respect to a temporary
Condemnation and, in any such case, only to the extent allocable to such
period);
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(ii) any proceeds resulting from the sale, exchange, transfer,
financing or refinancing of such Property;
(iii) any Rents attributable to Leases which are more than one month
delinquent (provided, that such delinquent Rents shall be included as
Operating Income when received, and shall be applied to the period
during which such Rents were required to have been paid absent such
delinquency) ;
(iv) any interest income from any source other than interest earned
on amounts deposited in Collateral Accounts in accordance with the
provisions of this Agreement; and
(v) any other extraordinary or non-recurring items.
"Operating Lease Payments" means the rent due and payable to
Borrowers under the Operating Leases, including, without limitation, all Base
Rent, Basic Rent and all Percentage Rent but excluding Additional Rent (as each
term is defined in the Operating Leases).
"Operating Leases" means those operating leases, each between a
Borrower as lessor and Operator as lessee, with respect to each Property other
than the Properties known as the Phoenician Hotel and the Sheraton San Diego
Hotel & Marina, and any other operating lease in the same form between a
Borrower and Operator or a subsidiary of Starwood Hotels and Resorts Worldwide
Inc. with respect to any Substitute Property.
"Operator" means Starwood Operator I LLC, as lessee under each
Operating Lease.
"Operator II" means Starwood Operator II LLC.
"Operator Guaranty" means the Guaranty, made as of the date hereof,
by Operator in favor of Lender.
"Operator II Guaranty" means the Guaranty, made as of the date
hereof, by Operator II in favor of Lender.
"Optional Defeasance Date" means the earlier of (a) the third
anniversary of the Closing Date and (b) the day after the second anniversary of
the "start-up day" (within the meaning of Section 860G(a)(9) of the Code) of the
REMIC Trust.
"Origination Adjusted NOI" means the Adjusted NOI, with respect to
all of the Properties, calculated by Lender as of the date hereof, which is
$115,210,659.
"Origination Debt Service Coverage Ratio" shall be 2.48x.
"Other Charges" shall mean all maintenance charges, impositions
other than Taxes, and any other charges, including vault charges and license
fees for the use of vaults,
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chutes and similar areas adjoining the Properties, now or hereafter levied or
assessed or imposed against the Properties or any part thereof and payable by an
Obligor.
"Participation" shall have the meaning set forth in Section 5.1(y)
hereof.
"Payment Date" shall mean the first (1st) day of each calendar month
or, if in any month the first (1st) day is not a Business Day, then the Payment
Date for such month shall be the first Business Day immediately preceding such
first (1st) day.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any entity succeeding to any or all of its
functions under ERISA.
"Permits" means, with respect to a Property, all licenses, permits,
variances and certificates used or issued in connection with the ownership,
operation, use or occupancy of such Property (including, without limitation,
business licenses, state health department licenses, licenses to conduct
business and all such other permits, licenses and rights, obtained from any
Governmental Authority or private Person concerning ownership, operation, use or
occupancy of such Property).
"Permitted Encumbrances" shall mean, with respect to a specified
Borrower or Property, (i) the Liens and security interests created by the Loan
Documents, (ii) all Liens, encumbrances and other matters disclosed in the
Qualified Title Policy relating to such Property, (iii) Liens, if any, for Taxes
or Other Charges relating to such Property not yet payable or delinquent or
which are being diligently contested in good faith in accordance with Section
5.1(b)(ii) hereof, (iv) Liens in respect of property or assets imposed by law
which were incurred in the ordinary course of business, such as carriers',
warehousemen's, landlord's, mechanic's, materialmen's, repairmen's and other
similar Liens arising in the ordinary course of business, and Liens for workers'
compensation, unemployment insurance and similar programs, in each case arising
in the ordinary course of business which are being diligently contested in good
faith in accordance with Section 5.1(b)(ii) hereof, (v) Leases granted to third
parties, entered into in the ordinary course of business or otherwise in
compliance with the terms of the Loan Documents, not interfering in any material
respect with the business, operation or use of such Property, including the
Operating Leases, (vi) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances (including any
of such matters incurred or entered into by such Obligor in the ordinary course
of business) which in each case do not diminish in any material respect the
value of such Property or materially and adversely impact the use or operating
income of the Mortgaged Property or affect in any respect the validity,
enforceability or priority of the Liens created by the Loan Documents, (vii)
such other title and survey exceptions as Lender has approved or may approve in
writing in Lender's Discretion and (viii) with respect to the Properties known
as the Phoenician and the Sheraton San Diego Hotel & Marina, Liens granted in
connection with the Starwood Intercompany Mortgage Loan.
"Permitted Indebtedness" shall mean, with respect to a Borrower, (i)
the Debt, (ii) Trade Payables incurred in the ordinary course of such Borrower's
business, customarily paid by such Borrower within sixty (60) days of incurrence
and in fact not more than sixty (60) days
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outstanding and not amounting in the aggregate to more than 3% (or in the case
of the Properties known as the Phoenician, the Sheraton San Diego Hotel & Marina
and the Westin Mission Hills, 4%) of the outstanding Allocated Loan Amount with
respect to the related Mortgaged Property, (iii) written indemnities entered
into in the ordinary course of business and on customary terms and conditions in
connection with the acquisitions of goods or services, or in connection with the
execution of Leases or amendments thereto, or in connection with the acquisition
of the Properties in which such Borrower owns an interest, (iv) any indebtedness
owed by such Borrower to Sponsor or to a wholly-owned subsidiary of Sponsor (a
"Permitted Intercompany Lender"), including, without limitation, with respect to
the Properties known as the Phoenician and the Sheraton San Diego Hotel &
Marina, the indebtedness relating to the Starwood Intercompany Mortgage Loan,
provided that, with respect to any such indebtedness other than the Starwood
Intercompany Mortgage Loan, (a) the terms of such indebtedness are on an
arm's-length basis, (b) such indebtedness is unsecured and evidenced in writing,
(c) the entity making the loan has entered into a subordination and
intercreditor agreement with the Lender with respect to any such loan it may
make in substantially the form attached as Exhibit D and has pledged any such
loan to Lender as security for such entity's obligations under such
subordination and intercreditor agreement, (d) such loan shall not mature, and,
except to the extent provided for in the next clause (e), does not require any
mandatory amortization, earlier than the fifth anniversary of making of such
loan, (f) such indebtedness is required to be repaid from excess cash flow of
the borrowing Borrower prior to any distributions to equity, (g) such loan may
not be transferred except to a Permitted Intercompany Lender that complies with
clause (c) above and in connection therewith the applicable Borrower has given
Lender at least five Business Days advance written notice of such transfer
accompanied by drafts of the documents that will evidence such transfer, and
agrees to deliver to Lender final copies of all documents evidencing or executed
by such Borrower and any Permitted Intercompany Lender in connection with such
transfer promptly after the effective date of such transfer, (f) Obligors shall
have received a Rating Confirmation with respect to such indebtedness and (g)
such loan shall be necessary to accommodate Sponsor's REIT qualification
requirements, (v) capital lease obligations or purchase money financing secured
only by the assets acquired or leased, including leases, licenses or financing
arrangements with respect to signage, televisions, audio-visual equipment,
office supplies, computers, telephone systems, vans or other equipment or
personal property used at the related Property for which aggregate annual lease
payments, license fees and debt service for each Property is less than the
amount per annum set forth for each such Property on Schedule I and (vi) such
other unsecured indebtedness approved by Lender in its sole discretion and with
respect to which Borrower has received a Rating Confirmation.
"Permitted Investments" shall mean the following, subject to
qualifications hereinafter set forth:
1. Obligations of, or obligations guaranteed as to principal and
interest by, the U.S. government or any agency or
instrumentality thereof, when such obligations are backed by
the full faith and credit of the United States of America.
These obligations include, but are not limited to:
-- Treasury obligations (all direct or fully guaranteed US
obligations)
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-- Farmers Home Administration Certificates of beneficial
ownership
-- General Services Administration Participation certificates
-- Maritime Administration Guaranteed Title XI financing
-- Small Business Administration Guaranteed participation
certificates Guaranteed pool certificates
-- Department of Housing and Urban Development Local authority
bonds
-- Washington Metropolitan Area Transit Authority Guaranteed
transit bonds
2. Obligations of government-sponsored agencies that are not backed
by the full faith and credit of the U.S., where the obligation is
limited to those instruments that have a predetermined fixed
dollar amount of principal due at maturity that cannot vary or
change. These obligations are limited to:
-- Federal Home Loan Mortgage Corp. (FHLMC) Debt obligations
-- Farm Credit System (formerly: Federal Land Banks, Federal
Intermediate Credit Banks, and Banks for Cooperatives)
Consolidated system wide bonds and notes
-- Federal Home Loan Banks (FHL Banks) Consolidated debt
obligations
-- Federal National Mortgage Association (FNMA) Debt obligations
-- Student Loan Marketing Association (SLMA) Debt obligations
-- Financing Corp. (FICO) Debt obligations
-- Resolution Funding Corp. (REFCORP) Debt obligations.
3. Federal funds, unsecured certificates of deposit, time deposits,
banker's acceptances, and repurchase agreements having maturities
of not more than 365 days of any bank, the short-term debt
obligations of which are rated "A-1+" (or the equivalent) by the
Rating Agencies.
4. Deposits that are fully insured by the Federal Deposit Insurance
Corp. (FDIC).
5. Debt obligations maturing in 365 days or less that are rated AAA
or higher (or the equivalent) by the Rating Agencies.
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6. Commercial paper rated "A-1+" (or the equivalent) by the
Rating Agencies and maturing in 365 days or less.
7. Investments in certain short-term debt of issuers rated "A-1+"
(or the equivalent) by the Rating Agencies may be permitted
with certain restrictions. The total amount of debt from
"A-1+" issuers must be limited to the investment of an amount
equal to Monthly Debt Service Payment Amount. The total amount
of "A-1+" investments should not represent more than twenty
percent (20%) of the rated issue's outstanding principal
amount and each investment should not mature beyond thirty
(30) days. Investment in "A-1+" (or the equivalent) rated
securities are not eligible for reserve accounts, cash
collateral accounts, or other forms of credit enhancement.
Short-term debt for purposes of this definition includes:
commercial paper, federal funds, repurchase agreements,
unsecured certificates of deposit, time deposits, and banker's
acceptances.
8. Investment in money market funds rated "AAAm" or "AAAm-G"
(or the equivalent) by the Rating Agencies.
9. Such other investments as shall be approved in writing by
means of a Rating Confirmation.
Notwithstanding the foregoing, "Permitted Investments": (i) shall exclude any
security with the Standard & Poor's "r" symbol (or any other Rating Agency's
corresponding symbol) attached to the rating (indicating high volatility or
dramatic fluctuations in their expected returns because of market risk), as well
as any mortgage-backed securities and any security of the type commonly known as
"strips"; (ii) shall not have maturities in excess of one year; (iii) as to the
investments described in (1), (2), (3), (4), (5), (6) and (7): the obligations
shall be limited to those instruments that have a predetermined fixed dollar of
principal due at maturity that cannot vary or change; interest may either be
fixed or variable; and any variable interest should be tied to a single interest
rate index plus a single fixed spread (if any), and move proportionately with
that index; and (iv) shall exclude any investment where the right to receive
principal and interest derived from the underlying investment provide a yield to
maturity in excess of 120% of the yield to maturity at par of such underlying
investment. No investment shall be made which requires a payment above par for
an obligation if the obligation may be prepaid at the option of the issuer
thereof prior to its maturity. All investments, other than those payable on
demand, shall mature or be redeemable upon the option of the holder thereof on
or prior to the earlier of (x) three (3) months from the date of their purchase
or (y) the Business Day preceding the day before the date such amounts are
required to be applied hereunder.
"Person" shall mean any individual, sole proprietorship,
corporation, general partnership, limited partnership, limited liability company
or partnership, joint venture, association, joint stock company, bank, trust,
estate, unincorporated organization, any federal, state, county or municipal
government (or any agency or political subdivision thereof), endowment fund or
any other form of entity.
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"Phoenician Subleases" shall mean all those subleases indicated on
that marked title insurance commitment delivered by Fidelity National Title
Insurance Company and Stewart Title Guaranty Company, dated January 29, 1999,
and delivered contemporaneously herewith.
"Plan" means an employee benefit plan, other than a Multiemployer
Plan, (i) which is maintained for employees of the Obligor or any ERISA
Affiliate and which is subject to Title IV of ERISA or (ii) with respect to
which the Obligor or any ERISA Affiliate could be subjected to liability under
Title IV of ERISA (including Section 4069 of ERISA). Without limitation on the
foregoing, the term "Plan" includes any employee benefit plan subject to Title
IV of ERISA for which the Obligor may have any liability arising from the joint
and several liability provisions of Title IV of ERISA, from the maintenance or
participation in any such plan by the Obligor, as a result of the Obligor being
the successor in interest to any person maintaining or participating in any such
plan or otherwise.
"Plan Assets" means assets of any employee benefit plan subject to
Part 4, Subtitle A, Title I of ERISA.
"Policies" shall have the meaning specified in Section 8.1.1(c)
hereof.
"Prepayment" shall have the meaning specified in Section 2.4.2 hereof.
"Prepayment Date" shall have the meaning specified in Section 2.4.2
hereof.
"Prime Rate" shall mean the annual rate of interest published in The
Wall Street Journal from time to time as the "Prime Rate". If more than one
"Prime Rate" is published in The Wall Street Journal for a day, the average of
such "Prime Rates" shall be used, and such average shall be rounded up to the
nearest one-sixteenth of one percent (.0625%). If The Wall Street Journal ceases
to publish the "Prime Rate", the Lender shall select an equivalent publication
that publishes such "Prime Rate", and if such "Prime Rates" are no longer
generally published or are limited, regulated or administered by a governmental
or quasi-governmental body, then Lender shall select a comparable interest rate
index.
"Proceeds" shall mean amounts, awards or payments payable to Obligors
or Lender in respect of all or any part of a Property in connection with a
Casualty or Condemnation thereof (after the deduction therefrom and payment to
Obligors and Lender, respectively, of any and all reasonable expenses incurred
by Obligors and Lender in the recovery thereof, including all attorneys' fees
and disbursements, the fees of insurance experts and adjusters and the costs
incurred in any litigation or arbitration with respect to such Casualty or
Condemnation).
"Properties" shall mean the parcel or parcels of real property and
improvements thereon owned by Obligors and all of Obligors' leasehold interest
in any Ground Leased Property and encumbered by a Security Instrument, together
with all rights pertaining to such property, improvements and leasehold
interests, as more particularly described in the preliminary statement of each
Security Instrument and referred to therein as the "Property", the "Mortgaged
Property" or the "Trust Property", as the case may be. "Property" shall mean any
one of the Properties.
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"Property Management Agreement" shall mean, with respect to any
Property, the property management agreement entered into by Operator II as
Property Manager and Operator or, in the case of the Properties known as the
Phoenician and the Sheraton San Diego, by Operator II as Property Manager and
the applicable Borrower, as currently in effect, including the Management
Contracts, pursuant to which the Property Manager is to provide property
management and other services with respect to the Property, and any other
property management agreement entered into with the prior written consent of
Lender.
"Property Manager" shall mean, with respect to any Property, the
Person named in clause (i) of the definition of "Acceptable Property Manager" or
any replacement "Property Manager" appointed in accordance with Section 11.1
hereof.
"Qualified Survey" shall mean a current title survey of a Property,
certified to the title company and Lender and their successors and assigns, that
(i) is in form and content satisfactory to Lender in its Discretion, (ii) is
prepared by a professional and properly licensed land surveyor satisfactory to
Lender in its Discretion in accordance with the 1997 Minimum Standard Detail
Requirements for ALTA/ACSM Land Title Surveys, (iii) meets the classification of
an "Urban Survey", and the following additional items from the list of "Optional
Survey Responsibilities and Specifications" (Table A) should be added to each
survey: 1, 2, 3, 4, 6, 7(a), (b)(1) and (c), 8, 9, 10, 11, 13, 15 and 16 (iv)
reflects the same legal description contained in the Qualified Title Policy
relating to such Property, (v) includes, among other things, a metes and bounds
description of the real property comprising part of such Property satisfactory
to Lender, (vi) contains a certification in form and substance acceptable to
Lender.
"Qualified Title Policy" shall mean, with respect to a Property, an
ALTA title insurance policy (1970 unmodified form, where issuable) issued by one
or more title companies acceptable to Lender in its Discretion, with ALTA
facultative reinsurance and direct access agreements acceptable to Lender, and
subject to a reinsurance program satisfactory to Lender in its sole discretion,
which title insurance policy shall (i) provide coverage in the amount of 125% of
the Allocated Loan Amount of such Property (or, in the case of the Phoenician,
135%) in the case of all Properties not included within the scope of a tie-in
endorsement, (ii) insure Lender that the related Security Instrument creates a
valid first mortgage lien on such Property, free and clear of all exceptions
from coverage other than such liens, encumbrances and other matters described in
Schedule B of such policy, which matters have been approved by Lender in its
Discretion, Permitted Encumbrances (other than those described in clause (ii) of
the definition thereof) and such standard exceptions and exclusions from
coverage as Lender shall approve, (iii) contain such endorsements and
affirmative coverages as Lender may request in its Discretion (including a
deletion of the creditor's rights exceptions), (iv) name Lender as the insured
and (v) be assignable by its terms with a transfer of the Loan.
"Rating Agency" shall mean each of S&P, Moody's, and any other
nationally-recognized statistical rating agency from time to time selected by
Lender and rating the Certificates issued in connection with the Securitization.
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"Rating Confirmation," with respect to the matter in question, shall
mean that as a condition precedent thereto the Rating Agency shall have
confirmed in writing that (i) such investment, replacement or action shall not
result, in and of itself, in a downgrade, withdrawal or qualification of any
rating then assigned to any outstanding Certificates (if the Securitization has
occurred), or (ii) such investment, replacement or action would not result, in
and of itself, in a downgrade, withdrawal or qualification of any rating for
proposed Certificates then under consideration by the Rating Agencies (if the
Securitization has not yet occurred); provided that if the Securitization has
not taken (or as certified by Lender, will not take) the form of a transaction
rated by the Rating Agency, then "Rating Confirmation" shall instead mean that
the matter in question shall be subject to the prior approval of the Lender
which approval shall not be unreasonably withheld or delayed.
"Reciprocal Easement Agreement (Sheraton Colony Square)" shall mean
the Declaration of Easements and Covenants by and between The Prudential
Insurance Company of America and SLT Realty Limited Partnership, dated July 18,
1995, as amended.
"Reciprocal Easement Agreement (Westin Atlanta North)" shall mean the
Declaration of Easements, Cross-Easements and Restrictions between The Landmarks
Group Properties Corporation and Landmark Twenty-Six, Ltd., dated July 9, 1984,
as amended.
"Reference Date" means the first day of each January and the first day
of each July.
"Related Party" means any member, shareholder, partner, principal,
Affiliate, employee, officer, director, agent or representative of an Obligor.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment (including, without limitation, the movement
of Hazardous Substances through ambient air, soil, surface water, ground water,
wetlands, land or subsurface strata).
"Release Amount" means, with respect to a Property, the amount set
forth on Schedule G hereto, but in no event less than 125% of the Allocated
Amount relating to such Property (or, in the case of the Phoenician, 135% of
such Allocated Loan Amount).
"Release Instruments" shall have the meaning set forth in Section
2.4.1(b) hereof.
"Remaining Work" shall mean, with respect to a Property, any work
which (a) may, in the written opinion of an Independent Architect, be completed
for an amount of $50,000 or less, (b) may be completed within six months or less
and (c) whether or not it is completed, will have no material impact on the use,
operation, operating income or value of such Property.
"REMIC" shall mean a "real estate mortgage investment conduit"
within the meaning of Section 860D of the Code.
"REMIC Trust" shall mean a REMIC which holds any Note or Notes.
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"Rents" shall mean, with respect to each Property, all fees, charges,
accounts, or other payments for the use or occupancy of rooms and other public
facilities in the Properties, all rents, rent equivalents, moneys payable as
damages pursuant to a Lease or in lieu of rent or rent equivalents, royalties
(including all oil and gas or other mineral royalties and bonuses), income,
receivables, receipts, revenues, deposits (including security, utility and other
deposits), accounts, cash, issues, profits, charges for services rendered, and
other consideration of whatever form or nature received by or paid to or for the
account of or benefit of each Borrower or Operator that holds a direct or
indirect interest in such Property or its agents or employees from any and all
sources arising from or attributable to the Property, including, without
limitation, all room rents related to overnight occupancy of guests at the
Property, all banquet, conference and other room rentals, fees and other
consideration of any sort, all credit card receivables, and all deposits of
money as advance rent, for security, as earnest money or as down payment or
deposit for the reservation or occupancy of rooms or other facilities in or at
the Property and any obligations now existing or hereafter arising or created
out of the sale, Lease (including the Operating Leases), license, concession or
other grant of the right of the use and occupancy of property or rendering of
services by the applicable Obligor and proceeds, if any, from business
interruption or other loss of income insurance.
"Required Loan-to-Value Ratio" shall mean that the aggregate principal
amount of the Loan is not more than sixty-five percent (65%) of the appraised
value of the Property as set forth in the Appraisals prepared in accordance with
the origination of the Loan.
"Required Rating" shall mean the higher of (i) the highest rating then
assigned by the Rating Agency to any of the Certificates and (ii) "AA" (or its
equivalent) by the Rating Agency.
"Required Records" shall have the meaning set forth in Section
5.1(j)(viii) hereof.
"Reserve Account" shall have the meaning set forth in Section 2.3
hereof.
"Restoration" shall have the meaning set forth in Section 8.1.2(b)
hereof.
"Revised Interest Rate" shall mean the greater of (I) the Initial
Interest Rate plus 5.00 percent and (ii) the Treasury Rate on the Anticipated
Repayment Date plus 5.00 percent.
"Scheduled Defeasance Payments" shall have the meaning set forth in
Section 2.3.2(b).
"Second-Tier Member" shall mean each of the entities holding a
membership interest in the Members, as set forth in Schedule B hereto, in each
case together with any of its successors and assigns as permitted hereunder.
"S&P" shall mean Standard & Poor's Ratings Services, a Division of
McGraw-Hill Companies, Inc.
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"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
"Securitization" shall have the meaning set forth in the Cooperation
Agreement.
"Security Instrument" shall mean, with respect to a Property, (i) that
certain first priority Mortgage (or Deed of Trust or Deed to Secure Debt),
Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated as
of the date hereof, executed and delivered by the Borrower that owns an interest
(fee or leasehold) in such Property as security for the Loan and encumbering
such Property, as the same may be amended, restated, replaced, supplemented,
consolidated or otherwise modified from time to time pursuant to the provisions
thereof or of the other Loan Documents and (ii) that certain first priority
Operating Leasehold Mortgage (or Deed of Trust or Deed to Secure Debt), Security
Agreement, Assignment of Leases and Rents and Fixture Filing, dated as of the
date hereof, executed and delivered by the Operator as security for the Operator
Guaranty and encumbering the leasehold interest of Operator in such Property, as
the same may be amended, restated, replaced, supplemented, consolidated or
otherwise modified from time to time pursuant to the provisions thereof or of
the other Loan Documents.
"Servicer" shall mean the entity appointed by Lender to service the
Loan or its successor in interest, or if any successor servicer is appointed
pursuant to the Servicing Agreement, such successor servicer. If at any time no
entity shall be so appointed, Servicer shall be deemed to refer to Lender.
Initially, the Servicer shall be Wells Fargo Bank, N.A.
"Servicing Agreement" shall mean any trust, pooling and servicing
agreement or trust and servicing agreement that may be entered into from time to
time in connection with the Loan or any Securitization of the Loan.
"Sheraton" means ITT Sheraton Corporation, a Delaware corporation.
"Single Purpose Entity" shall mean a Person, other than an individual,
which (a) is formed solely for the purpose of acquiring and directly holding an
ownership interest in one or more of the Properties or an ownership interest in
an Obligor, (b) does not engage in any business unrelated to one or more of the
Properties and the financing thereof, (c) does not have any assets other than
those related to its interest in one or more of the Properties or an Obligor, as
the case may be, or any indebtedness other than Permitted Indebtedness, (d) is
bankruptcy-remote from any other Person, (e) has no liabilities, actual or
contingent, other than the Debt, Permitted Indebtedness and liabilities normal
and incidental to the ownership, operation, leasing and letting of rooms to
overnight guests and hotel facilities to those guests and other hotel patrons at
the Properties owned by it, (f) provides for the subordination of any obligation
to indemnify any of its partners or members, officers, directors or employees
(as applicable) to the Debt, (g) has books, records, accounts, financial
statements, stationery, invoices and checks which are separate and apart from
those of any other Person, (h) is subject to and complies with all of the
limitations on powers and separateness requirements set forth in the
organizational documentation of Obligors, as of the Closing Date, (i) holds
itself out as being a Person separate and apart from each other Person, conducts
its business in its own name and exercises reasonable efforts to correct any
known misunderstanding actually known to it regarding its separate
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identity, (j) pays its own liabilities out of its own funds and reasonably
allocates any overhead for shared office space, (k) maintains a sufficient
number of employees in light of its contemplated business operations, and in the
case of a limited liability company, observes all applicable limited liability
company formalities in all material respects, has at all times either (x) a
corporate managing member that is a Single-Purpose Entity with two independent
partners, members or directors, or (y) a single member and a board of managers
with two Independent Directors and has an operating agreement which provides
that for so long as the Loan is outstanding, the limited liability company shall
not take any of the following actions:
(i) the dissolution, liquidation, consolidation, merger or sale of all
or substantially all of the assets of the related Obligor,
(ii) the engagement by the related Obligor in any business other than
the ownership, maintenance and operation of the related Property or Properties,
(iii) the filing, or consent to the filing, of a bankruptcy or
insolvency petition, any general assignment for the benefit of creditors or the
institution of any other insolvency proceeding, or the seeking or consenting to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator,
custodian or any similar official for the related Obligor or a substantial
portion of its properties, without the unanimous vote of all of the Independent
Directors of the limited liability company, and
(iv) the amendment or modification of any material provision of its
operating agreement or certificate of limited liability company (for purposes
hereof, any amendment or modification that adversely affects any of the
requirements for qualifying as a "Single-Purpose Entity" shall be considered
material).
"Special Servicer" shall mean the entity appointed by Lender to
specially service the Loan or its successor in interest, or if any successor
special servicer is appointed pursuant to the Servicing Agreement, such
successor servicer. If at any time no entity shall be so appointed, Special
Servicer shall be deemed to refer to Lender. Initially, the Special Servicer
shall be Wells Fargo Bank, N.A.
"Specified Default" means any Default specified in clauses (i), (iv),
(vi), (vii) (without giving regard to the sixty-day period described in such
clause (vi)), (ix) or (xii) (with regard to material Defaults referenced by such
clause (xii)) of Section 10.1(a).
"Sponsors" shall mean Starwood Hotels & Resorts Worldwide, Inc., a
Maryland corporation and Starwood Hotels & Resorts, a Maryland real estate
investment trust. The Sponsors may be referred to herein collectively as
"Sponsor".
"Starwood Intercompany Mortgage Loan" shall mean those certain
intercompany mortgage loans secured by the hotels known as the Sheraton San
Diego and the Phoenician and
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evidenced by (i) that certain Substitute Note (Phoenician) by ITT Corporation,
as maker, in favor of SLT Realty Limited Partnership, as payee, dated January
27, 1999 in the principal sum of $210,000,000.00; (ii) that certain Promissory
Note made by Starwood Hotels & Resorts Worldwide, Inc., as maker, in favor of
Starwood Hotels & Resorts, as payee, dated February 23, 1998 in the principal
amount of $50,000,000.00; and (iii) that certain Promissory Note made by
Starwood Hotels & Resorts Worldwide, Inc., as maker, in favor of Starwood Hotels
& Resorts, as payee, dated February 23, 1998 in the principal amount of
$100,000,000.00
"Subordination, Assignment and Attornment Agreement" shall mean the
Subordination, Assignment and Attornment Agreement entered into as of January
27, 1999, by and among the Borrowers, Operator, ITT Sheraton Corporation, a
Delaware corporation, Westin License Company, a Delaware corporation and Lender.
"Subordination, Non-disturbance and Attornment Agreement" shall mean
an agreement between Lender and a Tenant, relating to the granting of
non-disturbance rights, which agreement shall be in substantially the form
attached hereto as Exhibit E and made a part hereof, with such changes therein
as shall be reasonably required by Lender or any Tenant.
"Substantial Completion" shall mean, with respect to any specified
work, the Final Completion of all such work other than any Remaining Work.
"Substitute Property or Properties" shall have the meaning set forth
in Section 2.6 hereof.
"Substituted Property or Properties" shall have the meaning set forth
in Section 2.6 hereof.
"Successor Borrower" shall have the meaning set forth in Section
2.3.2(c) hereof.
"Survey Defect" shall have the meaning set forth in Section
3.1(c)(iii) hereof.
"Tax, Insurance and Ground Rents Escrow Account" shall have the
meaning set forth in Section 9.3.1 hereof.
"Taxes" shall mean all real estate and personal property taxes,
assessments, fees, taxes on rents or rentals, water rates or sewer rents, and
other governmental charges now or hereafter levied or assessed or imposed
against Obligors or the Properties or rents therefrom or which may become Liens.
"Tenant" shall mean any Person liable by contract or otherwise to pay
monies (including a percentage of gross income, revenue or profits) pursuant to
a Lease.
"Tenant Improvements" shall mean, collectively, (i) tenant
improvements to be undertaken for any Tenant required to be completed by
Obligors pursuant to the terms of such Tenant's Lease, or (ii) allowances to be
paid to a Tenant pursuant to such Tenant's Lease in
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connection with such Tenant's construction of its tenant improvements at the
related Property, but specifically excluding any rent concessions granted to a
Tenant by Obligors.
"Term" means the period from the Closing Date to (but not including)
the Payment Date falling in the month after the month in which the 10th
anniversary of the Closing Date occurs unless Lender, in its sole discretion,
exercises the Extension Option, in which case the Term shall mean the period
from the Closing Date to (but not including) the Payment Date falling in the
month in which the 25th anniversary of the Closing Date occurs.
"Term Sheet" shall mean that certain term sheet, dated December 31,
1998, among Goldman Sachs Mortgage Company, Lehman Brothers Holdings Inc. d/b/a
Lehman Capital and Sponsor, in respect of the principal terms of the Loan,
including certain fees and expenses to be paid in connection with the Loan.
"Threshold Amount" shall mean, with respect to each Property, the
amount set forth on Schedule J hereto.
"Title Defect" shall have the meaning set forth in Section 3.1(c)(ii)
hereof.
"Trade Payables" shall mean unsecured amounts payable by or on behalf
of Obligors for or in respect of the operation of the Properties in the ordinary
course and which would under GAAP be regarded as ordinary expenses, as well as
Leasing Commissions and Tenant Improvements, including amounts payable to
suppliers, vendors, contractors, mechanics, materialmen or other Persons
providing property or services to the Properties or Obligors.
"Treasury Constant Yield" shall mean the arithmetic mean of the rates
published as "Treasury Constant Maturities" as of 5:00 p.m., New York time, for
the five Business Days preceding the date on which acceleration has been
declared, as shown on the USD screen of the Telerate service, or if such service
is not available, the Bloomberg service, or if neither the Telerate nor the
Bloomberg service is available, under Section 504 in the weekly statistical
release designated H.15519 (or any successor publication) published by the Board
of Governors of the Federal Reserve System, for "On the Run" U.S. Treasury
obligations corresponding to the Payment Date occurring on the Initial Maturity
Date or Anticipated Repayment Date, unless Lender has elected the Extension
Option, in which case such "On the Run" U.S. Treasury obligations shall
correspond to the Extended Maturity Date; if no such maturity shall so exactly
correspond, yields for the two most closely corresponding published maturities
shall be calculated pursuant to the foregoing sentence and the Treasury Constant
Yield shall be interpolated or extrapolated (as applicable) from such yields on
a straight-line basis (rounding, in the case of relevant periods, to the nearest
month).
"Treasury Rate" shall mean, as of the Anticipated Repayment Date, the
linear interpolation of the bond equivalent yields as reported in Federal
Reserve Statistical Release H.15-Selected Interest Rates under the heading
"U.S. Government Securities/Treasury Constant Maturities" for the week ending
prior to the Anticipated Repayment Date of U.S. Treasury constant maturities
with maturity dates of fifteen years or as close as possible in time thereto.
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"UCC" or "Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect in the state in which the applicable Property is located.
"Underfunding" means, with respect to any Plan, the excess, if any, of
the "accumulated benefit obligations" (within the meaning of Statement of
Financial Accounting Standards 87) under such Plan (determined using the
actuarial assumptions and discount rate used with respect to such Plan in the
most recent financial statements of the Borrower) over the fair market value of
the assets held under the Plan.
"Use" means any handling, treatment, storage, disposal,
transportation, use, re-use, recycling, reclamation, manufacture, generation,
formulation, processing or distribution.
"U.S. Government Securities" shall mean securities evidencing an
obligation to pay principal and interest in a full and timely manner that are
(i) direct obligations of the United States of America for the payment of which
its full faith and credit is pledged or (ii) obligations of a Person Controlled
or supervised by and acting as an agency or instrumentality of and guaranteed as
a full faith and credit obligation by the United States of America, which in
either case are not callable or redeemable at the option of the issuer thereof
(including a depository receipt issued by a bank (as defined in Section 3(a)(2)
of the Securities Act) as custodian with respect to any such securities or a
specific payment of principal of or interest on any such securities held by such
custodian for the account of the holder of such depository receipt; provided
that (except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the securities or the
specific payment of principal of or interest on the securities evidenced by such
depository receipt).
"Waste" means any material abuse or destructive use (whether by action
or inaction of Obligor or Sponsor or any of their Affiliates) of a Property
which causes Lender to suffer a loss or a diminution in the value of its
interest therein.
"Westin" means Westin License Company, a Delaware corporation.
"Withdrawal Liability" has the meaning given such term under Part I of
Subtitle E of Title V of ERISA.
"Yield Maintenance Payments" shall have the meaning set forth in
Section 2.3.4 hereof.
Section 1.2 Principles of Construction.
All references to sections, schedules and exhibits are to sections,
schedules and exhibits in or to this Agreement unless otherwise specified.
Unless otherwise specified, the words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. The
words "includes", "including" and similar terms shall be construed as if
followed by the words "without limitation". The terms "Property" shall be
construed to be
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followed by the phrase "or any part or portion thereof". Unless otherwise
specified, all meanings attributed to defined terms herein shall be equally
applicable to both the singular and plural forms of the terms so defined. All
accounting terms not specifically defined herein shall be construed in
accordance with GAAP, as may be modified herein. As a matter of convenience
herein, rating categories are generally stated in the S&P's nomenclature, it
being understood that unless otherwise expressly stated to the contrary,
reference to such category shall also be deemed to be a reference to the
comparable category of each other Rating Agency; provided that if a specified
rating (or its equivalent) from any of the Rating Agencies is required hereunder
with respect to an issuer or a security (other than the Certificates), and one
of the Rating Agencies in connection with a Securitization does not rate the
issuer or security in question, then such requirement hereunder shall
nevertheless be deemed satisfied so long as such Rating Agency has issued a
Rating Confirmation with respect thereto.
ARTICLE II
GENERAL
Section 2.1 The Loan.
2.1.1 Commitment. Subject to and upon the terms and conditions set
forth herein, including the conditions precedent set forth in Section 3.1
hereof, Lender hereby agrees to make the Loan to Borrowers on the Closing Date,
which Loan shall mature on the Initial Maturity Date. Borrowers hereby
acknowledge that prior to the Securitization, Lender shall have the right, but
not the obligation, in Lender's sole discretion, to elect by written notice to
the Borrowers and the Sponsor to extend the maturity of the Loan to the Extended
Maturity Date (the "Extension Option"). In the event that Lender exercises the
Extension Option, the Initial Maturity Date shall cease to be the Maturity Date
and shall instead become the Anticipated Repayment Date. Borrowers hereby agree
to accept the Loan on the Closing Date, subject to and upon the terms and
conditions set forth herein.
2.1.2 Disbursement to Borrowers and Use of Loan Proceeds. Borrowers
may request and receive only one disbursement hereunder in respect of the Loan.
Borrowers shall receive the proceeds of the Loan on the Closing Date, subject to
the direction given by Borrowers as to the application of Loan proceeds to pay
the Lender Expenses and any other amounts owing to Lender and to fund (i) the
Tax, Insurance and Ground Rents Escrow Account, (ii) the FF&E Reserve Account
and (iii) the Deferred Maintenance and Environmental Conditions Reserve Account.
Any amount borrowed and repaid hereunder in respect of the Loan may not be
reborrowed.
2.1.3 The Notes. (a) The Loan shall be evidenced by a Note or multiple
Notes, in the aggregate original principal amount of the Loan. On the date
hereof, there shall be a single Note secured by all of the Properties which
shall bear interest at the applicable Interest Rate. If after the date hereof
such Note is converted into multiple Notes pursuant to the terms of the
Cooperation Agreement, the aggregate weighted average coupon rate of the Notes
as of Origination shall be the applicable Interest Rate. The Notes shall be
subject to repayment as provided in Section 2.3 hereof, shall be entitled to the
benefits of this Agreement and shall be
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secured by the Security Instruments granting a first mortgage lien on the
Properties and by the other Loan Documents.
(b) Use of Proceeds of Loan. Borrowers shall use the proceeds of the
Loan to (i) pay all past-due Basic Carrying Costs, if any, in respect of the
Properties, (ii) fund the Deferred Maintenance and Environmental Conditions
Reserve Account, the Tax, Insurance and Ground Rents Escrow Account and the FF&E
Reserve Account, (iii) pay costs and expenses actually incurred in connection
with the closing of the Loan, (iv) pay Lender Expenses, (v) pay any other
amounts owing to Lenders as of the date hereof, (vi) pay related costs or
expenses in connection with any of the foregoing and establish escrows and
reserves for future expenses and any transaction contemplated by any Loan
Document and (vii) general corporate purposes including repayment of Sponsor
debt.
Section 2.2 Principal and Interest.
2.2.1 Principal and Interest.
(a) Subject to Section 2.2.1(d), from the date hereof to but excluding
the Maturity Date, Borrowers shall pay interest on the outstanding principal
balance of the Loan at the applicable Interest Rate computed in accordance with
Section 2.5.2 hereof (it being acknowledged that from and after the Anticipated
Repayment Date (if applicable), interest on the Notes shall accrue at the
Revised Interest Rate). On the date hereof, Borrowers shall make a payment of
interest on each Note at the Initial Interest Rate, and principal based on the
amortization schedule set forth on Schedule A to such Note, for the period to
but excluding the Payment Date on March 1, 1999.
(b) Commencing with the Payment Date on April 1, 1999 and on each and
every Payment Date thereafter through and including the Maturity Date, the
principal amount of each Note and interest thereon at the interest rate stated
on such note shall be payable in arrears in monthly installments of (i)
principal based on the amortization schedule as set forth on Schedule A to the
Note and (ii) interest at the applicable Interest Rate as computed in accordance
with Section 2.5.2 (the "Monthly Debt Service Payment Amount"). Unless otherwise
elected by Lender, such payments shall be applied first to the payment of
interest with the remainder of such payment being applied to the reduction of
the outstanding principal balance of such Note. Such payments shall be made only
on a Payment Date.
(c) From and after the Anticipated Repayment Date, in addition to the
principal to be repaid pursuant to Section 2.2.1(b), Borrowers shall repay on
each Payment Date the principal of the Loan to the extent provided for under
Section 9.2(b)(xii).
(d) From and after the Anticipated Repayment Date, Additional Interest
shall be due and payable in accordance with the terms of Section 9.2(b)(xiii)
and, to the extent unpaid by reason of insufficient Receipts, shall be deferred,
be added to the Debt and, to the extent permitted by applicable law, accrue
interest at the Revised Interest Rate (the "Accrued Additional Interest").
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(e) Except as provided herein or elected by Lender, payments made by
Borrowers in respect of the principal and interest of the Loan shall be applied
first to the payment of interest with the remainder of such payment being
applied to the reduction of the outstanding principal balance of the Notes.
2.2.2 Default Rate. If an Event of Default shall have occurred and is
continuing (including the failure of Borrowers to make a payment of principal or
interest on the Payment Date therefor, but subject to the last sentence of
Section 9.2(b)), Borrowers shall pay interest at the Default Rate on the
outstanding amount of the Loan and due but unpaid interest thereon, upon demand
from time to time (which interest is payable both before and after Lender has
obtained a judgment with respect to the Loan), to the extent permitted by
applicable law. Payment or acceptance of the increased rates provided for in
this subsection is not a permitted alternative to timely payment or full
performance by Borrowers and shall not constitute a waiver of any Default or
Event of Default or an amendment to this Agreement or any other Loan Document
and shall not otherwise prejudice or limit any rights or remedies of Lender.
2.2.3 Late Fee. If all or any portion of the Monthly Debt Service
Payment Amount or other amount due hereunder is not paid when due, Borrowers
shall pay to Lender upon demand an amount equal to the lesser of 5% of such
unpaid amount or the maximum amount permitted by applicable law (which amount
shall be in addition to all other amounts due hereunder), to defray in part the
expense incurred by Lender in handling and processing such delinquent payment
and to compensate Lender for the loss of the use of such delinquent payment.
Section 2.3 Loan Repayment and Defeasance.
2.3.1 Prepayment and Repayment. Borrowers shall repay any outstanding
principal indebtedness of the Loan in full on the Maturity Date of the
Loan, together with all accrued and unpaid interest thereon to (but
excluding) the date of repayment and all other amounts due to Lender in
connection with the Loan. Other than as set forth in Sections 2.3.2,
2.3.5 and 2.3.6 below, or as required or permitted pursuant hereto in
connection with a Casualty or Condemnation, Borrowers shall have no
right to prepay all or any portion of Loan.
2.3.2 Voluntary Defeasance of the Notes.
(a) On or after the Optional Defeasance Date and subject to the terms
and conditions set forth in this Section 2.3.2, Borrowers may defease
all or any portion of the Loan evidenced by the Note or Notes with U.S.
Government Securities (a "Defeasance"); provided that a partial
defeasance of the Note or Notes shall be permitted only in connection
with the release of one or more Properties in accordance with Section
2.4.2. No Defeasance shall be permitted on or after the Anticipated
Repayment Date. Defeasance shall be subject, in each case, to the
satisfaction of the following conditions precedent:
(i) Borrowers shall provide not less than thirty (30) days' prior
written notice to Lender specifying the date (the "Defeasance Date") on
which the Defeasance Deposit is to be made and on which the Defeasance
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is to occur, as well as the anticipated outstanding principal balance
of the Note (or, if applicable, Notes) as of the Defeasance Date.
(ii) Borrowers shall pay to Lender all accrued and unpaid interest on
the principal balance of the Note or Notes to but not including the
Defeasance Date (and if the Defeasance Date is not a Payment Date, the
Defeasance Deposit shall take into account the interest that would have
accrued on the Note or Notes to but not including the next Payment
Date).
(iii) Borrowers shall pay to Lender all other sums, not including
scheduled interest or principal payments, then due and payable under the
Loan Documents.
(iv) No Event of Default shall exist on the Defeasance Date, except
(prior to an acceleration of the Loan hereunder) for an Event of Default
relating solely to a Property that will be released from the Lien of the
Security Instrument thereon pursuant to Section 2.4.2 hereof in
connection with such Defeasance.
(v) Borrowers shall pay to Lender the required Defeasance Deposit for
the Defeasance, which Lender shall hold as security for the defeased
portion of the Loan .
(vi) Borrowers shall execute and deliver one or more security
agreements, in form and substance satisfactory to Lender (in its
reasonable judgment), creating a first priority lien on the Defeasance
Deposit and the U.S. Government Securities purchased with the Defeasance
Deposit in accordance with the provisions of this Section 2.3.2 (the
"Security Agreement").
(vii) Borrowers shall deliver to Lender an opinion of counsel for
Borrowers in form and substance satisfactory to Lender (in its sole
discretion) stating, among other things, that Lender has a perfected
first priority security interest in the U.S. Government Securities
purchased with the Defeasance Deposit.
(viii) If a Securitization has occurred, Borrowers shall deliver to
Lender an opinion of counsel for Borrowers in form and substance
satisfactory to Lender (in its reasonable judgment) and the applicable
Rating Agencies that the transfer of the Defeasance Deposit in exchange
for a release of the Lien on the Property or Properties securing the
Note or Notes (as the case may be) does not constitute a "significant
modification" of the Loan under Section 1001 of the Code or cause the
REMIC Trust to fail to qualify as a REMIC or otherwise cause a tax to be
imposed on the REMIC Trust and that such transfer will not adversely
affect the continued availability of any exemption relied upon in
connection with the
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securitization from the prohibited transaction rules of ERISA and
section 4975 of the Code.
(ix) If required by the applicable Rating Agencies, Borrowers shall
deliver or cause to be delivered a non-consolidation opinion with
respect to the Successor Borrower, if any, in form and substance
reasonably satisfactory to Lender and satisfactory to the applicable
Rating Agencies in their sole discretion.
(x) Borrowers shall deliver to Lender an Officer's Certificate
certifying that the requirements set forth in this Section 2.3.2(a) have
been satisfied.
(xi) Borrowers shall deliver such other certificates, documents or
instruments as Lender may reasonably request.
(xii) Borrowers shall pay all reasonable costs and expenses of Lender
incurred in connection with the Defeasance, including any costs and
expenses associated with the release of one or more Liens as provided in
Section 2.4 hereof and reasonable attorneys' fees and expenses.
(xiii) Borrowers shall deliver to Lender a confirmation, in form and
substance reasonably satisfactory to Lender, by a "Big Five" independent
certified public accounting firm selected by such Borrowers, that the
Defeasance Deposit is sufficient to pay all Scheduled Defeasance
Payments and other amounts required to be paid by the Borrowers
hereunder in connection with the proposed Defeasance.
(xiv) Borrowers shall deliver to Lender a Rating Confirmation with
respect to such Defeasance.
(xv) In the event only a portion of the Loan evidenced by the Note or
Notes is the subject of the Defeasance in connection with the release of
any Lien of any Security Instrument on one or more Properties as
described in Section 2.4.2 below, the Borrowers shall execute and
deliver all necessary documents to amend and restate such Note or Notes
and issue two substitute notes for each Note: one note having a
principal balance equal to the defeased portion of the original Note
(the "Defeased Note") and one note having a principal balance equal to
the undefeased portion of the original Note (the "Undefeased Note"). The
Defeased Note and the Undefeased Note shall have identical terms as the
original of each Note (and the Defeased Note or Notes and the Undefeased
Note or Notes shall be cross-defaulted with each other), except for the
principal balance. A Defeased Note cannot be the subject of any further
Defeasance. An Undefeased Note may be the subject of a further
Defeasance in accordance with the terms of this clause (xv) (the term
"Note", as used above in this
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clause (xv) for these purposes, being deemed to refer to the
Undefeased Note that is the subject of further defeasance) and the other
provisions of this Section 2.3.2; provided, however, that no such
partial defeasance shall take place unless the conditions outlined in
Section 2.4.2 are satisfied.
(b) In connection with the conditions set forth above in Section
2.3.2(a), each Borrower appoints Lender as its attorney-in-fact for the purpose
of using the Defeasance Deposit to purchase U.S. Government Securities which
provide payments on or prior to, but as close as possible to, all successive
Payment Dates after the Defeasance Date (including the Maturity Date or, if
applicable, the Anticipated Repayment Date), (including the outstanding
principal balance of either the Loan or the Defeased Note or Notes on the
Maturity Date or, if applicable, the Anticipated Repayment Date), and in amounts
equal to the Debt Service due on such dates under the Note or Notes or Defeased
Note or Notes, as applicable (the "Scheduled Defeasance Payments"). Borrowers,
pursuant to the Security Agreement or other appropriate document, shall
irrevocably authorize and direct that the payments received from the U.S.
Government Securities may be made directly to Lender and applied to satisfy the
obligations of Borrowers under the Note or Notes or Defeased Note or Notes, as
applicable. In connection with any total Defeasance of the Loan, any portion of
the Defeasance Deposit in excess of the amount necessary to purchase the U.S.
Government Securities required by this Section 2.3.2 and satisfy Borrowers'
obligations under Section 2.3 shall be remitted to Borrowers reasonably promptly
following the purchase of such U.S. Government Securities. In connection with
any partial Defeasance of the Loan, any portion of the Defeasance Deposit in
excess of the amount necessary to purchase the U.S. Government Securities
required by this Section 2.3.2 and satisfy Borrowers' obligations under Section
2.3 shall be retained by Lender in an Eligible Account as additional collateral
for the Loans, and shall be invested in Permitted Investments, each Borrower
hereby granting to Lender a security interest in such account and in such
Permitted Investments.
(c) Upon compliance with the requirements of this Section 2.3.2, if
requested by Borrowers in connection with a Defeasance under this Section 2.3.2
of the total aggregate outstanding principal of the Note, Lender shall designate
a successor entity (other than Lender) (the "Successor Borrower") to which
Borrowers shall transfer and assign all obligations, rights and duties under and
to the Note together with the pledged U.S. Government Securities (and the
obligation of the Lender named herein to designate a Successor Borrower shall be
retained by such Person notwithstanding the sale or transfer of the Loan unless
such obligation is specifically assumed by a transferee of the Loan). The
Successor Borrower shall assume the obligations under the Note or Notes and the
Security Agreement. The Borrowers shall pay $1,000 to any such Successor
Borrower as consideration for assuming the obligations under the Note or Notes
and the Security Agreement. Notwithstanding anything herein or in the Loan
Documents that may be construed to the contrary, no other assumption fee shall
be payable to the Successor Borrower upon or in consideration for its assumption
of the Note or Notes and the Security Agreement in accordance with this Section
2.3.2(c), but Borrowers shall pay all reasonable out-of-pocket costs and
expenses incurred by Lender, including Lender's reasonable attorneys' fees and
expenses, incurred in connection therewith.
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2.3.3 Repayment on or After Anticipated Repayment Date. Borrower shall
have the right, on not less than fifteen (15) days' prior written notice, to
prepay the Loan on a Payment Date, in whole or in part, at any time and from
time to time, from and after the Anticipated Repayment Date without penalty or
premium.
2.3.4 Repayment Upon Default. If all or any part of the principal
amount of the Loan is prepaid upon acceleration of the Loan following the
occurrence of an Event of Default at any time prior to the Initial Maturity Date
or the Anticipated Repayment Date, as the case may be, Borrower shall be
required to make such payments (the "Yield Maintenance Payments") in an amount
equal to the greater of (a) three (3%) of such prepaid principal balance and (b)
the excess, if any, of (i) the sum of (A) the aggregate respective present
values of all scheduled interest payments in respect of the Loan (or the portion
of all such interest payments corresponding to the portion of the principal of
the Loan to be prepaid upon acceleration) for the period from the date of such
prepayment upon acceleration to (and including) the Initial Maturity Date or
Anticipated Repayment Date, as the case may be, discounted monthly at a rate
equal to the Treasury Constant Yield and based on a 360-day year of twelve
30-day months and (B) the aggregate respective present values of all scheduled
principal payments in respect of the Loan (or the then unpaid portion thereof to
be prepaid upon acceleration), assuming for these purposes that the entire
outstanding scheduled principal amount of the Loan as of the Initial Maturity
Date or Anticipated Repayment Date (if applicable) were to be paid in full on
such Payment Date, discounted monthly at a rate equal to the Treasury Constant
Yield and based on a 360-day year of twelve 30-day months over (ii) the then
current outstanding principal amount of the Loan (or the then unpaid portion
thereof to be prepaid upon acceleration). If the Yield Maintenance Payments as
calculated pursuant to clause (b) of this Section 2.3.4 would not be a positive
number, then the number yielded by the calculation set forth in clause (b) shall
be zero. For purposes of this Section 2.3.4, the amount of the Loan on the date
of prepayment shall be determined after giving effect to any payment of
scheduled amortization made on such date. The determination of the Yield
Maintenance Payments by Lender shall be conclusive and binding on Borrower in
the absence of manifest error.
2.3.5 Limited Right of Prepayment. During the period between Closing
and February 8, 1999, Borrowers may elect to prepay the Loan in an amount less
than or equal to the difference between the Loan Amount and $500 million;
provided, however, that such prepayment shall be accompanied by all accrued and
unpaid interest on such prepaid principal amount and any hedging and other costs
incurred by Lender resulting from such prepayment.
2.3.6 Mandatory Prepayment upon Title Defect or Survey Defect. In the
event of a Title Defect or a Survey Defect, Borrowers shall be required to
immediately prepay the Loan in the amount set forth in Sections 3.1(c)(ii) and
(iii).
Section 2.4 Release of the Property. Except as set forth in this
Section 2.4, no repayment, prepayment or Defeasance of all or any portion of any
Note shall cause, give rise to a right to require, or otherwise result in, the
release of the Lien of any Security Instrument on any of the Properties.
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2.4.1 Release of All the Properties. (a) If all Borrowers have elected
to defease all of the Notes in their entirety, and the requirements of Section
2.3.2 have been satisfied, all of the Properties shall be released from the
Liens of their respective Security Instruments and the U.S. Government
Securities, pledged pursuant to the Security Agreement, shall be the sole source
of collateral securing the Notes and the Borrowers and Nonrecourse Carveout
Indemnitors shall be released from their obligations under the Loan Documents
(other than (i) Article IV of this Agreement, (ii) Sections 12.3 through 12.13
and 12.15 through 12.26 of this Agreement, (iii) the Environmental Indemnity and
(iv) the Cooperation Agreement).
(b) In connection with the release of the Liens contemplated in
Section 2.4.1(a), Borrowers shall submit to Lender, not less than fifteen (15)
days prior to the Defeasance Date, a release of Liens (and related Loan
Documents) for each Property (for execution by Lender) in a form appropriate in
the applicable state and otherwise satisfactory to Lender in its reasonable
discretion and all other documentation Lender reasonably requires to be
delivered by Borrowers in connection with such release (collectively, "Release
Instruments"), together with an Officer's Certificate certifying that such
documentation (i) is in compliance with all Legal Requirements, and (ii) will
effect such releases in accordance with the terms of this Agreement. Lender
shall execute such Release Instruments on or prior to the Defeasance Date if all
of the conditions herein to such release of Liens have been satisfied.
2.4.2 Release of Individual Properties.
A. Releases upon Defeasance, Casualty or Condemnation. On one or more
occasions, any Borrower may obtain (i) the release of one or more Properties
owned by such Borrower from the Lien of the Security Instrument thereon (and
related Loan Documents) and (ii) the release of Borrowers' obligations under the
Loan Documents with respect to such Property or Properties (other than those
expressly stated to survive), upon satisfaction of each of the following
conditions:
(a) Borrowers shall (i) (on or after the Optional Defeasance Date),
defease the portion of such Note equal to the Release Amount of the Property
being released (together with all accrued and unpaid interest on the principal
amount being so defeased), and such defeasance shall be undertaken pursuant to
the terms and conditions of Section 2.3.2, and all of such terms and conditions
shall be satisfied, including clause (xv) thereof or (ii) make a prepayment in
connection with a Casualty or Condemnation of a Property, in each case, in an
amount equal to the Release Amount relating to the Property being released,
together with all accrued and unpaid interest thereon; provided, however, that
other than in connection with the release of the Westin Washington D.C., the
amount secured by the Security Instrument on such Property shall not be reduced
until such time as the aggregate principal balance of the Loan is less than or
equal to 125% of the Allocated Loan Amount of such Property (i.e., $29,600,000).
(b) The Borrowers shall submit to Lender, not less than twenty (20)
days prior to the date of such release, all the Release Instruments together
with an Officer's Certificate certifying that such documentation (i) is in
compliance with all Legal Requirements, (ii) will effect such release in
accordance with the terms of this Agreement, and (iii) will not impair or
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otherwise adversely affect the Liens, security interests and other rights of
Lender under the Loan Documents not being released (or as to the parties to the
Loan Documents and Properties subject to the Loan Documents not being released).
(c) With respect to any release of one or more Properties,
after giving effect to such release, the Debt Service Coverage Ratio for all of
the Properties then remaining subject to the Liens of the Security Instruments
shall be not less than the greater of (x) the Debt Service Coverage Ratio
immediately preceding the proposed release of the Individual Property (for
purposes of this calculation, the income derived from a Defeasance Deposit
delivered to Lender in connection with a partial Defeasance occurring prior to
the partial Defeasance in question shall be included in the numerator of the
Debt Service Coverage Ratio and the Defeased Note or Notes relating to a partial
Defeasance occurring prior to the partial Defeasance in question shall be
included in the denominator of the Debt Service Coverage Ratio), and (y) the
Origination Debt Service Coverage Ratio; provided, however, that (i) in order to
meet the test set forth in this clause (c), Borrowers shall be permitted to
defease that portion of the Loan in addition to the applicable Release Amount
sufficient to increase the Debt Service Coverage Ratio to the required level,
and (ii) this clause (c) shall not be applicable in connection with a prepayment
in connection with Section 8.1.2(d).
B. Releases upon Prepayments under Section 2.3.5. In the event of a
prepayment pursuant to Section 2.3.5 hereof, Borrowers may obtain (i) the
release of one or more Properties owned by Borrowers from the Lien of the
Security Instrument thereon (and related Loan Documents) and (ii) the release of
Borrowers' obligations under the Loan Documents with respect to such Property or
Properties (other than those expressly stated to survive), upon satisfaction of
each of the following conditions:
(a) Lender shall agree to such release, which agreement shall be in
Lender's sole reasonable discretion, and in no event shall Lender make such
election unless:
(i) Lender, in its sole discretion, selects which, if any, of
such Properties may be released from the Lien of the Security
Instrument thereon;
(ii) Lender has received confirmation from the Rating Agency, in
form and substance satisfactory to Lender in its sole reasonable
discretion, that the Loan, as secured by the remaining Properties,
would qualify for a "shadow rating" of no less than investment grade
(i.e., not less than BBB- by S&P and Baa3 by Moody's);
(iii) the Loan, as secured by the remaining pool of Properties,
would have the "Required Loan-to-Value Ratio"
(iv) the Loan, as secured by the remaining pool of Properties,
would have a Debt Service Coverage Ratio (assuming a loan constant
comprised of interest and amortization of 10.5%) of not less than
1.70x; and
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(v) Lender shall have received a Qualified Title Policy and a
Qualified Survey for each of the remaining Properties, and such
title policies and surveys shall be satisfactory to Lender in its
sole reasonable discretion.
In making such determination, Lender shall further take into
consideration such factors as whether the remaining pool of Properties contains
urban upscale and upscale resort hotels which are of the type, character,
quality, market performance and geographic concentration satisfactory to Lender
in its sole reasonable discretion.
(b) In the event that Lender agrees to such release pursuant to clause
(a) above, Borrowers shall submit to Lender, not less than ten Business Days
prior to the date of such release, all the Release Instruments together with an
Officer's Certificate certifying that such documentation (i) is in compliance
with all Legal Requirements, (ii) will effect such release in accordance with
the terms of this Agreement, and (iii) will not impair or otherwise adversely
affect the Liens, security interests and other rights of Lender under the Loan
Documents not being released (or as to the parties to the Loan Documents and
Properties subject to the Loan Documents not being released). Such release shall
take place reasonably promptly after Borrowers elect to make a prepayment under
Section 2.3.5 hereof.
C. Releases Upon Prepayments under Section 2.3.6.
In the event of a prepayment pursuant to Section 2.3.6 hereof,
Borrowers may obtain (i) the release of the Properties pursuant to which there
is a Title Defect or a Survey Defect from the Lien of the Security Instrument
thereon (and related Loan Documents) and (ii) the release of Borrowers'
obligations under the Loan Documents with respect to such Property or Properties
(other than those expressly stated to survive), upon satisfaction of each of the
following conditions: Borrowers shall submit to Lender, not less than five
Business Days prior to the date of such release, all the Release Instruments
together with an Officer's Certificate certifying that such documentation (i) is
in compliance with all Legal Requirements, (ii) will effect such release in
accordance with the terms of this Agreement, and (iii) will not impair or
otherwise adversely affect the Liens, security interests and other rights of
Lender under the Loan Documents not being released (or as to the parties to the
Loan Documents and Properties subject to the Loan Documents not being released).
2.4.3 Release on Payment in Full. Lender shall, upon the written
request and at the expense of Borrowers, upon payment in full of all of the Debt
in accordance with the terms of the Loan Documents, release the Liens of the
Security Instruments and other Loan Documents not theretofore released.
2.4.4 Further Assurances. To the extent any Release Instrument
executed and delivered under Section 2.4.1(b) or 2.4.2(b) is insufficient to
effect the release to be effected in accordance with the terms hereof, Lender
(and Servicer) shall remain obligated to execute and deliver, at Borrowers'
expense, such further Release Instruments as Borrowers may reasonably request
and submit to Lender, together with an Officer's Certificate covering the
matters to be covered in the Officer's Certificate described in Section 2.4.1(b)
or 2.4.2(b), as applicable.
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2.4.5 Partial Release of Westin Mission Hills. Notwithstanding Section
2.4, so long as no Specified Default or Event of Default has occurred and is
continuing, Lender will agree to release a portion of the Property known as the
Westin Mission Hills in accordance with that certain Lot Line Agreement, a copy
of which is attached hereto as Exhibit 2.5, without the requirement that
Borrower defease such Property or pay a release price; provided, however, that
such release will not cause a Material Adverse Effect.
Section 2.5 Payments and Computations.
2.5.1 Making of Payments. Each payment by Borrowers hereunder or under
the Notes shall be made in funds settled through the New York Clearing House
Interbank Payments System or other funds immediately available to Lender by
12:30 p.m. New York City time, on the date such payment is due, to Lender by
deposit to such account pursuant to such wiring instructions as provided by
Lender at least two (2) Business Days prior to the applicable Payment Date. Any
funds made available after such time shall, for all purposes hereof, be deemed
to have been paid on the next succeeding Business Day. Except as otherwise
provided herein, whenever any payment hereunder or under the Notes shall be
stated to be due on a day which is not a Business Day, such payment shall be
made on the first Business Day thereafter.
2.5.2 Computations. Interest, with respect to each Payment Date, will
be computed based on the actual number of days in the related Interest Accrual
Period and a 360-day year.
2.5.3 Loan Account and Computer Access to Collateral Accounts.
Obligors shall have the right and ability at all times to have informational
computer access to the Deposit Accounts and the other Collateral Accounts. In
addition, Lender shall maintain a loan account on its books in the name of
Borrowers in which will be recorded the Loan and all payments and prepayments of
principal of and interest on the Loan (provided, that any error in such loan
account shall not in any manner affect the obligations of Borrowers to repay the
Loan in accordance with the terms of this Agreement, the Notes and the other
Loan Documents). In addition to the Obligors' rights to have informational
computer access to the various Collateral Accounts, Lender shall, upon the
written request of Obligors, not more often than monthly, provide such
information as it has in its possession regarding the records maintained in
accordance with the second sentence hereof and information regarding funds on
deposit in the Collateral Accounts. In addition, Lender shall, or shall direct
Servicer, if any, to provide to Obligors, within five (5) Business Days of the
end of each month, monthly reports showing deposits into and disbursements,
transfers or credits, as the case may be, from each Collateral Account, and
setting forth, as of the end of each month, a schedule of the Permitted
Investments contained in each such account and schedules of all transactions
involving Permitted Investments during the month.
Section 2.6 Substitution of Properties. At any time during the first
nine years of the Term, subject to the terms and conditions set forth in this
Section 2.6, Borrowers may substitute up to three Properties (individually, a
"Substituted Property" and collectively, the "Substituted Properties"), other
than the Properties known as the Phoenician Hotel and the
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Sheraton San Diego Hotel and Marina, with one or more comparable properties
owned in fee simple by Borrowers (individually, a "Substitute Property" and
collectively, the "Substitute Properties"), provided that the following
conditions are satisfied:
(a) Substitution Limitation. In no event shall the substitution of any
Property pursuant to this Section 2.6 be permitted if the Allocated Loan Amount
of such Property, together with the aggregate Allocated Loan Amounts of all
Substituted Properties previously or currently substituted pursuant to this
Section 2.6, totals an amount equal to or greater than twenty-five percent (25%)
of the original principal amount of the Loan.
(b) Rating Agency Confirmation and Approval. Such substitution shall
require a Rating Confirmation.
(c) Substitution Debt Service Coverage Ratio. The Debt Service
Coverage Ratio with respect to all Properties immediately following such
substitution shall be equal to or greater than the greater of (A) 1.2 times the
Origination Debt Service Coverage Ratio and (B) the Debt Service Coverage Ratio
with respect to all Properties immediately prior to such substitution.
(d) Additional Requirements. All substitutions effectuated pursuant to
this Agreement must satisfy the following conditions, in addition to those set
forth in Sections 2.6(a)-(c).
(i) Lender shall have received a copy of a deed conveying all of the
applicable Borrower's right, title and interest in and to the Substituted
Property to an entity other than such Borrower and a letter from such
Borrower countersigned by a title insurance company acknowledging receipt
by such title insurance company of such deed or assignment and assumption,
as applicable, and agreeing to record such deed or assignment and
assumption, as applicable, in the real estate records for the county in
which the Substituted Property is located.
(ii) Lender shall have received an Appraisal of the Substitute
Property or Substitute Properties dated no more than sixty (60) days prior
to the substitution by an MAI appraiser acceptable to the Rating Agencies
and satisfying the minimum appraisal standards for national banks pursuant
to FIRREA, indicating (A) an appraised value of the subject Substitute
Property (or the subject Substitute Properties in the aggregate) that is
equal to or greater than the appraised value of the Substituted Property
set forth in the appraisal of the Substituted Property delivered to Lender
in connection with the Closing of the Loan and (B) a replacement cost with
respect to the Substitute Property that is equal to or greater than the
greater of (y) the replacement cost with respect to the Substituted
Property set forth in the appraisal of the Substituted Property delivered
to Lender in connection with the Closing of the Loan and (z) the
replacement
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cost with respect to the Substituted Property set forth in an appraisal of
the Substituted Property dated not more than sixty (60) days prior to the
substitution by an MAI appraiser acceptable to the Rating Agencies and
satisfying the minimum appraisal standards for national banks pursuant to
FIRREA.
(iii) The aggregate Net Operating Income for the subject Substitute
Property or Substitute Properties as of the date of substitution shall not
be less than the Net Operating Income for the Substituted Property during
the twelve (12) consecutive month period immediately prior to the date of
substitution.
(iv) No Specified Default or Event of Default shall have occurred and
be continuing and Obligors and Sponsors shall be in compliance in all
material respects with all of their obligations under this Agreement and
each of the other Loan Documents. Lender shall have received a certificate
from Obligors and Sponsors (a) confirming the foregoing, stating that each
of the representations and warranties of Obligors and Sponsors contained in
this Agreement and the other Loan Documents is true and correct in all
material respects on and as of the date of the substitution with respect to
Obligors, Sponsors and the Substitute Property or Substitute Properties and
(b) containing any other representations and warranties with respect to
Obligors, Sponsors, the Substitute Property or Substitute Properties or the
Loan as the Rating Agencies may require, such certificate to be in form and
substance satisfactory to the Rating Agencies.
(v) Borrowers shall have executed, acknowledged and delivered to
Lender (A) a Security Instrument, an Assignment of Leases and UCC financing
statements (in such quantity, form and substance as may be required for
recording or for filing in the state and county in which each Substitute
Property is located) with respect to each Substitute Property, together
with a letter from Borrowers countersigned by a title insurance company
acknowledging receipt by such title insurance company of such Security
Instrument, Assignment of Leases and UCC-1 financing statements and
agreeing to record or file, as applicable, such Security Instrument,
Assignment of Leases and Rents and one UCC-1 financing statement in the
real estate records for the county in which each Substitute Property is
located and to file one UCC-1 financing statement in the office of the
Secretary of State of the state in which each Substitute Property is
located and any other such UCC-1 financing statements as may be required by
any applicable jurisdiction so as to effectively create upon such recording
and filing valid and enforceable Liens upon each Substitute Property, of
the requisite priority, in favor of Lender (or such other trustee as may be
desired under local law), subject only to the Permitted
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Encumbrances and such other Liens as are permitted pursuant to the Loan
Documents and (B) an Environmental Indemnity with respect to each
Substitute Property. Each Security Instrument, Assignment of Leases, UCC-1
financing statements and Environmental Indemnity Agreement shall be the
same in form and substance as the counterparts of such documents executed
and delivered with respect to the related Substituted Property, subject to
modifications reflecting the applicable Substitute Property as the Property
that is the subject of such replacement documents and such modifications
reflecting the laws of the state in which the applicable Substitute
Property is located as shall be recommended by the counsel admitted to
practice in such state and delivering the opinion as to the enforceability
of such documents required pursuant to clause (xi) below. The Security
Instrument encumbering each Substitute Property shall secure all amounts
evidenced by the Notes, provided that in the event that the jurisdiction in
which the applicable Substitute Property is located imposes a mortgage
recording, intangibles or similar tax and does not permit the allocation of
indebtedness for the purpose of determining the amount of such tax payable,
the principal amount secured by such Security Instrument shall be equal to
one hundred twenty-five percent (125%) of the amount of the Loan allocated
to such Substitute Property. The amount of the Loan allocated to the
Substitute Property (such amount being hereinafter referred to as the
"Substitute Allocated Loan Amount") shall equal the Allocated Loan Amount
of the related Substituted Property. If more than one Substitute Property
is being substituted for a single Substituted Property, the Substitute
Allocated Loan Amount of each such Substitute Property shall be determined
by allocating the Allocated Loan Amount of the related Substituted Property
among each such Substitute Property in proportion to the Net Operating
Income or appraised value (or a combination thereof) of each such
Substitute Property for the twelve (12) consecutive month period ending on
the last day of the month immediately preceding the date of substitution.
(vi) Lender shall have received (A) any "tie-in" or similar endorsement to
each Qualified Title Policy insuring the Lien of an existing Security
Instrument as of the date of the substitution available with respect to
each Qualified Title Policy insuring the Lien of the Security Instrument
with respect to each Substitute Property and (B) a Qualified Title Policy
(or a marked, signed and redated commitment to issue such Qualified Title
Policy) insuring the Lien of the Security Instrument encumbering each
Substitute Property, issued by the title company that issued the Qualified
Title Policies insuring the Lien of the existing Security Instruments and
dated as of the date of the substitution, with reinsurance and direct
access agreements that replace such agreements issued in connection with
each Qualified Title Policy insuring the Lien of the Security Instrument
encumbering each Substituted Property. Each Qualified Title Policy
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issued with respect to each Substitute Property shall (1) provide coverage
in the amount of the applicable Substitute Allocated Loan Amount if the
"tie-in" or similar endorsement described above is available or, if such
endorsement is not available, in an amount equal to one hundred twenty-five
percent (125%) of the applicable Substitute Allocated Loan Amount, or such
other amount as may be required by the Rating Agencies, (2) insure Lender
that the relevant Security Instrument creates a valid first lien on the
Substitute Property encumbered thereby, free and clear of all exceptions
from coverage other than Permitted Encumbrances and standard exceptions and
exclusions from coverage (as modified by the terms of any endorsements),
(3) contain such endorsements and affirmative coverages as are contained in
the Qualified Title Insurance Policies insuring the Liens of the existing
Security Instruments (to the extent such endorsements and affirmative
coverages are available in the jurisdiction in which the Substitute
Property is located), and (4) name Lender as the insured. Lender also shall
have received copies of paid receipts showing that all premiums in respect
of such endorsements and title insurance policies have been paid.
(vii) Lender shall have received a current Qualified Survey for each
Substitute Property, certified to the applicable title company and Lender
and their successors and assigns, in the same form and having the same
content as the Qualified Survey prepared with respect to the Substituted
Property.
(viii) Lender shall have received (A) valid certificates of insurance
indicating that the requirements for the Policies required under Section
8.1 have been satisfied with respect to each Substitute Property and (B)
evidence of the payment of all premiums payable for the existing policy
period.
(ix) Lender shall have received an Environmental Report with respect
to each Substitute Property, and each such Environmental Report shall
conclude that the applicable Substitute Property (A) does not contain any
Hazardous Substance that (1) is in material violation of Environmental Law,
(2) is reasonably anticipated to give rise to Remedial Work (as defined in
the Environmental Indemnity Agreement) or (3) is reasonably anticipated to
cause diminution in value of the Substitute Property, and (B) is not
subject to any risk of material contamination from any off-site Hazardous
Substance. If a Phase II environmental report was prepared with respect to
any Substitute Property, Lender shall have received (A) written
confirmation that all remedial work recommended in such Phase II
environmental report has been completed as required by Environmental Laws,
which confirmation shall be issued by the Environmental Auditor or
Independent Engineer that conducted the
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remedial work, or the Environmental Auditor that prepared such Phase II
environmental report, and (B) if available, a no action letter from the
appropriate Governmental Authority with respect to such remediation.
(x) Obligors shall deliver or cause to be delivered to Lender (A)
updates certified by Obligors of all organizational documentation related
to Obligors and/or the formation, structure, existence, good standing
and/or qualification to do business issued by each Obligor's state of
formation and delivered to Lender in connection with making the Loan; (B)
with respect to the Borrower which will own an interest in or operate any
Substitute Property, good standing certificates, certificates of
qualification to do business in the jurisdiction in which each Substitute
Property is located (if required in such jurisdiction); and (C) resolutions
of the members of Borrowers authorizing the substitution and any actions
taken in connection with such substitution.
(xi) Lender shall have received the following opinions of Borrowers'
counsel: (A) an opinion or opinions of counsel admitted to practice under
the laws of the state in which each Substitute Property is located stating
that the Loan Documents delivered with respect to the applicable Substitute
Property pursuant to clause (v) above are valid and enforceable in
accordance with their terms, subject to the laws applicable to creditors'
rights and equitable principles, and that the applicable Borrower is
qualified to do business and is in good standing under the laws of the
jurisdiction where the applicable Substitute Property is located or that
such Borrower is not required by applicable law to qualify to do business
in such jurisdiction; (B) an opinion of Sponsors' "in-house" counsel, or
such other counsel acceptable to the Rating Agencies, stating that the Loan
Documents delivered with respect to each Substitute Property pursuant to
clause (v) above were duly authorized, executed and delivered by Borrowers
and that the execution and delivery of such Loan Documents and the
performance by Borrowers of their obligations thereunder will not cause a
breach of, or a default under, any material agreement, document or
instrument to which Borrowers are a party or to which they or their
properties are bound; (C) an opinion of counsel acceptable to the Rating
Agencies stating that subjecting each Substitute Property to the Lien of
the related Security Instrument and the execution and delivery of the
related Loan Documents does not and will not affect or impair the ability
of Lender to enforce its remedies under all of the Loan Documents or to
realize the benefits of the cross-collateralization provided for
thereunder; (D) an update of the non-consolidation opinion delivered
pursuant to Section 3.1(f) hereof (including such Substitute Borrower and
Substitute Property) indicating that the substitution does not affect the
opinions set forth therein; (E) if a Securitization has occurred, an
opinion of counsel acceptable to the Rating Agencies that the substitution
does not
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constitute a "significant modification" of the Loan under Section 1001 of
the Code or cause the REMIC Trust to fail to qualify as a REMIC or
otherwise cause a tax to be imposed on the REMIC Trust; and (F) an opinion
that the substitution will not adversely affect the continued availability
of any exemption relied upon in connection with the securitization from the
prohibited transaction rules of ERISA and section 4975 of the Code.
(xii) Borrowers shall have paid all accrued but unpaid Basic Carrying
Costs and Other Charges relating to each of the Properties and each
Substitute Property.
(xiii) Borrowers shall have paid or reimbursed Lender for all
reasonable costs and expenses incurred by Lender (including, without
limitation, reasonable attorneys fees and disbursements) in connection with
the substitution and Borrowers shall have paid all recording charges,
filing fees, taxes or other expenses (including, without limitation,
mortgage and intangibles taxes and documentary stamp taxes) payable in
connection with the substitution. Borrowers shall have paid all costs and
expenses of the Rating Agencies incurred in connection with the
substitution.
(xiv) Lender shall have received annual operating statements and
occupancy statements for each Substitute Property for the most current
completed fiscal year and a current operating statement and occupancy
statement for the Substituted Property, each certified to Lender as being
true and correct in all material respects and a certificate from Obligors
and Sponsors certifying that there has been no material adverse change in
the financial condition of each Substitute Property since the date of such
operating statements.
(xv) The applicable Borrower shall have delivered to Lender estoppel
certificates from any Major Tenants at each Substitute Property. All such
estoppel certificates shall be substantially in the form attached hereto as
Exhibit H and shall indicate that (1) the subject lease is a valid and
binding obligation of the tenant thereunder, (2) there are no defaults
under such lease on the part of the landlord or tenant thereunder, (3) the
tenant thereunder has no defense or offset to the payment of rent under
such leases, (4) no rent under such lease has been paid more than one (1)
month in advance, (5) the tenant thereunder has no option or right of first
refusal under such lease to purchase all or any portion of the applicable
Substitute Property and (6) all tenant improvement work required under such
lease has been completed and the tenant under such lease is in actual
occupancy of its leased premises. If an estoppel certificate indicates that
all tenant improvement work required under the subject lease has not yet
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been completed, Borrowers shall, if required by the Rating Agencies,
deliver to Lender financial statements indicating that Borrowers have
adequate funds to pay all costs related to such tenant improvement work as
required under such lease.
(xvi) Lender shall have received copies of all leases affecting each
Substitute Property certified by Obligors as being true and correct. Lender
shall have received a current rent roll of each Substitute Property
certified by Obligors as being true and correct.
(xvii) Lender shall have received subordination, nondisturbance and
attornment agreements in the form attached hereto as Exhibit E with respect
to all of the Leases with Major Tenants affecting each Substitute Property
other than such Leases that are, by their terms, subordinate to the
Security Instrument with respect to the applicable Substitute Property.
(xviii) Lender shall have received (A) an endorsement to the Qualified
Title Policy insuring the Lien of the Security Instrument encumbering each
Substitute Property insuring that such Substitute Property constitutes a
separate tax lot or, if such an endorsement is not available in the state
in which such Substitute Property is located, a letter from the title
insurance company issuing such Qualified Title Policy stating that such
Substitute Property constitutes a separate tax lot or (B) a letter from the
appropriate taxing authority stating that such Substitute Property
constitutes a separate tax lot.
(xix) Lender shall have received a final certificate of occupancy or a
temporary certificate of occupancy acceptable to Lender in its Discretion
(or the local equivalent thereof, if any) (provided, that Lender in
exercising its Discretion shall be permitted to take into account the
reason that only a temporary certificate of occupancy is available, and
provided, further, that Borrower shall be obligated to obtain and deliver
to Lender a final certificate of occupancy as soon as reasonably possible)
with respect to all improvements on each Substitute Property and an
engineering report with respect to each Substitute Property, stating that
such Substitute Property and its use comply in all material respects with
all applicable Legal Requirements (including, without limitation, zoning,
subdivision and building laws) and that such Substitute Property is in good
condition and repair and free of Waste or material damage. If the
engineering report and the certificate of occupancy (or the local
equivalent thereof, if any) do not evidence compliance with all applicable
Legal Requirements, such compliance shall be confirmed by delivery to
Lender of a certificate of an Independent Architect licensed in the state
in which the applicable Substitute Property is located, a letter from the
municipality in which the applicable Substitute Property is located, a
certificate of a
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surveyor that is licensed in the state in which the applicable Substitute
Property is located (with respect to zoning and subdivision laws), an ALTA
3.1 zoning endorsement to the Qualified Title Policy delivered pursuant to
clause (vi) above (with respect to zoning laws) or a subdivision
endorsement to the Qualified Title Policy delivered pursuant to clause (vi)
above (with respect to subdivision laws). If an engineering report
recommends that any repairs be made with respect to the subject Substitute
Property, such engineering report shall include an estimate of the cost of
such recommended repairs and Borrower shall deposit with Lender Eligible
Collateral in an amount equal to one hundred twenty five percent (125%) of
such estimated cost (the "Deposit Amount"), which deposit shall constitute
additional security for the Loan and shall be released to Borrowers on a
monthly basis, upon the delivery to Lender of paid receipts indicating the
costs of such repairs which have been paid by Borrowers and not yet
reimbursed by Lender, in an amount which is 90% of such costs. Upon Final
Completion, Lender shall release to Borrowers the balance of the Deposit
Amount which has not been previously released, provided that Lender shall
first receive (A) an update to such engineering report or a letter from the
engineer that prepared such engineering report indicating that the
recommended repairs were completed in good and workmanlike manner and (B)
paid receipts indicating that the costs of all such repairs have been paid
by Borrowers.
(xx) Lender shall have received a certified copy of an Operating Lease
(if applicable), a Property Management Agreement and a Franchise Agreement
relating to the Substitute Property or the Substitute Properties, as
applicable, and such Operating Lease, Property Management Agreement and
Franchise Agreement shall contain terms substantially similar to the terms
of the Operating Lease, Property Management Agreement and Franchise
Agreement of the Substituted Property or Properties, as applicable, and the
related Operating Lessee and Property Manager, as applicable, and the
related Licensor, shall have executed and delivered to Lender a
Subordination, Assignment and Attornment Agreement in substantially the
form of the Subordination, Assignment and Attornment Agreement applicable
to the Substituted Property or Properties.
(xxi) Lender shall have received such other and further approvals,
opinions, documents and information in connection with the substitution as
the Rating Agencies may have requested.
(xxii) Lender shall have received copies of all Material Agreements
and contracts relating to the leasing and operation of each Substitute
Property (other than the related Property Management Agreement) together
with a certification of Obligors attached to each such
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contract or agreement certifying that the attached copy is a true and
correct copy of such contract or agreement and all amendments thereto.
(xxiii) The type of each Substitute Property as of the date of
substitution shall be the same as that of the related Substituted Property
as of the date of substitution (i.e., for each Substituted Property, there
shall be a Substitute Property which is an upscale urban (or resort, if
such Substituted Property is a resort) hotel property of similar type,
general quality, physical condition and amenities as the Substituted
Property).
(xxiv) Borrowers shall submit to Lender, not less than twenty (20)
days prior to the date of such substitution, a release of lien (and related
Loan Documents) for the Substituted Property for execution by Lender. Such
release shall be in a form appropriate for the jurisdiction in which the
Substituted Property is located and reasonably satisfactory to Lender.
Obligor shall deliver an Officer's Certificate certifying that the
requirements set forth in this Section 2.6 have been satisfied.
(e) Release of Lien. Upon the satisfaction of the conditions precedent
set forth in Section 2.6(a)-(d), Lender will release its Lien from the
Substituted Property to be released and each related Substitute Property shall
be deemed to be Property for purposes of this Agreement and the Substitute
Allocated Loan Amount with respect to such Substitute Property shall be deemed
to be the Allocated Loan Amount with respect to the related Substitute Property
or the related Substitute Properties (as allocated pursuant to Section
2.6(d)(v)) for all purposes hereunder.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 Conditions Precedent to the Loan.
A. The obligation of Lender to make the Loan is subject to the
fulfillment by Obligors or waiver by Lender of the following conditions
precedent no later than the Closing Date:
(a) Representation and Warranties; Compliance with Conditions. The
representations and warranties of Obligors contained in this Agreement or any
other Loan Document shall be true and correct in all material respects on and as
of the Closing Date with the same effect as if made and as of such date, and no
Default or Event of Default shall have occurred and be continuing; and Obligors
shall be in compliance with all terms and conditions set forth in this Agreement
and in each other Loan Document on its part to be observed or performed. The
materiality threshold in the preceding sentence shall not be applicable with
respect to any representation or warranty which itself contains a materiality
threshold.
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(b) Loan Agreement and Notes. Lender shall have received an original
of this Agreement and the Notes, in each case, duly executed and delivered on
behalf of Obligors.
(c) Delivery of Loan Documents; Title Insurance; Reports; Leases.
(i) Security Instruments, Assignments of Agreements. Lender shall have
received from Obligors, fully executed and acknowledged counterparts of the
Security Instruments, Assignment of Leases and the appropriate UCC
financing statements relating to each of the Properties, each in form
satisfactory for recording or filing in the appropriate public records, and
evidence that counterparts of the Security Instruments, Assignment of
Leases and UCC financing statements shall have been delivered to the title
company for recording or filing, so as to effectively create upon such
recording a valid and enforceable Lien upon each of the Properties, of
first lien priority, in favor of Lender (or a deed trustee if required or
desired under local law), subject only to the Permitted Encumbrances and
such other Liens as are permitted pursuant to the Loan Documents. Lender
shall have also received fully executed counterparts of the Environmental
Indemnity, the Cooperation Agreement and the other Loan Documents.
(ii) Title Insurance. Lender shall have received a Qualified Title
Policy for each of the Properties and evidence that all premiums in respect
thereof have been paid; provided, however, that if Lender does not receive
a Qualified Title Policy for one or more Properties with an aggregate
Allocated Loan Amount of an amount less than or equal to the difference
between the Loan Amount and $500,000,000 (less any amount by which
Borrowers elect to reduce the Loan Amount as set forth in the paragraph
entitled "Loan Amount" in the Term Sheet) (such number, as so reduced,
shall be referred to as the "Title Reduction Amount"), then Lender shall
have the option, in its sole discretion, which option it shall exercise in
writing, to (a) reduce the Loan Amount by the Title Reduction Amount, in
which case the affected Properties shall be deemed not to be Properties
hereunder and shall be removed from Schedule A hereto or (b) fund the Loan
in the Loan Amount, in which case Borrowers shall be obligated to deliver a
Qualified Title Insurance Policy for each affected Property no later than
February 15, 1999. If Borrowers fail to so deliver, such situation shall be
referred to as a "Title Defect" and Borrowers shall immediately be
obligated to prepay the Loan in the amount of the Title Reduction Amount,
together with all accrued and unpaid interest on such amount and any
hedging and other costs incurred by Lender resulting from such prepayment,
and upon such prepayment the affected Properties shall be released from the
lien of the Security Instrument thereon in accordance with Section 2.3.6
hereof.
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(iii) Survey. Lender shall have received a Qualified Survey for each
of the Properties; provided, however, that if Lender does not receive a
Qualified Survey for one or more Properties with an aggregate Allocated
Loan Amount of an amount less than or equal to the Title Reduction Amount,
then Lender shall have the option, in its sole discretion, which option it
shall exercise in writing, to (a) reduce the Loan Amount by the Title
Reduction Amount, in which case the affected Properties shall be deemed not
to be Properties hereunder and shall be removed from Schedule A hereto or
(b) fund the Loan in the Loan Amount, in which case Borrowers shall be
obligated to deliver a Qualified Survey for each affected Property no later
than February 20, 1999. If Borrowers fail to so deliver, such situation
will be referred to as a Survey Defect and Borrowers shall immediately be
obligated to prepay the Loan in the amount of the Title Reduction Amount,
together with all accrued and unpaid interest on such amount and any
hedging and other costs incurred by Lender resulting from such prepayment,
and upon such prepayment the affected Properties shall be released from the
lien of the Security Instrument thereon in accordance with Section 2.3.6
hereof.
(iv) Insurance. Lender shall have received valid binders and
certificates of insurance for the policies of insurance required hereunder,
satisfactory to Lender in its reasonable discretion, and evidence of the
payment of all premiums then due and payable for the existing policy
period.
(v) Environmental Reports. Lender shall have received Environmental
Reports in respect of each Property that is satisfactory to Lender in its
Discretion.
(vi) Zoning. Lender shall have received, at Lender's option, letters
or other evidence with respect to each Property from the appropriate
authorities (or other Persons) concerning applicable zoning and building
laws, and zoning endorsements in the Qualified Title Policy, if available.
(vii) Encumbrances. Obligors shall have taken or caused to be taken
such actions in such a manner so that Lender has a valid and perfected
first priority Lien as of the Closing Date with respect to the Security
Instrument on each Property, subject only to the Permitted Encumbrances and
such other Liens as are permitted pursuant to the Loan Documents, and
evidence thereof satisfactory to Lender in its Discretion shall have been
received thereby.
(viii) Engineering Reports. Lender shall have received engineering
reports in respect of each Property satisfactory to Lender in its
Discretion, which reports shall include a report on compliance with
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building code and the Americans with Disabilities Act, as well as a
schedule of expected Capital Expenditures recommended over the twelve years
following Closing.
(ix) Material Agreements. Lender shall have received true and complete
copies of all Material Agreements, including, without limitation, the
Franchise Agreement, Property Management Agreement and Operating Lease
relating to each Property.
(x) Leases and Operating Agreements. Lender shall have received true
and complete copies of all Leases with Major Tenants executed and delivered
on or before the Rent Roll Date (and any such Leases executed and delivered
since such date shall be delivered promptly after the Closing). Lender
shall have received true and complete copies of all Operating Agreements
and any ground leases with respect to each Property.
(d) Related Documents. Each additional document not specifically
referenced herein, but relating to the transactions contemplated herein, shall
have been duly authorized, executed and delivered by all parties thereto and
Lender shall have received and approved (with such approval not to be
unreasonably withheld or delayed) certified copies thereof.
(e) Delivery of Organizational Documents. On or before the Closing
Date, each Obligor and Sponsor shall deliver or cause to be delivered to Lender
copies certified by an officer of the managing member of such Obligor or an
officer of Sponsors, as applicable, of all organizational documentation related
to such Obligor and Sponsor and/or the formation, structure, existence, good
standing and/or qualification to do business as Lender may request in its sole
discretion, including good standing certificates, qualifications to do business
in the appropriate jurisdictions, resolutions authorizing the entering into of
the Loan and, in the case of the Sponsors, those certain sections of the Loan
Agreement to which Sponsors are a party, incumbency certificates as may be
reasonably requested by Lender.
(f) Opinions of Obligors' Counsel. Lender shall have received legal
opinions of Obligors' counsel reasonably satisfactory to Lender (i) with respect
to the non-consolidation of each Obligor in the event of an insolvency
proceeding being brought against, or the bankruptcy of, certain Beneficial
owners of such Obligor and (ii) with respect to due execution, delivery,
authority, enforceability of the Loan Documents (with respect to both Obligors
and Sponsors), including opinions of local counsel, as necessary, with respect
to such matter, and such other matters as Lender may require, all such opinions
in form, scope and substance reasonably satisfactory to Lender and Lender's
counsel.
(g) Budgets. Obligors shall have delivered the Annual Budget for the
Properties for the balance of the current Fiscal Year.
(h) Completion of Proceedings. All corporate and other proceedings
taken or to be taken in connection with the transactions contemplated by this
Agreement and other Loan
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Documents and all documents incidental thereto shall be reasonably satisfactory
in form and substance to Lender, and Lender shall have received all such
counterpart originals or certified copies of such documents as Lender may
reasonably request.
(i) Estoppels. Lender shall have received estoppel letters satisfying
the Closing Estoppel Requirement.
(j) Photographs. If Lender shall have so requested, Lender shall have
received photographs of the interior and exterior of the Properties.
(k) No Material Adverse Change. Lender shall be satisfied that as of
the Closing Date, there shall have been no material adverse change or
development, since the date of the Term Sheet, in the financial condition,
business or operations of the Obligors, the Properties or the Property Managers,
and that there have been and are no circumstances or conditions with respect to
the Loan, any Property, any Obligor, any Sponsor, or any Tenant of any Property
that can reasonably be expected to cause the Loan to become delinquent,
materially adversely affect the value or marketability of the Loan or any
Property, or cause institutional investors to regard the Loan or any mortgage
security derived in whole or in part from the Loan as an unacceptable
investment. For purposes of clarification, Lender acknowledges that commercial
mortgage-backed securities market conditions such as market rate spreads on such
securities, affecting the value of the Loan, shall not constitute a basis under
which Lender is not obligated to fund the Loan. Further, Lender shall not be
obligated to disburse funds in the event of a war, outbreak of hostility
(provided that limited actions and engagements of the U.S. military taken to
enforce United Nations resolutions, such as the bombing of Iraq on December 16,
1998, shall not be considered an "outbreak of hostility" for this purpose), or
unscheduled closing of the New York Stock Exchange.
(l) Operating Agreement Estoppels. Lender shall have received an
executed estoppel letter from each party to an Operating Agreement which is
required to deliver an estoppel pursuant to such Operating Agreement, which
shall be in form and substance satisfactory to Lender in its Discretion.
(m) Appraisals. Lender shall have received an Appraisal for each
Property satisfactory to Lender in its Discretion evidencing that the Required
Loan-to-Value Ratio has been satisfied.
(n) Financial Statements. Sponsor shall provide, with respect to each
Property, (i) current results from operations, certified by the Executive Vice
President, Senior Vice President or Vice President (so long as such Person's
primary job responsibility is finance) of Sponsor and (ii) operating statements
together with an agreed-upon-procedures letter for each of the Properties (to
the extent available), for the years of 1996 and 1997. Such statements shall be
satisfactory to Lender and accompanied by an Officer's Certificate certifying
that such statements presents fairly the operating results of the Properties in
question and have been prepared in accordance with GAAP, as modified by the
Uniform System of Accounts for Hotels, current edition.
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(o) Certified Rent Rolls. Lender shall have received a rent roll for
each Property, dated as of the Rent Roll Date, accompanied by an Officer's
Certificate certifying that such rent roll is true, complete and correct as of
its date.
(p) Seismic Reports. Lender shall have received seismic reports
satisfactory to Lender, including a PML (Probable Maximum Loss) calculation of
not greater than 20%, in respect of each Property listed on Schedule 3.1(p)
hereto.
(q) Deposit Account Agreement. Lender shall have received the Deposit
Account Agreement duly executed by Obligors and the depository institutions
party thereto.
(r) Cooperation Agreement. Lender shall have received the Cooperation
Agreement duly executed by Obligors and Sponsor.
(s) Property Management Agreement and Franchise Agreement;
Subordination, Assignment and Attornment Agreement. Lender shall have received a
copy of the Property Management Agreement and Franchise Agreement with respect
to each Property, each duly executed by the related Borrower and Property
Manager or Franchisor, as applicable, and a Subordination, Assignment and
Attornment Agreement duly executed by each such Property Manager and Franchisor
which shall be in form and substance satisfactory to Lender.
(t) Subordination, Non-disturbance and Attornment Agreements. Obligor
shall have used good faith efforts to deliver to Lender, Subordination,
Non-disturbance and Attornment Agreements from each Tenant set forth on Schedule
3.1(u), in form and substance reasonably satisfactory to Lender.
(u) Consents, Licenses, Approvals, etc. Lender shall have received
copies of all consents, licenses and approvals, if any, required in connection
with the execution, delivery and performance by Obligors, Property Managers, and
Sponsors, and the validity and enforceability, of the Loan Documents, and such
consents, licenses and approvals shall be in full force and effect.
(v) Closing Statement. Lender shall have received a detailed closing
statement from Borrowers in a form acceptable to Lender, which includes a
complete description of Borrowers' sources and uses of funds on the Closing
Date, together with a fully-executed counterpart of the Loan closing statement
prepared by Lender.
(w) No Injunction. No law or regulation shall have been adopted, no
order, judgment or decree of any Governmental Authority shall have been issued,
and no litigation shall be pending or threatened, which in the good faith
judgment of Lender would enjoin, prohibit or restrain, or impose or result in
the imposition of any material adverse condition upon, the making or repayment
of the Loan or the consummation of the transactions contemplated hereby.
(x) Payments by Borrowers. Borrowers shall have paid all Lender
Expenses and the Commitment Fee.
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(y) Ground Lessor Estoppel. Lender shall have received an executed
estoppel letter from the lessor under each Ground Lease, which shall be in form
and substance satisfactory to Lender in its Discretion.
(z) Additional Information. Lender shall have received such other
information and documentation with respect to Obligors and their Affiliates,
Sponsors, the Properties and the transactions contemplated herein as Lender may
reasonably request, such information and documentation to be reasonably
satisfactory in form and substance to Lender.
(aa) Basic Carrying Costs. Borrowers shall have deposited with Lender
into an Eligible Account, all Basic Carrying Costs relating to each Property
which are in arrears, including (i) accrued but unpaid insurance premiums, (ii)
delinquent Taxes, if any, (iii) delinquent Other Charges, if any and (iv)
delinquent ground rents, if any, all of which amounts shall be funded with
proceeds of the Loan, and unless a Borrower shall be contesting the same in
accordance with the terms of Section 5.1(b) hereof, Lender shall have the right,
and Borrowers hereby authorize Lender, to apply or cause the application of such
amounts to the payment of such Basic Carrying Costs.
(bb) Subordination, Assignment and Attornment Agreement. Lender shall
have received an executed copy of the Subordination, Assignment and Attornment
Agreement in the form attached hereto as Exhibit F, dated as of the date hereof,
among Lender, Obligors and the managers of each Property.
(cc) Consent of Bank Group. Lender shall have received consent of the
Bank Group (in form and substance necessary to establish consent of all of the
Lenders in such Group) to the Loan and the other transactions contemplated
hereby and by the other Loan Documents and the Cooperation Agreement in form
reasonably satisfactory to Lender; provided, that (i) such consent shall state
explicitly that it is final and irrevocable and subject to no further review or
discussions about any of the terms of or documentation of the Loan, (ii) such
consent shall expressly acknowledge that the capital stock or membership
interests of each Obligor (including any mezzanine borrower) and such Obligor's
and mezzanine borrower's managing member, shall not be pledged to the Bank Group
and (iii) such consent shall include any amendments which are made to the Loan
Agreement pursuant to the Obligors' obligations under the Cooperation Agreement.
B. The obligation of Lender to make the Loan is further subject to
receipt by Lender no later than the Closing Date of half of the Loan Amount from
Goldman Sachs Mortgage Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 (a) Obligor Representations. Each Obligor represents and
warrants that, as of the Closing Date:
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(a) Organization. It has been duly organized and is validly existing
and in good standing with requisite limited liability company power and
authority to own its properties and to transact the businesses in which it is
now engaged. It is duly qualified to do business and is in good standing in each
jurisdiction where it is required to be so qualified in connection with its
properties, businesses and operations. It possesses all rights, licenses,
permits and authorizations, governmental or otherwise, necessary to entitle it
to own its properties and to transact the businesses in which it is now engaged,
and its sole business has been and is the ownership, management and operation of
the Properties owned by it. By its execution hereof as managing member of
Obligor, such member represents and warrants that, as of the Closing Date, such
managing member (i) is duly incorporated or organized, validly existing and in
good standing under the laws of the State of Delaware, (ii) has all limited
liability company power pursuant to proper authorization to enable it to act as
a member of Obligor, and to enter into the Loan Documents on Obligor's behalf,
and (iii) is duly qualified to do business and is in good standing in each other
jurisdiction where it is required to be qualified in order to act as a member of
Obligor.
(b) Proceedings. It has taken all necessary action to authorize the
execution, delivery and performance of this Agreement and the other Loan
Documents to which it is a party. This Agreement and such other Loan Documents
have been duly executed and delivered by it and constitute legal, valid and
binding obligations of Obligor enforceable against Obligor in accordance with
their respective terms, subject to applicable bankruptcy, insolvency and similar
laws affecting rights of creditors generally and general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law) without offset, defense or counterclaim.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the other Loan Documents by it will not conflict with or result in
a material breach of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance (other than pursuant to the Loan Documents) upon any of its
properties or assets pursuant to the terms of any indenture, mortgage, deed of
trust, loan agreement, partnership agreement or other material agreement to
which it is a party or to which any of its properties or assets is subject, nor
will such action result in any violation of the provisions of any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over it or any of its properties or assets, and any consent,
approval, authorization, order, registration or qualification of or with any
court or any such regulatory authority or other governmental agency or body
required for the execution, delivery and performance by it of this Agreement or
any other Loan Documents to which it is a party has been obtained and is in full
force and effect.
(d) Litigation. Except as set forth on Schedule 4.1(d), There are no
actions, suits or proceedings at law or in equity by or before any Governmental
Authority or other agency now pending and to the best of its knowledge there are
no such actions, suits or proceedings threatened against or affecting it or the
Properties, which actions, suits or proceedings, alone or in the aggregate, if
determined against it or the Properties in which such Obligor owns an interest
(for purposes of clarification, all references in this document to Properties in
which an Obligor
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"owns an interest" shall be deemed to include, without limitation, leasehold and
fee interests), are likely to have a Material Adverse Effect.
(e) Agreements. It is not a party to any agreement which is likely to
have a Material Adverse Effect on any of the Properties or materially adversely
affect it or its business, properties (other than the Properties) or assets,
operations or condition, financial or otherwise. It is not in default in any
material respect in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any Permitted Encumbrance or
any other material agreement or instrument to which it is a party or by which it
or any of the Properties is bound. All agreements material to the operation of
the Property at the standard at which such Property is currently operated have
been properly assigned to Obligors as of the date hereof, such agreements are in
full force and effect, and, except as set forth on Schedule 4.1(e) hereto, no
consents are required from any party to such agreement to this Agreement or any
other Loan Documents.
(f) Title. With respect to each Property owned by such Borrower, it
has good, marketable and indefeasible title in fee to the real property
comprising part of such Property (except for the Ground Leased Property, as to
which Borrower has good and marketable title to the leasehold estate therein),
and good and marketable title to the balance of such Property, in each case free
and clear of all Liens whatsoever except the Permitted Encumbrances, such other
Liens as are permitted pursuant to the Loan Documents and the Liens created by
the Loan Documents. The Security Instrument, when properly recorded in the
appropriate records, together with the Assignment of Leases and any Uniform
Commercial Code financing statements required to be filed in connection
therewith, will create (i) a valid, perfected first priority lien on such
Property or its leasehold interest therein, as the case may be, subject only to
Permitted Encumbrances and the Liens created by the Loan Documents and (ii)
perfected security interests in and to, and perfected collateral assignments of,
all personalty (including the Leases), all in accordance with the terms thereof,
in each case subject only to any applicable Permitted Encumbrances, such other
Liens as are permitted pursuant to the Loan Documents and the Liens created or
permitted by the Loan Documents. The Permitted Encumbrances do not and will not
materially adversely affect or interfere with the value, or materially adversely
affect or interfere with the current use or operation, of such Property, or the
security intended to be provided by the Security Instrument or the ability of
Borrower to repay the Notes or any amount owing under any other Loan Document or
to perform its obligations thereunder in accordance with the terms of the Loan
Documents. Except as indicated in and insured over by a Qualified Title
Insurance Policy, there are no claims for payment for work, labor or materials
affecting the Property which are or may become a lien prior to, or of equal
priority with, the Liens created by the Loan Documents (other than mechanics' or
materialmen's liens for work or materials performed or supplied the costs for
which are not yet past due or which are being contested in accordance with
Section 5.1(b)(ii) hereof). Nothing in this paragraph may be relied on by the
title insurance company issuing a policy covering such Property. The Assignment
of Leases, when properly recorded in the appropriate records, creates a valid
first priority assignment of, or a valid first priority security interest in,
certain rights under the related Leases, subject only to a license granted to
Obligor to exercise certain rights and to perform certain obligations of the
lessor under such Leases, including the right to operate the Property. No Person
other than Obligor owns any
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interest in any payments due under such Leases that is superior to or of equal
priority with the Lender's interest therein.
(g) No Bankruptcy Filing. It is not contemplating either the filing of
a petition by it under any state or federal bankruptcy or insolvency laws or the
liquidation of its assets or property, and it has no knowledge of any Person
contemplating the filing of any such petition against it.
(h) Full and Accurate Disclosure. No information contained in this
Agreement, the other Loan Documents, or any written statement furnished by or on
behalf of the Obligor pursuant to the terms of this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained herein or therein not misleading in light of
the circumstances under which they were made. There is no fact or circumstance
presently known to it which has not been disclosed to Lender and which causes or
is likely to cause a Material Adverse Affect.
(i) No Plan Assets. Each Obligor hereby represents and warrants to
Lender that, as of the date hereof and until such time as the Debt shall be paid
in full, Obligor is not an "employee benefit plan" subject to the fiduciary
responsibility provisions of ERISA, a "plan" within the meaning of Section
4975(e)(1) of the Code or any entity whose assets include the assets of any such
employee benefit plan or plan by reason of 29 C.F.R. 2510.3-101 or otherwise, or
by reason of any substantially similar Federal, state or local law.
(j) Compliance. It and the Properties owned or leased by it and the
use thereof comply in all material respects with all applicable Legal
Requirements, including building and zoning ordinances and codes. None of the
Properties is a non-conforming use or legal non-conforming use (except to the
extent that the same would not affect in any material respect the operation,
maintenance, value or use of the Property or the ability to reconstruct the
Property as presently constructed). It is not in default or violation of any
order, writ, injunction, decree or demand of any Governmental Authority, the
violation of which could cause a Material Adverse Effect. There has not been
committed by or on behalf of it or, to the best of its knowledge, any other
person in occupancy of or involved with the operation or use of such Property
any act or omission affording the federal government or any state or local
government the right of forfeiture as against the Property or any part thereof
or any monies paid in performance of its obligations under any of the Loan
Documents.
(k) Contracts. Except for the Permitted Encumbrances, the Property
Management Agreements, the Franchise Agreements, Operating Agreements, Liquor
License Agreements, Ground Leases and Operating Leases and except as set forth
on Schedule 4.1(k), there are no Material Agreements. Each Material Agreement
affecting any such Property has been entered into at arm's length in the
ordinary course of business by or on behalf of such Obligor and provides for the
payment of fees in amounts and upon terms not less favorable to such Obligor
than market rates and terms.
(l) Financial Information. All financial data, including the audited
financial statements for the Borrower audited by a Big Five accounting firm or
another independent
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certified public accounting firm acceptable to Lender, and financial statements
prepared in accordance with agreed-upon procedures for the Property, in each
case for the Historical Calendar Years and the unaudited operating statements
for the Year-to-Date Period prepared by or on behalf of Borrower and delivered
to Lender prior to the date hereof, (i) are true, complete and correct in all
material respects, (ii) accurately represent in all material respects the
financial condition or operating results, as applicable, of the Properties owned
by it as of the date of such reports, and (iii) have been prepared in accordance
with GAAP. It does not have any material contingent liabilities, liabilities for
taxes, unusual forward or long-term commitments or unrealized or anticipated
losses from any unfavorable commitments, that are known to it and reasonably
likely to have a materially adverse effect on any of the Properties or the
operation thereof, except as referred to or reflected in said financial
statements and operating statements. Except as set forth in the certified
information delivered to Lender pursuant to Section 3.1(o) and (p) hereof, since
the date of the 1997 audited financial statements, there has been no materially
adverse change in the financial condition, operations or business of Borrower
from that set forth in said financial statements.
(m) Condemnation. No Condemnation or other proceeding has been
commenced or, to its best knowledge, is contemplated with respect to all or any
portion of any Property or for the relocation of roadways providing access to
any Property.
(n) Federal Reserve Regulations. No part of the proceeds of the Loan
will be used for the purpose of purchasing or acquiring any "margin stock"
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System or for any other purpose which would be inconsistent with such
Regulation U or any other Regulations of such Board of Governors, or for any
purposes prohibited by Legal Requirements or by the terms and conditions of this
Agreement or the other Loan Documents.
(o) Utilities and Public Access. Each of the Properties in which it
owns an interest has rights of access to dedicated public ways (and makes no
material use of any means of access or egress that is not pursuant to such
dedicated public ways or recorded, irrevocable rights-of-way or easements) and
is served by water, sewer, sanitary sewer and storm drain facilities adequate to
service such Property for its current uses. All public utilities necessary for
the full use and enjoyment of each of the Properties are located in the public
right-of-way such Properties or in or through a recorded irrevocable easement in
favor of such Properties, and all such utilities are connected so as to serve
such Properties without passing over other property, except to the extent that
such utilities are accessible to such Properties by virtue of a recorded
irrevocable easement or similar agreement or right. All roads necessary for the
use of such Properties for their current respective purposes have been completed
and are either part of such Properties (by way of deed, easement or ground
lease) or dedicated to public use and accepted by all Governmental Authorities.
(p) Not a Foreign Person. It is not a "foreign person" within the
meaning of Section 1445(f)(3) of the Code.
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(q) Separate Lots. Each Property in which it owns an interest is
comprised of one (1) or more parcels which constitute one or more separate tax
lots which do not include any property not a part of such Property.
(r) Basic Carrying Costs; Assessments. Except for Basic Carrying Costs
deposited with Lender in accordance with this Agreement, it has paid all Basic
Carrying Costs due and payable in connection with each Property as of the date
hereof. To the best of its knowledge there are no pending or proposed special or
other assessments for public improvements or other matters affecting any of the
Properties owned by it (except as shown in the financial statements described in
clause (l) above), nor, to the best of its knowledge, are there any contemplated
improvements to such Properties that are likely to result in such special or
other assessments.
(s) Enforceability. The Loan Documents are not subject to any right of
rescission, set-off, counterclaim or defense by Obligor, including the defense
of usury, nor would the operation of any of the terms of the Loan Documents, or
the exercise of any right thereunder, render the Loan Documents unenforceable,
subject to laws affecting the enforcement of the rights or remedies of creditors
generally and/or equitable principles of general application, and Obligor has
not asserted any right of rescission, set-off, counterclaim or defense with
respect thereto.
(t) No Prior Assignment. There are no prior assignments of the Leases
of any Property in which it owns an interest or any portion of the Rents due and
payable or to become due and payable which are presently outstanding, except in
connection with indebtedness to be repaid in full from the proceeds of the Loan
concurrently with the Closing Date.
(u) Insurance. It has obtained and has delivered to Lender insurance
policies of any of the Properties in which it owns an interest, reflecting the
insurance coverages, amounts and other requirements set forth in this Agreement.
All premiums on such insurance policies required to be paid as of the date
hereof have been paid for the current policy period. Except as set forth in
Schedule 4.1(u), no claims have been made under any such policy, and no Person,
including Obligor, has done, by act or omission, anything which would impair the
coverage of any such policy.
(v) Certificate of Occupancy; Licenses. All material certifications,
permits, licenses and approvals, including certificates of completion and
occupancy permits (or other local equivalent), required for the legal use,
occupancy and operation of any Property in which it owns an interest (except in
the case of the Property known as the Sheraton Tara Parsippany Hotel)
(collectively, the "Licenses"), have been obtained and are in full force and
effect in all material respects. Each such Property has a certificate of
occupancy or other local equivalent (where required by applicable Legal
Requirements), and the use being made of such Property is in conformity with
such certificate of occupancy.
(w) Flood Zone. None of the Improvements on any of the Properties in
which it owns an interest is located in an area as identified by the Federal
Emergency Management Agency or the Federal Insurance Administration as an area
having special flood
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hazards (Zone A), and, to the extent that any part of any such Property is
located in an area identified by the Federal Emergency Management Agency as an
area federally designated a "100 year flood plain," the Property is covered by
flood insurance meeting the requirements set forth in Section 8.1.1(b)(i)
hereof.
(x) Physical Condition. To its best knowledge, except as disclosed in
the engineering reports listed on Schedule 4.1(x)(i), each Property in which it
owns an interest, including all buildings, improvements, parking facilities,
sidewalks, storm drainage systems, roofs, plumbing systems, HVAC systems, fire
protection systems, electrical systems, equipment, elevators, exterior sidings
and doors, landscaping, irrigation systems and all structural components, are in
good condition, order and repair in all respects material to the use, operation
or value of such Property. There exists no structural or other material defects
or damages in such Property, whether latent or otherwise which will do or will
materially impair the value of or the annual Net Operating Income from such
Property after taking into account in making such determination remedial efforts
being taken by Obligor to correct such defect or damages following discovery
thereof. It has not received written notice and is not otherwise aware from any
insurance company or bonding company of any defects or inadequacies in such
Property, or any part thereof, which would, alone or in the aggregate, adversely
affect the insurability of the same or cause the imposition of extraordinary
premiums or charges thereon or of any termination or threatened termination of
any policy of insurance or bond.
(y) Leases. No person has any possessory interest in any Property in
which it owns an interest or right to occupy the same except under and pursuant
to the provisions of the Leases or oral month to month Leases, and true and
complete copies of all Leases executed and delivered on or before the Rent Roll
Date have been delivered to Lender (and any Leases executed and delivered since
such date shall be delivered promptly after the Closing). The Leases are in full
force and effect and there are no material defaults thereunder by either party
thereto and to the best of its knowledge there are no conditions that, with the
passage of time or the giving of notice, or both, would constitute a material
default thereunder. As to all present Leases and (upon execution thereof) all
future Leases relating to such Property, Obligor will be the sole owner of the
lessor's interest. No Tenant has the right to terminate a Lease. As to all
present Leases:
(i) Obligor has no notice of any insolvency or bankruptcy proceeding
pending or threatened involving any Tenant;
(ii) with respect to all Leases with Major Tenants, there are no
outstanding landlord obligations with respect to tenant allowances or free
rent periods or tenant improvement work; except as set forth on Schedule
4.1(y)(ii) hereto, all of the obligations and duties of landlord under the
Leases that are due or are to be performed (as applicable) on or prior to
the date hereof have been fulfilled, and there are no pending claims
asserted by any Tenant for offsets or abatements against rent or any other
monetary claim;
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(iii) all of the Leases are free and clear of any right or interest of
any real estate broker or any other person (whether or not such brokers or
other persons have negotiated the Leases or have contracted with Obligor
for the collection of the rents thereunder), and, except as set forth on
Schedule 4.1(y)(iii) hereto, no brokerage or leasing commission or other
compensation is or will be due or payable to any person, firm, corporation
or other entity with respect to or on account of any of the Leases;
(iv) Schedule 4.1(y) sets forth all security deposits and letters of
credit held by or on behalf of the lessor under the Leases. All security
deposits have been held in accordance with law and the terms of the
applicable Leases, and no security deposits have been applied, or letters
of credit drawn upon, following a default by a Tenant still in possession.
(v) Obligor is the sole owner of the lessor's interest in all of the
Leases and Obligor has not given or suffered any other assignment, pledge
or encumbrance in respect of any of the Leases or its interests thereunder,
and Obligor has the sole right to collect rents and other amounts due under
the Leases;
(vi) Except as set forth on Schedule 4.1(y)(vi) hereto, no Tenant is
more than thirty (30) days in arrears on its rent or other amounts due to
the landlord under its Lease; and
(vii) None of the Leases contains any option to purchase, any right of
first refusal to purchase or, in the case of a Lease with a Major Tenant,
any right to terminate the lease term (except a right to terminate the
lease term in the event of the destruction of all or substantially all of
the related Property, to the extent such a termination right is customarily
included in leases of such type).
(z) Except for the Ground Leases referred to in clauses (i) and (ii)
below, there are no Ground Leases.
(i) Ground Leased Property. With respect to any Ground Leased Property
relating to the Property known as the Westin Cincinnati:
(i) any Ground Lease relating thereto or an abstract or memorandum
thereof has been duly recorded and a certified copy, including all
amendments thereto, has been delivered to Lender; such Ground Lease permits
the interest of the lessee thereunder to be encumbered by the Security
Instrument and does not restrict the use of the Property by such lessee,
its successors or assigns in a manner that would adversely affect the
security provided to Lender by the Security Instrument; and a true and
complete copy of the Ground Lease has been delivered to Lender;
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(ii) such Ground Lease may not be amended, modified, cancelled or
terminated without the prior written consent of Lender, as beneficiary;
(iii) such Ground Lease has a remaining term (or a remaining term plus
one or more optional renewal terms which have been previously exercised)
which extends not less than twenty-five (25) years beyond the Initial
Maturity Date; and the base rental under such Ground Lease is not subject
to increase;
(iv) such Ground Lease is not subject to any liens or encumbrances
superior to, or of equal priority with, the Security Instrument (other than
the related ground lessor's fee interest and the Permitted Encumbrances);
there is no deed of trust or Lien encumbering the related ground lessor's
fee interest (or if any such deed of trust or Lien exists, it is
subordinate to the Lien held by Lender under the Security Instrument);
(v) such Ground Lease is assignable by a holder of a deed of trust or
mortgage encumbering the lessee's interest therein upon a foreclosure of
such deed of trust or mortgage without the consent of the lessor
thereunder;
(vi) on the date hereof, such Ground Lease is in full force and effect
and no default has occurred and is continuing under such Ground Lease nor,
to the best of Obligor's knowledge after due inquiry and investigation, is
there any existing condition which, but for the passage of time or the
giving of notice or both, would result in a default under the terms of such
Ground Lease;
(vii) such Ground Lease requires the lessor thereunder to give notice
of any default by the lessee to a holder of a deed of trust or mortgage
encumbering the lessee's interest therein; and such Ground Lease further
provides that no notice of default given thereunder is effective against
such holder, unless a copy has been given to such holder in the manner
described in such Ground Lease; Lender constitutes a "mortgagee" as such
term is used in the Ground Lease;
(viii) a holder of a deed of trust or mortgage encumbering the
lessee's interest therein is permitted a period equal to that provided to
Borrower in addition to Borrower's applicable cure period to cure any
default under such Ground Lease which is curable after the receipt of
notice of any such default before the lessor thereunder may terminate such
Ground Lease (and, where necessary, is permitted the opportunity to gain
possession of the interest of the lessee under such Ground Lease through
legal proceedings or to take other action so long as such holder is
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proceeding diligently); upon any termination of the Ground Lease, in the
case of any such default which is not curable by a holder of a deed of
trust or mortgage encumbering the lessee's interest therein, or in the
event of the bankruptcy or insolvency of the lessee under such Ground
Lease, such holder has the right, following termination of the existing
Ground Lease or rejection thereof by a bankruptcy trustee or similar party,
to enter into a new ground lease with the lessor on the same terms as the
existing Ground Lease; and all rights of the lessee under such Ground Lease
may be exercised by or on behalf of such holder;
(ix) such Ground Lease does not require the lessor's consent for
subletting; and the lessor thereunder is not permitted to disturb the
possession, interest or quiet enjoyment of any subtenant of the lessee in
the relevant portion of the Property subject to such Ground Lease for any
reason (other than a default thereunder), or in any manner, which would
adversely affect the security provided to Lender by the Security Instrument
(except that, in the event of a default by lessee under the Lease, lessor
may require that the rent paid by such subtenant be adjusted so that it is
in an amount not less than fair market value).
(z)(ii) Leased Property. With respect to any Ground Leased Property
relating to the Property known as the Sheraton San Diego Hotel & Marina:
(i) any Ground Lease relating thereto or an abstract or memorandum
thereof has been duly recorded and a certified copy, including all
amendments thereto, has been delivered to Lender; such Ground Lease
permits, with the consent of the ground lessor thereunder, which consent
has been obtained as of the date hereof, the interest of the lessee
thereunder to be encumbered by the Security Instrument and does not
restrict the use of the Property by such lessee, its successors or assigns
in a manner that would adversely affect the security provided to Lender by
the Security Instrument; and a true and complete copy of the Ground Lease
has been delivered to Lender;
(ii) such Ground Lease may not be surrendered, cancelled or terminated
without the prior written consent of Lender, as beneficiary, and any such
action without such consent is void;
(iii) such Ground Lease has a remaining term which extends not less
than nineteen (19) years beyond the Initial Maturity Date and, together
with one or more optional renewal terms, such Ground Lease has a remaining
term which extends not less than twenty-five (25) years beyond the Initial
Maturity Date; and the base rental under such Ground Lease is not subject
to increase prior to January 1, 2009;
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(iv) such Ground Lease is not subject to any liens or encumbrances
superior to, or of equal priority with, the Security Instrument (other than
the related ground lessor's fee interest and the Permitted Encumbrances);
there is no deed of trust or Lien encumbering the related ground lessor's
fee interest (or if any such deed of trust or Lien exists, it is
subordinate to the Lien held by Lender under the Security Instrument), and
the Ground Lease shall remain prior to any deed of trust or other Lien upon
the related fee interest that may hereafter be granted;
(v) such Ground Lease is assignable by a holder of a deed of trust or
mortgage encumbering the lessee's interest therein upon a foreclosure of
such deed of trust or mortgage with the consent of the lessor thereunder,
which consent shall be granted provided that the assignee is financially
reliable, qualified to conduct the business for which the Ground Lease was
granted, and has a favorable business reputation;
(vi) on the date hereof, such Ground Lease is in full force and effect
and no default has occurred under such Ground Lease nor, to the best of
Obligor's knowledge after due inquiry and investigation, is there any
existing condition which, but for the passage of time or the giving of
notice or both, would result in a default under the terms of such Ground
Lease;
(vii) such Ground Lease requires the lessor thereunder to give notice
of any default by the lessee to a holder of a deed of trust or mortgage
encumbering the lessee's interest therein; and such Ground Lease further
provides that no notice given thereunder is effective against such holder,
until such holder has actually received such notice; Lender constitutes a
"leasehold mortgagee" as such term is used in the Ground Lease;
(viii) a holder of a deed of trust or mortgage encumbering the
lessee's interest therein is permitted at least thirty (30) days in
addition to Borrower's applicable cure period to cure any default under
such Ground Lease which is curable after the receipt of notice of any such
default before the lessor thereunder may terminate such Ground Lease (and,
where necessary, is permitted the opportunity to gain possession of the
interest of the lessee under such Ground Lease through legal proceedings or
to take other action so long as such holder is proceeding diligently); upon
any termination of the Ground Lease, including without limitation a
termination in the case of any such default which is not curable by a
holder of a deed of trust or mortgage encumbering the lessee's interest
therein, or in the event of the bankruptcy or insolvency of the lessee
under such Ground Lease, such holder has the right, following termination
of the existing Ground Lease or rejection thereof by a bankruptcy trustee
or
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similar party, to enter into a new ground lease with the lessor on the same
terms as the existing Ground Lease; and all rights of the lessee under such
Ground Lease may be exercised by or on behalf of such holder;
(ix) such Ground Lease permits the lessee to sublet subject to consent
of the lessor not to be unreasonably withheld; and the lessor thereunder is
not permitted to disturb the possession, interest or quiet enjoyment of any
subtenant of the lessee (which subtenant ground lessor has consented to) in
the relevant portion of the Property subject to such Ground Lease for any
reason, or in any manner, which would adversely affect the security
provided to Lender by the Security Instrument; and
(x) such Ground Lease does not permits Lender to exercise any renewal
options or purchase options held by the Lessee during the Term, but Ground
Lessor has separately consented as of the date hereof to the ability of
Lender to exercise any renewal options held by Lessee during the Term.
(aa) Survey. All of the improvements relating to each such Property
lie wholly within the boundaries and building restriction lines of such
Property, and no improvements on adjoining properties encroach upon the
Property, and no easements or other encumbrances upon each such Property
encroach upon any of the improvements, so as, in either case, to materially
adversely affect the value or marketability of such Property except those which
are insured against by a Qualified Title Insurance Policy.
(bb) Filing and Recording Taxes. All transfer taxes, deed stamps,
intangible taxes or other amounts in the nature of transfer taxes required to be
paid by any Person under applicable Legal Requirements currently in effect in
connection with the transfer of any of the Properties to Borrower have been paid
in full or deposited with the issuer of a Qualified Title Insurance Policy for
payment upon recordation of the deeds effecting such transfer. All mortgage,
mortgage recording, stamp, intangible or other similar tax required to be paid
by any Person under applicable Legal Requirements currently in effect in
connection with the execution, delivery, recordation, filing, registration,
perfection or enforcement of any of the Loan Documents, including the Security
Instruments, and the Liens intended to be created thereby, have been paid or
deposited with a title company for payment upon recordation of each of the
Security Instruments.
(cc) Single-Purpose. Obligor hereby represents and warrants to, and
covenants with, Lender that, as of the date hereof and until such time as the
Debt shall be paid in full:
(i) It has not owned and will not own any property or any other assets
other than (A) the Properties currently owned or leased by it, and (B)
incidental personal and intangible property relating to the ownership or
operation of the Properties;
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(ii) It has not engaged and will not engage in any business other than
the ownership, management, financing and operation of the Properties owned
by it;
(iii) It has not entered and will not enter into any contract or
agreement with any of its Affiliates, any of its constituent parties or any
Affiliate of any constituent party, except upon terms and conditions that
are substantially similar to those that would be available on an
arm's-length basis with third parties;
(iv) It has not incurred and will not incur any indebtedness, secured
or unsecured, direct or indirect, absolute or contingent (including
guaranteeing any obligation), other than the Permitted Indebtedness. Except
as set forth in the immediately preceding sentence, no indebtedness other
than the Debt may be secured (subordinate or pari passu) by the Property;
(v) It has not made and will not make any loans or advances to any
other Person (including any Affiliate or constituent party or any Affiliate
of any constituent party), and shall not acquire obligations or securities
of any Affiliate or constituent party or any Affiliate of any constituent
party;
(vi) It is and will remain solvent and it will pay its debts and
liabilities (including employment and overhead expenses) from its assets as
the same shall become due;
(vii) It has done or caused to be done and will do all things
necessary to observe corporate, partnership or limited liability company
formalities, as the case may be, and preserve its existence, and it will
not, nor will it permit or suffer any constituent party to amend, modify or
otherwise change its partnership certificate, partnership agreement,
operating agreement, articles of incorporation and bylaws, trust or other
organizational documents or those of such constituent party in a manner
which would adversely affect its existence as a Single Purpose Entity;
(viii) It will maintain books and records and bank accounts separate
from those of its Affiliates and any constituent party and it will file its
own tax returns (except to the extent consolidation is required under GAAP
or as a matter of law);
(ix) It will be, and at all times will hold itself out to the public
as, a legal entity separate and distinct from any other entity (including
any of its Affiliates, any of its constituent parties or any Affiliate of
any constituent party), shall conduct business in its own name and shall
maintain and utilize separate stationery, invoices and checks and it will
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pay to any Affiliate that incurs costs for office space and administrative
services that it uses, the amount of such costs allocable to its use of
such office space and administrative services;
(x) It will maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and in light
of its contemplated business operations;
(xi) Neither it nor any constituent party will seek its dissolution or
winding up, in whole or in part;
(xii) Except as required by the terms of the Loan Documents, it will
not commingle its funds and other assets with those of any Affiliate or
constituent party or any Affiliate of any constituent party or any other
Person;
(xiii) It has and will maintain its assets in such a manner that it
will not be costly or difficult to segregate, ascertain or identify its
individual assets from those of any Affiliate or constituent party or any
Affiliate of any constituent party or any other Person;
(xiv) It has not held and will not hold itself out to be responsible
for the debts or obligations of any other Person;
(xv) If it is a single-member limited liability company, it shall have
two Independent Directors as its duly appointed members of its board of
directors;
(xvi) It shall not cause or permit its board of directors to take any
action which, under applicable law or the terms of any certificate of
incorporation, operating agreement, by-laws or any voting trust agreement
with respect to any common stock, requires the vote of its board of
directors unless at the time of such action there shall be at least two
members who are Independent Directors; provided, however, that subject to
any applicable Legal Requirements, it may, at its discretion, cause or
permit its board of directors to take any action without regard to the
preceding clause of this sentence other than the following actions, and the
following actions shall not be taken while the Debt is outstanding: (A)
dissolve or liquidate, in whole or in part; (B) consolidate or merge with
or into any other entity or convey or transfer all or substantially all of
its properties and assets to any entity; (C) engage in any business other
than the ownership, maintenance and operation of the Properties in which
such Obligor owns an interest or, with respect to such managing member,
acting as the managing member of Obligor (D) institute any proceeding to be
adjudicated as bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against it, or file a petition or
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answer or consent seeking reorganization or relief under the Bankruptcy
Code or consent to the filing of any such petition or to the appointment of
a receiver, rehabilitator, conservator, liquidator, assignee, trustee or
sequestrator (or other similar official) of such managing member or Obligor
or of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, or make an assignment for the benefit of
creditors, or admit in writing its inability to pay its debts generally as
they become due, or take any action in furtherance of any of the foregoing;
(E) amend such managing member's certificate of incorporation or the
operating agreement of Obligor (except that such amendment shall be
permitted with the consent of Lender and the Rating Agency, in each case in
the sole discretion of the applicable party); (F) enter into any
transaction with an Affiliate not in the ordinary course of Obligor's
business; or (G) withdraw as the managing member of Obligor;
(xvii) It has no liabilities, contingent or otherwise, other than
those normal and incidental to the ownership, operation and leasing of the
Properties in which it owns an interest;
(xviii) Obligor shall conduct its business so that the assumptions
made with respect to Obligor in that certain opinion letter dated the date
hereof delivered by Sidley & Austin addressing substantive
non-consolidation and other matters in connection with the Loan shall be
true and correct in all respects;
(xix) Obligor will not permit any Affiliate or constituent party
independent access to its bank accounts;
(xx) Obligor shall pay the salaries of its own employees and maintain
a sufficient number of employees in light of its contemplated business
operations; and
(xxi) Obligor shall compensate each of its consultants and agents from
its funds for services provided to it and pay from its own assets all
obligations of any kind incurred. Upon the withdrawal or the disassociation
of the two Independent Directors from any constituent entity of Obligor,
Obligor shall immediately appoint new directors or cause such entity to
appoint new directors that satisfy the requirements of an Independent
Director under this Agreement.
(xxii) Obligor and the members of Obligor shall at all times comply
with the terms of the operating agreement applicable to Obligor.
(xxiii) Obligor (i) is not under any obligation to advance or
contribute property to any Affiliate by way of capital contribution, (ii)
shall not make any advance or contribute property to an Affiliate by way
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of capital contribution, (iii) except pursuant to the Contribution
Agreement, has not accepted and shall not accept any such advance or
contribution from any Affiliate, (iv) has not accepted or caused to be made
and shall not accept or cause to be made any transfer or distribution of
any Affiliate's assets, and (v) does not anticipate making any capital
contribution to any Affiliate.
(dd) Investment Company Act. It is not (i) an "investment company" or
a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended; or (ii) a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of either a
"holding company" or a "subsidiary company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended. Its sole business is the
ownership, operation, maintenance, repair, financing, refinancing and
disposition of the Properties in which it owns an interest and such matters as
are incidental to the foregoing.
(ee) Fraudulent Transfer. It (i) has not entered into the Loan or any
Loan Document with the actual intent to hinder, delay, or defraud any creditor
and (ii) has received reasonably equivalent value in exchange for its
obligations under the Loan Documents. Giving effect to the transactions
contemplated by the Loan Documents, the fair saleable value of its assets
exceeds and will, immediately following the execution and delivery of the Loan
Documents, exceed its total liabilities, including subordinated, unliquidated,
disputed or contingent liabilities. The fair saleable value of its assets is and
will, immediately following the execution and delivery of the Loan Documents, be
greater than its probable liabilities, including the maximum amount of its
contingent liabilities or its debts as such debts become absolute and matured.
Its assets do not and, immediately following the execution and delivery of the
Loan Documents will not, constitute unreasonably small capital to carry out its
business as conducted or as proposed to be conducted. It does not intend to, and
does not believe that it will, incur debts and liabilities (including contingent
liabilities and other commitments) beyond its ability to pay such debts as they
mature (taking into account the timing and amounts to be payable on or in
respect of its obligations).
(ff) Material and Management Agreements. Each of the Material
Agreements and the Property Management Agreements to which it is a party is in
full force and effect and is valid and enforceable in all material respects,
subject in each case to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles; there are no
defaults, breaches or violations thereunder by Obligor or, to the best of
Obligor's knowledge, any other party thereto, and to the best of Obligor's
knowledge, there are no conditions (other than payments that are due but not yet
delinquent and other non-delinquent executory obligations) that, with the
passage of time or the giving of notice, or both, would constitute a default by
any party thereunder, where with respect to any such Agreement the effect of one
or more of any such defaults would have a Material Adverse Effect. Neither the
execution and delivery of the Loan Documents, Obligor's performance thereunder,
the recordation of the Security Instruments, nor the exercise of any remedies by
Lender, will adversely affect Obligor's rights under any of the Material
Agreements or Property Management Agreements to which it is a party.
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(gg) Compliance with ERISA. Schedule 4.1 sets forth each Plan,
Multiemployer Plan and Multiple Employer Plan. As to all current Plans,
Multiemployer Plans and Multiple Employer Plans:
(i) Each Plan (and each related trust, insurance contract or fund) is
in compliance with its terms and all applicable laws, including without
limitation ERISA and the Code. Each Plan (and each related trust, if any)
which is intended to be qualified under Section 401(a) of the Code has
received or is in the process of seeking a determination letter from the
Internal Revenue Service to the effect that it meets the requirements of
Sections 401(a) and 501(a) of the Code.
(ii) No ERISA Event has occurred during the last 3 years.
(iii) No Obligor nor any ERISA Affiliate has incurred any unsatisfied,
or is reasonably expected to incur any, material Withdrawal Liability to
any Multiemployer Plan. No Obligor nor any ERISA Affiliate has received any
notification that any Multiemployer Plan is insolvent, in reorganization or
has been terminated, within the meaning of Title IV of ERISA, if such event
could reasonable be expected to result in a material liability to the
Obligor. Using actuarial assumptions and computation methods consistent
with Part I of subtitle E of Title IV of ERISA, the aggregate liabilities
of the Obligors and their ERISA Affiliates to all Multiemployer Plans in
the event of a complete withdrawal therefrom, as of the close of the most
recent fiscal year of each such Multiemployer Plan ended prior to the date
of the most recent Loan made to the Obligors, would not exceed an amount
which would have a Material Adverse Effect.
(iv) No Plan has incurred any "accumulated funding deficiency" within
the meaning of Section 302 of ERISA or Section 412 of the Code, or has
applied for or received a waiver of an accumulated funding deficiency or an
extension of any amortization period, within the meaning of Section 412 of
the Code or Section 303 or 304 of ERISA. All contributions required to be
made with respect to any Plan by the Obligors or any ERISA Affiliates have
been timely made.
(v) No Obligor nor any ERISA Affiliate has incurred any liability
(including any indirect, contingent or secondary liability) to or on
account of a Plan pursuant to Section 409, 502(i) or 502(1) of ERISA or
Section 401(a)(29), 4971 or 4975 of the Code or expects to incur any such
liability arising under any of the foregoing sections with respect to any
Plan which could reasonably be expected to result in a Material Adverse
Effect. No condition exists which presents a risk to any Obligor or any
ERISA Affiliate of incurring a liability to or on account of a Plan
pursuant
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to the foregoing provisions of ERISA and the Code, which could reasonably
be expected to result in a Material Adverse Effect.
(vi) Except as would not result in any material liability, no action,
suit, proceeding, hearing, audit or investigation with respect to the
administration, operation or the investment of the assets of any Plan
(other than routine claims for benefits) is pending, expected or
threatened.
(vii) Except as would not result in any material liability, each group
health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2)
of the Code) which covers or has covered employees or former employees of
any Obligor or any ERISA Affiliate has at all times been operated in
compliance with the provisions of Part 6 of subtitle B of Title I of ERISA
and Section 4980B of the Code.
(viii) No lien imposed under the Code or ERISA on the assets of any
Obligor or any ERISA Affiliate exists or is likely to arise on account of
any Plan.
(ix) No Obligor maintains or contributes to any employee welfare
benefit plan (as defined in Section 3(1) of ERISA) which provides benefits
to retired employees or other former employees (other than as required by
Section 601 of ERISA) or any Plan the obligations with respect to which
could reasonably be expected to have a Material Adverse Effect.
(x) Except as would not result in any material liability, each Foreign
Pension Plan has been maintained in compliance with its terms and with the
requirements of any and all applicable laws, statutes, rules, regulations
and orders and has been maintained, where required, in good standing with
applicable regulatory authorities. All contributions required to be made
with respect to any Foreign Pension Plan have been timely made. Except as
would not result in any material liability, no Obligor has incurred any
obligation in connection with the termination of or withdrawal from any
Foreign Pension Plan. The present value of the accrued benefit liabilities
(whether or not vested) under each Foreign Pension Plan, determined as of
the end of the most recently ended fiscal year of the Obligor on the basis
of actuarial assumptions, each of which is reasonable, did not exceed the
current value of the assets of such Foreign Pension Plan allocable to such
benefit liabilities to an extent which could reasonably be expected to have
a Material Adverse Effect.
Notwithstanding the foregoing, with respect to any Multiemployer Plans and Plans
that are not currently maintained by the Obligors or any ERISA Affiliates, the
representations and warranties in this Section 4.1(gg) are made to the best
knowledge of the Obligors.
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(hh) Rent Roll. Except for such leases as have terminated in
accordance with their terms between the Rent Roll Date and the Closing Date (i)
the Leases with Major Tenants identified on the rent rolls dated as of the Rent
Roll Date and previously delivered to Lender are in full force and effect, and
are valid and enforceable in all material respects, subject in each case to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles; (ii) there are no material defaults thereunder
by Obligor or, to the best of Obligor's knowledge, the other party thereto, and
to the best of Obligor's knowledge, there are no conditions (other than payments
that are due but not yet delinquent and other non-delinquent executory
obligations) that, with the passage of time or the giving of notice, or both,
would constitute a material event of default thereunder; (iii) no Person has any
possessory interest in or right to occupy the any Property except under and
pursuant to a Lease; and (iv) except as set forth on Schedule 4.1(hh), Obligor
has not accepted Rent under any Lease or Operating Agreement for more than one
month in advance, except for security deposits, which on the Closing Date have
been deposited with the Lender in accordance with the provisions hereof relating
to security deposits received from and after the date hereof.
(ii) Legal Compliance. To its best knowledge, except as set forth on
Schedule 4.1(ii), neither any Property in which it owns an interest, nor any
portion thereof, is on the date hereof in violation of any Legal Requirement or
any Insurance Requirement (including, without, limitation all Legal Requirements
relating to all security deposits with respect to the Property), in a manner
that is likely to have a Material Adverse Effect.
(jj) No Change in Facts or Circumstances; Disclosure. All information
submitted by Obligor to Lender and in all financial statements, rent rolls,
reports, certificates and other documents submitted in connection with the Loan
or in satisfaction of the terms thereof and all statements of fact made by
Obligor in this Agreement or in any other Loan Document, are accurate, complete
and correct in all material respects. There has been no material adverse change
in any condition, fact, circumstance or event that would make any such
information inaccurate, incomplete or otherwise misleading in any material
respect or that otherwise materially and adversely affects the business
operations or the financial condition of Obligor or the Properties in which it
owns an interest. Obligor has disclosed to Lender all material facts to which
the Obligor has knowledge and has not failed to disclose any material fact of
which Obligor has knowledge that would cause any representation or warranty made
herein to be materially misleading.
(kk) Illegal Activity. Obligor has not purchased any portion of the
Properties with proceeds of any illegal activity.
(ll) Loans to Related Parties. There are no loans payable by Obligor
(a) to any member of Obligor or to any other lender which is an affiliate or
subsidiary entity of Obligor or of any such member of Obligor; (b) to any
stockholder, officer, director, member, or general or limited partner of any
member of Obligor or to any other lender which is an affiliate or subsidiary
entity of any such stockholder, officer, director, member, or general or limited
partner of any member of Obligor; (c) to any stockholder, officer, director,
member, or general or limited
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partner of any member of any member of Obligor or to any other lender which is
an affiliate or subsidiary entity of any such stockholder, officer, director,
member, or general or limited partner of any member of any member of Obligor; or
(d) to any stockholder, officer, director, member, or general or limited partner
of any stockholder, officer or director of any member of any member of Obligor
or to any other lender which is an affiliate or subsidiary entity of any such
stockholder, officer, director, member, or general or limited partner of any
stockholder, officer or director of any member of any member of Obligor.
(mm) Parking. With respect to each Property in which Obligor owns an
interest, there are parking spaces adequate for compliance of such Property with
applicable zoning requirements and other Legal Requirements are located on the
Property.
(nn) Breach by Affiliate. The breach by an Affiliate of any agreement
to which Obligor and Affiliate are parties shall not affect the enforceability
of the terms hereof or of any Loan Document against Borrower.
(oo) Hotel Rooms. All of the rooms of each Property are in service
except for rooms (not to exceed 2% of all rooms at any single Property (except
in the case of the Sheraton Needham, in which case the applicable percentage of
rooms out of service is 12%)) that are temporarily out of service for routine
maintenance and repair.
(pp) Ground Lease (San Diego). There are no remaining or outstanding
rights of Lessor which have not been exercised or duties and obligations of
Lessee which have not been fully performed under the Lease Agreement made and
entered into on the 30th day of July, 1969, between Lessor and Lessee.
(qq) Labor Relations. No Obligor is engaged in any unfair labor
practices that could reasonably be expected to have a Material Adverse Effect.
There is (i) no unfair labor practice pending against any Obligor or, to the
best knowledge of each Obligor, threatened against any of them, before the
National Labor Relations Board, and no grievance or arbitration proceeding
arising out of or under any collective bargaining agreement is so pending
against any Obligor, or, to the best knowledge of each Obligor, threatened
against any of them, (ii) no strike, labor dispute, slowdown or stoppage pending
against any Obligor, or, to the best knowledge of each Obligor, threatened
against any Obligor and (iii) to the best knowledge of each Obligor, no union
representation question existing with respect to the employees of any Obligor
and, to the best knowledge of each Obligor, no union organizing activities are
taking place, except (with respect to any matter specified in clause (i), (ii)
or (iii) above, either individually or in the aggregate) such as could not
reasonably be expected to have a Material Adverse Effect.
(rr) Phoenician Subleases. Obligors represent and warrant the
following regarding the Phoenician Subleases: (1) The Phoenician Subleases are
in full force and effect and are binding upon and enforceable against the
Sublessees thereunder; (2) to its best knowledge all rent under such Subleases
has been paid through January 1, 1999; (3) neither Sublessor nor to the best of
Obligor's knowledge, any Sublessee, is in breach of, or in default under, the
Subleases; (4) all alterations, improvements and work to be performed by
Sublessor, if any, have been completed in accordance with the terms of the
Subleases; (5) neither Sublessor
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nor any Sublessee has commenced any action, or received any notice with respect
to the termination of any of the Subleases; and (6) Sublessees do not have any
purchase or other options or rights of first refusal with respect to the
premises covered by the Subleases.
(ss) Sheraton Colony Square. Obligors have not violated in a manner
which would cause a Material Adverse Effect any of the requirements of the
Reciprocal Easement Agreement relating to the Property known as the Sheraton
Colony Square, including payment of all assessments and other amounts due
thereunder prior to December 31, 1998.
(tt) Westin Atlanta North. Obligors have not violated in a manner
which would cause a Material Adverse Effect any of the requirements of the
Reciprocal Easement Agreement relating to the Property known as the Westin
Atlanta North, including payment of all assessments and other amounts due
thereunder prior to December 31, 1998.
Section 4.2 Nonrecourse Carveout Indemnitor Representations. Each
Nonrecourse Carveout Indemnitor represents and warrants that, as of the Closing
Date:
(a) Organization. It has been duly organized and is validly existing
and in good standing with requisite corporate or trust (as applicable) power and
authority to transact the businesses in which it is now engaged, and to enter
into this Agreement and the other Loan Documents to which it is a party. It is
duly qualified to do business and is in good standing in each jurisdiction where
it is required to be so qualified in connection with its properties, businesses
and operations. It possesses all material rights, licenses, permits and
authorizations, governmental or otherwise, necessary to entitle it to own its
properties and to transact the businesses in which it is now engaged.
(b) Proceedings. It has taken all necessary action to authorize the
execution, delivery and performance of this Agreement and the other Loan
Documents to which it is a party. This Agreement and such other Loan Documents
have been duly executed and delivered by it and constitute legal, valid and
binding obligations of it enforceable against it in accordance with their
respective terms, subject to applicable bankruptcy, insolvency and similar laws
affecting rights of creditors generally and general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law) without offset, defense or counterclaim.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the other Loan Documents by it will not conflict with or result in
a material breach of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance (other than pursuant to the Loan Documents) upon any of its
properties or assets pursuant to the terms of any indenture, mortgage, deed of
trust, loan agreement, partnership agreement or other Material Agreement to
which it is a party or to which any of its properties or assets is subject, nor
will such action result in any violation of the provisions of any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over it or any of its properties or assets, and any consent,
approval, authorization, order, registration or qualification of or with any
court or any such regulatory authority or other governmental agency or body
required for the execution, delivery and
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performance by it of this Agreement or any other Loan Documents to which it is a
party has been obtained and is in full force and effect.
(d) Litigation. There are no actions, suits or proceedings at law or
in equity by or before any Governmental Authority or other agency now pending
and to the best of its knowledge there are no such actions, suits or proceedings
threatened against or affecting it, which actions, suits or proceedings, alone
or in the aggregate, if determined against it, are likely to materially
adversely affect its condition (financial or otherwise) or business or
performance of its obligations under this Agreement or the other Loan Documents.
(e) Agreements. It is not a party to any agreement which is likely to
materially adversely affect it or its business, properties or assets, operations
or condition, financial or otherwise. It is not in default in any material
respect in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any Material Agreement or material
instrument to which it is a party or by which it is bound.
(f) Single-Purpose. On behalf of itself and its Affiliates, it hereby
represents and warrants to, and covenants with, Lender that, as of the date
hereof and until such time as the Debt shall be paid in full:
(i) It has not entered and will not enter into any contract or
agreement with Obligor or any Member, except upon terms and conditions that
are substantially similar to those that would be available on an
arm's-length basis with third parties;
(ii) It has not made and will not make any loans or advances to
Obligor (other than the Starwood Intercompany Debt) and shall not acquire
obligations or securities of Obligor or any Member;
(iii) It will maintain books and records and bank accounts separate
from those of Obligor and any Member and it will file tax returns separate
from Obligor (except to the extent consolidation is required under GAAP or
as a matter of law);
(iv) It will be, and at all times will hold itself out to the public
as, a legal entity separate and distinct from Obligor (including its
Member), shall conduct business in its own name separate from Obligor and
shall maintain and utilize separate stationery, invoices and checks from
Obligor and it will not share with Obligor any costs for office space and
administrative services that it uses;
(v) It will not commingle its funds and other assets with those of
Obligor or any Member;
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(vi) It has and will maintain its assets in such a manner that it will
not be costly or difficult to segregate, ascertain or identify its
individual assets from those of Obligor or any Member;
(vii) It has not held and will not hold itself out to be responsible
for the debts or obligations of Obligor or any Member, other than in
connection with the Loan Documents (including title insurance obtained in
connection therewith);
(viii) It shall conduct its business so that the assumptions made with
respect to Nonrecourse Carveout Indemnitor in that certain opinion letter
dated the date hereof delivered by Sidley & Austin addressing substantive
non-consolidation and other matters in connection with the Loan shall be
true and correct in all material respects;
(ix) It will not permit Obligor or any Member independent access to
its bank accounts;
(x) It shall not compensate any of Obligor's consultants and agents or
pay for obligations of any kind incurred by Obligor except in connection
with the origination of the Loan.
(xi) It (i) is not under any obligation to advance or contribute
property to any Obligor by way of capital contribution, (ii) shall not make
any advance or contribute property to an Obligor by way of capital
contribution, (iii) has not accepted and shall not accept any such advance
or contribution from any Obligor, (iv) has not accepted or caused to be
made and shall not accept or cause to be made any transfer or distribution
of any Obligor's assets, and (v) does not anticipate making any capital
contribution to any Obligor.
Section 4.3 Member Representations. Each Member represents and
warrants that, as of the Closing Date:
(a) Operating Agreement. It hereby represents and warrants to, and
covenants with, Lender that, as of the date hereof and until such time as the
Debt shall be paid in full:
(i) It will not dissolve the Limited Liability Company.
(ii) It will not assign or transfer its membership interest in
the Limited Liability Company.
(iii) It shall cause the Limited Liability Company at all times
to have at least two Independent Directors.
(iv) It shall not resign as a member of the Limited Liability
Company.
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(v) It shall comply with all of the terms of the Operating
Agreement of the Limited Liability Company.
(vi) It shall not remove any Independent Director unless such
removed Independent Director is immediately replaced by another Independent
Director.
(b) Single-Purpose. Member hereby represents and warrants to, and
covenants with, Lender that, as of the date hereof and until such time as the
Debt shall be paid in full:
(i) It has not owned and will not own any property or any other assets
other than (A) its membership interest in a Borrower, and (B) incidental
personal and intangible property relating to the ownership of such
membership interest;
(ii) It has not engaged and will not engage in any business other than
the ownership of a membership interest in a Borrower;
(iii) It has not entered and will not enter into any contract or
agreement with any of its Affiliates, any of its constituent parties or any
Affiliate of any constituent party, except upon terms and conditions that
are substantially similar to those that would be available on an
arm's-length basis with third parties;
(iv) It has not incurred and will not incur any indebtedness, secured
or unsecured, direct or indirect, absolute or contingent (including
guaranteeing any obligation);
(v) It has not made and will not make any loans or advances to any
other Person (including any Affiliate or member or any Affiliate of any
member), and shall not acquire obligations or securities of any Affiliate
or member or any Affiliate of any member;
(vi) It is and will remain solvent and it will pay its debts and
liabilities (including employment and overhead expenses) from its assets as
the same shall become due;
(vii) It has done or caused to be done and will do all things
necessary to observe corporate, partnership or limited liability company
formalities, as the case may be, and preserve its existence, and it will
not, nor will it permit or suffer any constituent party to amend, modify or
otherwise change its partnership certificate, partnership agreement,
operating agreement, articles of incorporation and bylaws, trust or other
organizational documents or those of such constituent party in a manner
which would adversely affect its existence as a Single Purpose Entity;
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(viii) It will maintain books and records and bank accounts separate
from those of its Affiliates and any member and it will file its own tax
returns (except to the extent consolidation is required under GAAP or as a
matter of law);
(ix) It will be, and at all times will hold itself out to the public
as, a legal entity separate and distinct from any other entity (including
any of its Affiliates, any of its constituent parties or any Affiliate of
any member), shall conduct business in its own name and shall maintain and
utilize separate stationery, invoices and checks and it will pay to any
Affiliate that incurs costs for office space and administrative services
that it uses, the amount of such costs allocable to its use of such office
space and administrative services;
(x) It will maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and in light
of its contemplated business operations;
(xi) Neither it nor any constituent party will seek its dissolution or
winding up, in whole or in part;
(xii) Except as required by the terms of the Loan Documents, it will
not commingle its funds and other assets with those of any Affiliate or
member or any Affiliate of any member or any other Person;
(xiii) It has and will maintain its assets in such a manner that it
will not be costly or difficult to segregate, ascertain or identify its
individual assets from those of any Affiliate or member or any Affiliate of
any member or any other Person;
(xiv) It has not held and will not hold itself out to be responsible
for the debts or obligations of any other Person;
(xv) If it is a single-member limited liability company, it shall have
two Independent Directors as its duly appointed members of its board of
directors;
(xvi) It shall not cause or permit its board of directors to take any
action which, under applicable law or the terms of any certificate of
incorporation, by-laws or any voting trust agreement with respect to any
common stock, requires the vote of its board of directors unless at the
time of such action there shall be at least two members who are Independent
Directors; provided, however, that subject to any applicable Legal
Requirement, it may, at its discretion, cause or permit its board of
directors to take any action without regard to the preceding clause of this
sentence other than the following actions, and the following action shall
not be
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taken while the Debt is outstanding: (A) dissolve or liquidate, in whole or
in part; (B) consolidate or merge with or into any other entity or convey
or transfer all or substantially all of its properties and assets to any
entity; (C) engage in any business other than the ownership of the
membership interest in a Borrower (D) institute any proceeding to be
adjudicated as bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against it, or file a petition or
answer or consent seeking reorganization or relief under the Bankruptcy
Code or consent to the filing of any such petition or to the appointment of
a receiver, rehabilitator, conservator, liquidator, assignee, trustee or
sequestrator (or other similar official) of it or of any substantial part
of its property, or ordering the winding up or liquidation of its affairs,
or make an assignment for the benefit of creditors, or admit in writing its
inability to pay its debts generally as they become due, or take any action
in furtherance of any of the foregoing; (E) amend its operating agreement
(except that such amendment shall be permitted with the consent of Lender
and, if applicable, the Rating Agency, in each case in the sole discretion
of the applicable party); or (F) enter into any transaction with an
Affiliate not in the ordinary course of its business.
(xvii) It has no liabilities, contingent or otherwise, other than
those normal and incidental to the ownership of a membership interest in a
Borrower;
(xviii) It shall conduct its business so that the assumptions made
with respect to it in that certain opinion letter dated the date hereof
delivered by Sidley & Austin addressing substantive non-consolidation and
other matters in connection with the Loan shall be true and correct in all
respects;
(xix) It will not permit any Affiliate or constituent party
independent access to its bank accounts;
(xx) It shall pay the salaries of its own employees and maintain a
sufficient number of employees in light of its contemplated business
operations; and
(xxi) It shall compensate each of its consultants and agents from its
funds for services provided to it and pay from its own assets all
obligations of any kind incurred. Upon the withdrawal of the two
Independent Directors, it shall immediately appoint new directors that
satisfy the requirements of an Independent Director under this Agreement.
(xxii) It shall at all times comply with the terms of the operating
agreement applicable to it.
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(xxiii) It (i) is not under any obligation to advance or contribute
property to any Affiliate by way of capital contribution, (ii) shall not
make any advance or contribute property to an Affiliate by way of capital
contribution, (iii) has not accepted and shall not accept any such advance
or contribution from any Affiliate, (iv) has not accepted or caused to be
made and shall not accept or cause to be made any transfer or distribution
of any Affiliate's assets, and (v) does not anticipate making any capital
contribution to any Affiliate.
Section 4.4 Second-Tier Member Representations. Each Second-Tier
Member represents and warrants that, as of the Closing Date:
(a) Operating Agreement. It hereby represents and warrants to, and
covenants with, Lender that, as of the date hereof and until such time as the
Debt shall be paid in full:
(i) It will not dissolve the Member.
(ii) It will not assign or transfer its membership interest in
the Member in violation of the terms of the limited liability company
agreement of the Member.
(iii) It shall cause the Member at all times to have at least two
Independent Directors.
(iv) It shall not resign as a member of the Member.
(v) It shall comply with all of the terms of the Operating
Agreement of the Member.
(vi) It shall not remove any Independent Director of Member
unless such removed Independent Director is immediately replaced by another
Independent Director.
Section 4.5 Survival of Representations. Each Obligor agrees that all
of the representations and warranties of such Obligor set forth in Section 4.1
hereof and elsewhere in this Agreement and in the other Loan Documents, each
Nonrecourse Carveout Indemnitor agrees that all of the representations and
warranties of such Indemnitor set forth in Section 4.2 and elsewhere in this
Agreement and in the other Loan Documents, each Member agrees that all of the
representations and warranties of such Member set forth in Section 4.3 hereof
and elsewhere in this Agreement and in the other Loan Documents and each
Second-Tier Member agrees that all of the representations and warranties of such
Second-Tier Member set forth in Section 4.4 hereof and elsewhere in this
Agreement and in the other Loan Documents shall survive for so long as any
portion of the Debt is outstanding (it being acknowledged by Lender that such
representations and warranties have been made as of the Closing Date). All
representations, warranties, covenants and agreements made in this Agreement or
in the other Loan Documents
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by each Obligor, each Nonrecourse Carveout Indemnitor and Operator shall be
deemed to have been relied upon by Lender notwithstanding any investigation
heretofore or hereafter made by Lender or on its behalf.
ARTICLE V
AFFIRMATIVE COVENANTS
Section 5.1 Obligor Covenants. Each Obligor hereby covenants and
agrees with Lender that:
(a) Existence; Compliance with Legal Requirements; Insurance. Obligor
shall do or cause to be done all things necessary to preserve, renew and keep in
full force and effect its existence, and all material rights, licenses, permits
and franchises necessary for the use and operation of the Properties in which it
owns an interest and comply in all respects with all Legal Requirements
applicable to it and the Properties in which it owns an interest. Obligor shall
at all times maintain and preserve each such Property and shall keep such
Property in good working order and repair, reasonable wear and tear excepted,
and from time to time make, or cause to be made, all reasonably necessary and
desirable repairs, renewals, replacements, betterments and improvements thereto.
Obligor will operate, maintain, repair and improve each such Property in
compliance with all Legal Requirements, and will not cause or allow any Waste
with respect to such Property. It hereby covenants and agrees not to commit, and
to use all reasonable efforts not to permit or suffer to exist any act or
omission which would afford the federal government or any state or local
government the right of forfeiture as against the Properties in which it owns an
interest or any part thereof or any monies paid in performance of its
obligations under any of the Loan Documents.
(b) Taxes and Other Charges; Contest for Taxes and Other Charges,
Legal Requirements and Liens.
(i) Subject to the provisions of Section 5.1(b)(ii) hereof, Obligor
shall pay all Taxes and Other Charges now or hereafter levied or assessed
or imposed against each Property in which it owns an interest or any part
thereof prior to the date on which such sums become delinquent. Obligor
will deliver to Lender, upon request, receipts for payment or other
evidence satisfactory to Lender that the Taxes and Other Charges have been
so paid (provided, however, Obligor is not required to furnish such
receipts for payment of Taxes in the event that such Taxes have been paid
by Lender pursuant to Section 9.4.1 hereof). Subject to the provisions of
Section 5.1(b)(ii) hereof and other than Permitted Encumbrances, Obligor
shall not suffer and shall promptly cause to be paid and discharged any
lien or charge whatsoever which may be or become a lien or charge against
each such Property, and shall promptly pay for all utility services
provided to the Property. Subject to Section 5.1(b)(ii) hereof, Obligor
shall pay, bond or otherwise discharge, from time to time when the same
shall become due, all claims and demands of mechanics, materialmen,
laborers
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and others that, if unpaid, might result in, or permit the creation of, a
lien or encumbrance on each Property (as defined in the Security
Instrument), or on the Rents arising therefrom.
(ii) Notwithstanding the foregoing, after prior written notice to
Lender, Obligor, at its own expense, may contest by appropriate legal,
administrative or other proceeding, promptly initiated and conducted in
good faith and with due diligence, the amount or validity or application in
whole or in part of any Taxes or Other Charges or Lien therefor or any
Legal Requirement or Insurance Requirement or the application of any
instrument of record affecting any Property in which it owns an interest or
any part thereof (other than the Loan Documents) or any claims or judgments
of mechanics, materialmen, suppliers, vendors or other Persons or any Lien
therefor, and may withhold payment of the same pending such proceedings if
permitted by law; provided that (A) no Specified Default or Event of
Default has occurred and remains uncured, except for, prior to
acceleration, a Default caused by the matter being contested, (B) such
proceeding shall suspend any collection of the contested Taxes, Other
Charges or Liens from such Property, Obligor or Lender, (C) such proceeding
shall be permitted under and be conducted in accordance with the provisions
of any other instrument to which Obligor is subject and shall not
constitute a default thereunder, (D) neither such Property nor any part
thereof or interest therein will be in danger of being sold, forfeited,
terminated, canceled or lost, (E) to the extent not already reserved with
Lender under Section 9.4 hereof or bonded or otherwise deposited or paid in
connection with such proceedings, Borrower shall have furnished Lender with
security (in an amount reasonably approved by Lender which in no event
shall be less than 110% of the amount in question) to insure the payment of
any such Taxes or Other Charges, or the cost of the contested Legal
Requirement or Insurance Requirement or the removal of the Lien, in each
case together with all reasonably anticipated interest and penalties
thereon, (F) in the case of an Insurance Requirement, the failure of
Obligor to comply therewith shall not impair the validity of any insurance
required to be maintained by the Obligor hereunder or the right to full
payment of any claims thereunder, (G) in the case of any essential or
significant service with respect to such Property, any contest or failure
to pay will not result in a discontinuance of any such service, (H) in the
case of any instrument of record affecting such Property or any part
thereof, the contest or failure to perform under any such instrument shall
not result in the placing of any Lien on such Property or any part thereof
(except if such Lien would be removed upon completion of such proceedings
and the compliance by the parties with the terms of the resulting order,
decision or determination and the removal costs for such Lien have been
escrowed with Lender or in the proceeding or bonded or otherwise deposited
or paid in connection with such proceedings), (I)
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except to the extent the Obligor has provided sufficient Eligible
Collateral therefor or bonded or otherwise deposited or paid in connection
with such proceedings, neither the failure to pay or perform any obligation
which the Obligor is permitted to contest under this Section nor an adverse
determination of any such contest shall result in a Material Adverse
Effect, and (J) Obligor shall promptly upon final determination thereof pay
the amount of any such Taxes, Other Charges or Liens, together with all
costs, interest and penalties which may be payable in connection therewith.
Lender may pay over any such cash deposit or part thereof held by Lender to
the claimant entitled thereto at any time when, in the judgment of Lender,
the entitlement of such claimant is finally established, and Lender shall
otherwise remit any remaining such amounts to the Obligor. Lender shall
give Obligor written notice of any such payments promptly following the
making thereof. Subject to the foregoing, at Obligor's timely request,
Lender shall not pay from the Tax, Insurance and Ground Rents Account the
contested Taxes or Other Charges being contested.
(c) Litigation. Obligor shall give prompt written notice to Lender of
any litigation or governmental proceedings pending or threatened in writing
against Obligor or against or affecting any Property in which it owns an
interest which, if determined adversely to Obligor or such Property, might be
expected to cause a Material Adverse Effect.
(d) Inspection. Obligor shall permit agents, representatives and
employees of Lender (including Servicer and Special Servicer) to inspect the
Properties in which it owns an interest on any Business Day at reasonable hours
upon reasonable advance notice.
(e) Notice of Default. Obligor shall promptly advise Lender of any
change in Obligor's condition (financial or otherwise) that could reasonably be
expected to cause a Material Adverse Effect, or of the occurrence of any Default
or Event of Default of which Obligor has knowledge.
(f) Cooperate in Legal Proceedings. Subject to its rights to pursue a
good faith challenge to any allegations of a violation of a Legal Requirement,
Obligor shall cooperate fully with Lender with respect to any proceedings before
any court, board or other Governmental Authority which may in any way affect the
rights of Lender hereunder or any rights obtained by Lender under any of the
other Loan Documents and, in connection therewith, permit Lender, at its
election, to participate in any such proceedings.
(g) Perform Loan Documents. Obligor shall observe, perform and satisfy
or cause the Operator, Property Managers and/or Franchisors with which it has
entered into an agreement to observe, perform and satisfy all the terms,
provisions, covenants and conditions required to be observed, performed or
satisfied by it, such Property Managers, Operator or, if applicable, the
Franchisors, shall pay when due all costs, fees and expenses required to be paid
by it, such Manager or, if applicable, the Franchisor, under the Loan Documents
and under the
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Property Management Agreement and Franchise Agreement, subject to any applicable
cure periods provided therein.
(h) Insurance Benefits. Obligor shall cooperate with Lender in
obtaining for Lender the benefits of any insurance proceeds lawfully or
equitably payable in connection with the Properties in which it owns an
interest, and Lender shall be reimbursed for any out-of-pocket expenses
reasonably incurred in connection therewith (including reasonable attorneys'
fees and disbursements, and, if reasonably necessary to collect such proceeds,
the expense of an appraisal on behalf of Lender in case of a fire or other
casualty affecting the Property or any part thereof) out of such insurance
proceeds.
(i) Further Assurances. Obligor shall, at Obligor's sole cost and
expense:
(i) furnish to Lender all instruments, documents, boundary surveys,
footing or foundation surveys, certificates, plans and specifications,
appraisals, title and other insurance reports and agreements, and each and
every other document, certificate, agreement and instrument required to be
furnished by Obligor pursuant to the terms of the Loan Documents or,
without additional material expense to Obligor, reasonably requested by
Lender in connection therewith;
(ii) execute and deliver to Lender such documents, instruments,
certificates, assignments and other writings, and do such other acts
necessary or desirable, to evidence, preserve and/or protect the Lien of
the Lender at any time securing or intended to secure the obligations of
Obligor under the Loan Documents, as Lender may reasonably require;
(iii) be responsible for, and shall pay on demand, all Lender
Expenses, including all origination costs and all reasonable out-of-pocket
expenses and costs incurred by Lender (or any of its affiliates) after the
Closing in connection with any Securitization; and
(iv) do and execute all and such further lawful and reasonable acts,
conveyances and assurances for the better and more effective carrying out
of the intents and purposes of this Agreement and the other Loan Documents,
as Lender shall reasonably require from time to time.
(j) Financial Reporting and Other Information.
(i) Obligor will keep and maintain or will cause to be kept and
maintained on a Fiscal Year basis, in accordance with GAAP, to the extent
applicable (and as modified by the Uniform System of Accounts for Hotels,
current edition), proper and accurate books, records and accounts
reflecting all of its financial affairs and all items of Operating Income,
Operating Expenses and Capital Expenditures for each Property in which it
owns an interest. Lender shall have the right from time to time at all
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times during normal business hours upon reasonable notice to examine such
books, records and accounts at the office of Obligor or other Person
maintaining such books, records and accounts and to make such copies or
extracts thereof, as Lender shall desire. After the occurrence of an Event
of Default, Obligor shall pay any costs and expenses incurred by Lender to
examine its accounting records with respect to the Properties in which it
owns an interest, as Lender shall determine to be necessary or appropriate.
(ii) Obligor shall furnish to Lender, in form and substance
satisfactory to Lender in all respects and in Lender's sole discretion, (a)
on or before March 1, 1999, audited financial statements for the fiscal
year 1998 with respect to each Property in which Obligor owns an interest
and (b) on or before February 1, 1999, except as set forth on Schedule N,
operating statements and an agreed-upon procedures letter for each Property
in which Obligor owns an interest, in each case for the years of 1996, 1997
and 1998, certified by a "Big Five" accounting firm, in accordance with
GAAP (as modified by the Uniform System of Accounts for Hotels, current
edition) and in such detail as Lender may reasonably request and, in the
case of the statements to be delivered pursuant to clause (a), containing a
balance sheet for such Property and statements of profit and loss. If there
is a significant discrepancy between the audited financial statements
described in clause (a) and the agreed-upon procedures letter for fiscal
year 1998 as described in clause (b), the applicable Borrower will be
required to deliver a letter from such accounting firm verifying current
expenses and revenue of such Property. All such statements shall set forth
the financial condition and the income and expenses for each such Property
for the Fiscal Year in question, including statements of annual Net
Operating Income.
(iii) Obligor shall furnish to Lender within one hundred five (105)
days following the end of each Fiscal Year, with respect to each Property
in which it owns an interest, a complete copy of its annual financial
statements, audited by a "Big Five" accounting firm or another independent
certified public accounting firm acceptable to Lender, in accordance with
GAAP (and as modified by the Uniform System of Accounts for Hotels, current
edition), for such Fiscal Year and containing a balance sheet for such
Property and statements of profit and loss, all in such detail as Lender
may reasonably request. All such statements shall set forth the financial
condition and the income and expenses for each such Property for the
immediately preceding Fiscal Year, including statements of annual Net
Operating Income. Obligor's annual financial statements shall be
accompanied by (i) an Officer's Certificate certifying that each such
annual financial statement presents fairly, in all material respects, the
financial condition and results of operation of the Properties being
reported upon and has been prepared in accordance with GAAP and (ii) a
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management letter, in form and substance reasonably satisfactory to Lender,
illustrating the numerical discrepancies between the financial statements
for such Fiscal Year and the most recent Annual Budget, including, if a Low
NOI Period exists, (a) a detailed explanation of any variances of five
percent (5%) or more between budgeted and actual expense amounts in the
aggregate for such Fiscal Year and (b) a detailed explanation of any
variances of ten percent (10%) or more between budgeted and actual expense
amounts on a line-item basis for such Fiscal Year. Together with Obligor's
annual financial statements, Obligor shall furnish to Lender (A) an
Officer's Certificate certifying as of the date thereof whether, to
Obligor's knowledge, there exists a Default or Event of Default, and if
such Default or Event of Default exists, the nature thereof, the period of
time it has existed and the action then being taken to remedy the same; and
(B) an annual report, for the most recently completed fiscal year,
containing:
(1) Capital Expenditures made in respect of the
Properties owned or leased by such Obligor, including
separate line items with respect to any project costing in
excess of $500,000 per Property, and a budget of Capital
Expenditures for the following fiscal year; and
(2) occupancy levels at any Property owned or leased by
Obligor for such period, including average daily room rates,
revenue per available room and any franchise inspection
reports received by Obligor for such Property.
(iv) Obligor will furnish, or cause to be furnished, to Lender on or
before the thirtieth (30th) day after the end of each calendar month
(unless otherwise indicated), the following items, each to be presented on
a monthly basis (unless otherwise indicated) and on a trailing twelve month
basis, accompanied by an Officer's Certificate, certifying that such items
are true, correct, accurate, and complete and fairly present, in all
material respects, the financial condition and results of the operations of
Obligor and the Properties in which it owns an interest in accordance with
GAAP (as modified by the Uniform System of Accounts for Hotels, current
edition, and subject to normal year end adjustments), to the extent
applicable:
(A) monthly and year to date and trailing twelve month financial
statements prepared for such month with respect to such Property,
including a balance sheet and a summary profit and loss statement, and
noting Operating Income, Operating Expenses and Net Operating Income
and other information necessary and sufficient under GAAP (as modified
by the Uniform System of
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Accounts for Hotels, current edition), to the extent applicable, to
fairly represent the financial position and results of operations of
the Property during such calendar month, year to date period and
trailing twelve month period, all in form reasonably satisfactory to
Lender (notwithstanding the foregoing, the balance sheet may be
provided on a quarterly basis);
(B) on a quarterly basis, a comparison of the budgeted income and
expenses and the actual income and expenses for such quarter and
trailing twelve month period for each Property owned by it, together
with a detailed explanation of any variances of five percent (5%) or
more between budgeted and actual expense amounts in the aggregate and
any such variances of ten percent (10%) or more on a line-item basis
for such periods (except during a Low NOI Period, during which time
Obligor shall provide such detailed explanation in the event of a
variance of five percent (5%) or more on a line-item basis for such
periods);
(C) a statement of the actual Capital Expenditures made in
respect of the Property during such month and trailing twelve month
period, including separate line items with respect to any project
costing in excess of $500,000 per Property;
(D) occupancy levels at each such Property for such month and
trailing twelve month period, including average daily room rates and
any franchise inspection reports received by Borrower;
(E) rent rolls for each such Property for each quarter and
trailing twelve month period;
(F) the Smith Travel Research Reports most recently available to
Obligor reflecting market penetration and the competitive set for each
Property;
(G) a statement that the representations and warranties of
Obligors set forth in Section 4.1(cc)(iv) are true and correct as of
the date of such certificate; and
(G) a statement indicating, for the next succeeding month, the
amount payable in respect of Management Fees to any Property Managers
or Franchisors which are not Affiliates of the Sponsors.
(v) Obligor shall furnish to Lender, within ten (10) Business Days
after request, such further detailed information with respect to the
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operation of each such Property and the financial affairs of Obligor as may
be reasonably requested by Lender or as requested by the Rating Agencies.
(vi) Obligor shall furnish to Lender, promptly after receipt, a copy
of any notice received by or on behalf of Obligor from any Governmental
Authority having jurisdiction over any of the Properties in which it owns
an interest with respect to a condition existing or alleged to exist or
emanate therefrom or thereat.
(vii) Obligor will, at any and all times, within a reasonable time
after written request by Lender, furnish or cause to be furnished to
Lender, in such manner and in such detail as may be requested by Lender,
such information as may be necessary to permit Lender to comply with any
request for information made by an investor or prospective investor in the
Certificates and to be furnished under Rule 144A(d) under the Securities
Act.
(viii) It shall deliver to Lender a copy of any written notice from
the franchisor under any Franchise Agreement or the Property Manager under
any Property Management Agreement to which it is a party, including any
notices that it has not complied with any of its obligations under such
Franchise Agreement or Property Management Agreement or altering in any
material respect the rules, standards and requirements of such Franchisor
or Property Manager.
(ix) If Obligor fails to provide to Lender or its designee any of the
financial statements, certificates, reports or information (the "Required
Records") required by this Section 5.1(j) within thirty (30) days after the
date upon which such Required Record is due, the same shall be an Event of
Default; provided that Lender shall have given to Obligor at least five (5)
days' prior written notice (with respect to any of the foregoing
specifically identified herein) or twenty (20) days' prior written notice
(with respect to any of the foregoing not specifically identified herein)
of such failure by Obligor to timely submit the applicable Required Record.
(x) Lender shall have the right at any time and from time to time to
audit the financial information provided by Obligor pursuant to the terms
of this Agreement in accordance with the then customary audit policies and
procedures of Lender. Lender shall pay the cost and expenses of such
audits, except during a Low NOI Period, during which time Obligor shall pay
such costs and expenses.
(xi) All reports furnished to Lender pursuant to this clause (j) shall
be presented as a hard copy together with (to the extent available) an
electronic format.
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(k) Business and Operations; Material Agreements. Obligor will
continue to engage in the businesses currently conducted by it as and to the
extent the same are necessary for the ownership, maintenance, management and
operation of the Properties in which it owns an interest. Obligor will qualify
to do business and will remain in good standing under the laws of each
jurisdiction as and to the extent the same are required for the ownership,
maintenance, management and operation of such Properties. Obligor shall at all
times (i) maintain such Properties or cause such Properties to be maintained at
a standard at least equal to the prevailing standard held as of the date hereof
by prudent managers of similar facilities or land in the region where such
Properties are located; (ii) maintain or cause to be maintained sufficient
inventory and Equipment of types and quantities at such Properties to enable the
operation of such Properties; (iii) maintain such licenses and permits, or
arrangements in connection therewith so as to permit such Properties to be
maintained at a standard at least equal to that maintained by prudent managers
of similar facilities located near such Properties; (iv) promptly perform and/or
observe all of the covenants and agreements required to be performed and
observed by it under the related Property Management Agreements and any other
Material Agreement, and do all things necessary to preserve and to keep
unimpaired its rights thereunder; (v) promptly notify Lender in writing of the
giving of any notice of any default by any party under any Material Agreement of
which it is aware, including, without limitation, the Property Management
Agreements and Franchise Agreement; and (vi) promptly enforce the performance
and observance of all of the material covenants and agreements required to be
performed and/or observed by the other party under each Material Agreement,
including, without limitation, the Property Management Agreements and Franchise
Agreement.
(l) Title to the Properties. Obligor will warrant and defend against
the claims of all Persons whomsoever with respect to (i) its title to the
Properties in which it owns an interest and every part thereof and (ii) the
validity and priority of the Lien of the related Security Instruments in any
Property in which Obligor owns an interest, subject only in each case to Liens
permitted under the Loan Documents (including Permitted Encumbrances).
(m) Costs of Enforcement. With respect to each Property in which it
owns an interest, in the event (i) that any Security Instrument is foreclosed in
whole or in part or any Note, any Loan Document, including the Security
Instrument, is put into the hands of an attorney for collection, suit, action or
foreclosure, (ii) of the foreclosure of any Lien or mortgage prior to or
subsequent to the Security Instrument in which proceeding Lender is made a
party, (iii) of the bankruptcy, insolvency, rehabilitation or other similar
proceeding in respect of Obligor or an assignment by Obligor for the benefit of
its creditors, or (iv) Lender shall attempt to remedy any Event of Default
hereunder, Obligor, its successors or assigns, shall be chargeable with and
agrees to pay all costs incurred by Lender as a result thereof, including costs
of collection and defense (including reasonable attorneys', experts',
consultants' and witnesses' fees and disbursements) in connection therewith and
in connection with any appellate proceeding or post-judgment action involved
therein, which shall be due and payable together with all required service or
use taxes.
(n) Estoppel Statement. (i) After written request by Lender, Obligor
shall within fifteen (15) Business Days furnish Lender with a statement, duly
acknowledged and
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certified, setting forth (A) the unpaid principal amount of each Note, (B) the
Interest Rate, (C) the date installments of interest and/or principal were last
paid, (D) any offsets or defenses to the payment of the Debt, (E) that the
Notes, this Agreement, the Security Instruments and the other Loan Documents are
valid, legal and binding obligations and have not been modified or if modified,
giving particulars of such modification, and (F) such other matters as Lender
may reasonably request. Any prospective purchaser of any interest in the Loan
shall be permitted to rely on such certificate.
(ii) Obligor shall request and use all reasonable efforts to obtain
for Lender, upon request, Tenant estoppel certificates from each Major Tenant
and each ground lessor under a Ground Lease on forms reasonably satisfactory to
Lender; provided that Obligor shall not be required to deliver such certificates
more frequently than once in any calendar year (including estoppel certificates
obtained in connection with the origination of the Loan); provided, however,
that there shall be no limit on the number of times Obligor may be required to
obtain such certificates if a Default hereunder or under any of the Loan
Documents has occurred and is continuing.
(o) Loan Proceeds. Borrower shall use the proceeds of the Loan
received by it on the Closing Date only for the purposes set forth in Section
2.1.2 hereof.
(p) Performance by Obligor. Obligor shall in a timely manner observe,
perform and fulfill each and every covenant, term and provision of each Loan
Document executed and delivered by Obligor, and shall not enter into or
otherwise suffer or permit any amendment, waiver, supplement, termination or
other modification of any Loan Document executed and delivered by Obligor
without the prior written consent of Lender. Without limiting the foregoing,
Obligor shall cure the Deferred Maintenance Conditions and remediate
Environmental Conditions in a diligent manner and shall complete the same not
later than the time period set forth in Schedule E hereto.
(q) Annual Budget. (i) Borrower shall prepare and deliver to Lender,
on or before December 31 of each year, for informational purposes only, an
Annual Budget, prepared on a preliminary basis, for the ensuing year in respect
of the Properties in which it owns an interest. Borrower shall prepare and
deliver to Lender, on or before February 15 of each year, for informational
purposes only, a final Annual Budget for the ensuing year in respect of such
Properties. As of the first Payment Date following the Anticipated Repayment
Date or during a Low NOI Period, and as of each anniversary of the commencement
of such Low NOI Period until such Low NOI Period terminates, the Annual Budget
shall be subject to Lender's approval which shall not be unreasonably withheld
or delayed. Within ten (10) days after the commencement of a Low NOI Period or
the Anticipated Repayment Date, Borrower shall submit an Annual Budget for
Lender's approval in accordance with the procedures specified in this Section
5.1(q). Once approved, such Annual Budget shall be complied with, subject to a
variance of five percent (5%) or more between budgeted and actual amounts in the
aggregate and on a line-item basis for such period and year to date. Cost
savings from one line item in such budget may be reallocated to other line items
in such budget, provided that without the consent of Lender, no such
reallocation shall cause an overall variance in the budget of more than 5%. In
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the event of a variance which exceeds the levels set forth in the foregoing
sentences, such variance shall not trigger an Event of Default pursuant to the
terms of Section 10.1(a)(xii) if (a) such variance occurs with respect to no
more than three Interest Accrual Periods per year, and (b) the Reserve Account
contains funds sufficient to correct such variance, in which event such funds
shall be promptly withdrawn by Lender or, if the Reserve Account does not
contain such funds, Sponsor pays to Lender funds sufficient to correct such
variance, it being understood and agreed that Sponsor shall have no obligation
to correct such variance or pay any funds to correct such variance. In all other
cases, such variance shall trigger an Event of Default pursuant to the terms of
Section 10.1(a)(xii). In addition, Borrower shall have the right to submit
proposed modifications to the approved budget, if necessitated by unforeseeable
events, which modifications shall be subject to Lender's approval (not to be
unreasonably withheld or delayed). Lender's approval of the Annual Budget shall
be deemed given if not disapproved by Lender within thirty (30) days after
Lender's receipt thereof and a written request for approval captioned on the
first page of such request with the following legend in bold face type:
"WARNING: FAILURE TO RESPOND TO THIS COMMUNICATION WITHIN THIRTY (30) BUSINESS
DAYS OF THE DATE OF RECEIPT OF THIS NOTICE WILL BE DEEMED CONSENT TO THE ACTIONS
FOR WHICH YOUR CONSENT IS REQUESTED HEREIN." If Lender disapproves the Annual
Budget, then the Annual Budget for the previous year shall apply until such time
as a new Annual Budget has been approved.
(r) No Joint Assessment. Obligor shall not suffer, permit or initiate
the joint assessment of any Property in which it owns an interest (i) with any
other real property constituting a tax lot separate from the Property, and (ii)
unless required by applicable law, with any portion of such Property which may
be deemed to constitute personal property, or any other procedure whereby the
lien of any taxes which may be levied against such personal property shall be
assessed or levied or charged to the Property.
(s) Leasing Matters. In addition to the terms of Section 7.2 hereof
and only with respect to each Lease with a Major Tenant:
(i) Obligor shall furnish Lender with an executed copy of each Lease
within thirty (30) days after execution thereof.
(ii) All new Leases entered into from and after the date hereof shall
be the result of arms'-length negotiations, shall provide for "market"
rental rates and other market terms and shall not contain any terms which
would materially adversely affect Lender's rights under the Loan Documents
(provided that the rent payable under a new Lease may be below market rate
if (x) the lessee is a managing and/or leasing agent for Obligor and the
space leased under the new Lease is to be used solely in connection with
the managing and leasing of the Property and is of a size reasonably
required for an office for such agent for such purposes, or (y) the rents
from the space leased under the new Lease were, immediately prior to the
entry into that Lease, below market rate and such new Lease was given in
exchange for the surrender of the prior Lease).
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(iii) All Leases shall provide that they are subordinate to the
related Security Instrument and that the lessee agrees to attorn to Lender
at Lender's request (subject to the terms of Section 7.2(b) hereof).
(iv) Obligor (A) shall observe and perform the obligations imposed
upon the lessor under the Leases in a commercially reasonable manner; (B)
shall enforce the terms, covenants and conditions contained in the Leases
on the part of the lessee thereunder to be observed or performed in a
commercially reasonable manner; (C) shall not collect any of the base or
minimum rents more than one (1) month in advance (other than security
deposits); (D) shall not execute any assignment of lessor's interest in the
Leases or the Rents (except for the Assignment of Leases); and (E) shall
not alter, modify or change the terms of any Lease with a Major Tenant in a
manner inconsistent with the provisions of the Loan Documents and shall not
terminate Leases (except to exercise its remedies following an event of
default thereunder); provided that Lender's prior consent shall be required
prior to the termination of a Lease with a Major Tenant.
(v) Any Lease with a Major Tenant shall be subject to Lender's prior
written consent (which shall not be unreasonably withheld or delayed). Any
Lease under which it, the Property Manager or an Affiliate of any of the
Obligors is the lessee for space to be used solely in connection with the
managing and operation of the Property shall not be subject to approval by
Lender provided that the space is of a size reasonably required for such
purposes. Any Lease submitted to Lender for Lender's approval, which shall
be accompanied by a summary of the material terms of such Lease (including
the economic terms and any termination options) shall be deemed approved if
Lender shall have not notified it in writing of its disapproval (together
with a statement of the grounds of such disapproval) within five (5)
Business Days after it has given Lender written notice that at least ten
(10) Business Days have elapsed since such submission, which notice shall
be captioned on its first page with the following legend in bold face type:
"WARNING: TEN BUSINESS DAYS HAVE ELAPSED SINCE THE UNDERSIGNED FIRST
SUBMITTED THE ATTACHED LEASE FOR YOUR APPROVAL. FAILURE TO DISAPPROVE THE
ATTACHED LEASE WITHIN FIVE (5) BUSINESS DAYS OF YOUR RECEIPT OF THIS NOTICE
WILL BE DEEMED APPROVAL OF THE ATTACHED LEASE."
(vi) Obligor shall furnish to Lender a copy of any notice received
from a Tenant under a Lease with a Major Tenant threatening non-payment of
rent or other default, alleging or acknowledging a default by landlord,
requesting a termination or modification of a Lease or notifying Obligor of
the exercise or non-exercise of any option provided
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for in such Tenant's Lease, or any other similar material correspondence
received by Obligor from Tenants during the subject month.
(t) Security Deposits. Obligor shall immediately upon receipt deliver
(and with respect to security deposits, letters of credit or other collateral
already paid or delivered to Obligor or its predecessor in interest, Obligor is
concurrently herewith delivering) to Lender all security deposits, letters of
credit or other collateral that it receives (or has received) from time to time
from any Tenant as security for the performance by such Tenant of its
obligations under its Lease. Lender shall deposit (or shall direct Obligor to
deposit directly) any cash to be delivered by Obligor pursuant to the preceding
sentence in an escrow account in the name of Lender and, except to the extent
required by law or the applicable Lease, such account shall be maintained in
accordance with the terms of Section 12.2 hereof. Lender shall make such
security available to Obligor or the applicable Tenant on or prior to the tenth
(10th) Business Day after notice from Obligor to the extent required to comply
with obligations owed to such Tenant under the terms of its Lease or to Obligor,
in the event of such Tenant's default under its Lease, subject to Lender's
approval, which approval shall not be unreasonably withheld (based on, among
other things, the intended use of such deposit and whether a replacement Lease
has been executed). Lender may commingle funds deposited hereunder and Lender
shall not be obligated to segregate, designate or separately account for any
specific security deposit, except to the extent that Obligor notifies Lender in
writing at or prior to the time of any deposit that such deposit is required to
be segregated by the applicable Lease or under applicable law.
(u) ERISA Compliance. As long as there are any Notes outstanding, as
soon as reasonably practicable and, in any event, within 15 days after the
Obligor or any ERISA Affiliate knows or has reason to know of the occurrence of
any of the following, the Obligor will deliver, or cause to be delivered, to the
Lender a certificate of the chief financial officer of the Obligor setting forth
the reasonable details as to such occurrence and the action, if any, that such
Obligor or ERISA Affiliate is required or proposes to take, together with any
notices required or proposed to be given or filed by such Obligor or such ERISA
Affiliate to or with the PBGC or any other government agency or any Plan
participant, and any notices received by such Obligor or ERISA Affiliate from
the PBGC or any other government agency, or a Plan participant with respect
thereto:
(i) that an ERISA Event with respect to any Plan has occurred;
(ii) that a contributing sponsor (as defined in Section 4001(a)(13) of
ERISA) of a Plan subject to Title IV of ERISA is subject to the advance
reporting requirement of PBGC Regulation Section 4043.61 (without regard to
subparagraph (b)(1) thereof), and an event described in subsection .62,
.63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 is
reasonably expected to occur with respect to such Plan within the following
30 days;
(iii) that an "accumulated funding deficiency" within the meaning of
Section 412 of the Code or Section 302 of ERISA, has been
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incurred or an application may reasonably be expected to be or has been
made for a waiver or modification of the minimum funding standard
(including any required installment payments) or an extension of any
amortization period under Section 412 of the Code or Section 303 or 304 of
ERISA with respect to a Plan;
(iv) that any contribution with respect to a Plan or Foreign Pension
Plan has not been timely made or that a proceeding has been instituted
pursuant to Section 515 of ERISA to collect a delinquent contribution to a
Plan, provided that at the time notice is given or required to be given to
the PBGC under Section 302(f)(4)(A) of ERISA or Section 412(n)(4)(A) of the
Code of the failure to make timely payments to a Plan, Obligor shall
provide to Lender a copy of any such notice filed and a statement of the
chief financial officer of the Obligor setting forth (A) sufficient
information necessary to determine the amount of the lien under Section
302(f)(3) or Section 412(n)(3) of the Code, (B) the reason for the failure
to make the required payments and (C) the action, if any, which the
Obligor, its Subsidiary or its ERISA Affiliate proposes to take with
respect thereto;
(v) that a Plan has been or may be terminated, reorganized,
partitioned or declared insolvent under Title IV of ERISA;
(vi) that Obligor or any ERISA Affiliate will or could reasonably be
expected to incur any material increase in liability (including any
indirect, contingent or secondary liability) to or on account of the (A)
the imposition of Withdrawal Liability by a Multiemployer Plan, (B) the
determination that a Multiemployer Plan is, or is expected to be, in
reorganization within the meaning of Title IV of ERISA, (C) the termination
of a Multiemployer Plan within the meaning of Title IV of ERISA; or
(vii) that Obligor or any ERISA Affiliate will or could reasonably be
expected to incur any material increase in liability with respect to a
group health plan as defined in Section 607(l) of ERISA or Section
4980B(g)(2) of the Code) under Section 4980B of the Code or any Plan, or
that the Obligor or any ERISA Affiliate could reasonably be expected to
incur any material increase in liability pursuant to an employee welfare
benefit plan (as defined in Section 3(1) of ERISA) that provides benefits
to retired employees or other former employees (other than as required by
Section 601 of ERISA) or any Plan or Foreign Pension Plan.
Each Obligor will deliver promptly, upon request of Lender, a complete copy of
the annual report (on Internal Revenue Service Form 5500 Series) of each Plan
(including, to the extent
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required, the related financial and actuarial statements and opinions and other
supporting statements, certifications, schedules and information) required to be
filed with the Internal Revenue Service and copies of any records, documents or
other information that must be furnished to the PBGC or any other governmental
agency with respect to any Plan pursuant to Section 4010 of ERISA. Obligor will
provide such other information with respect to the condition or operations,
financial or otherwise, of Obligor as Lender may from time to time reasonably
request.
In addition to any certificates or notices delivered to the Lender
pursuant to this section 5.1(u)(i) through (vii), copies of any records,
documents or other information required to be furnished to the PBGC or any other
governmental agency, and any material notices received by any Obligor or any
ERISA Affiliate with respect to any Plan, Multiemployer Plan or by any Obligor
with respect to any Foreign Pension Plan shall be delivered to the Lender no
later than fifteen (15) days after the date such records, documents, and/or
information has been furnished to the PBGC or any other governmental agency or
such notice has been received by the Obligor or any ERISA Affiliate, as
applicable. Notwithstanding the foregoing, no statement or notice described in
this Section 5.1(u)(i) through (vii) shall be required to be provided unless the
event or events to which such statement or notice described in this section
5.1(u)(i) through (vii) could individually or in the aggregate be expected to
result in liabilities to the Obligors or their ERISA Affiliates in excess of
$75,000.
(v) Plan Assets. Obligor will do, or cause to be done, all things
necessary to ensure that it is not deemed an "employee benefit plan" subject to
the fiduciary responsibility provisions of ERISA, a "plan" within the meaning of
Section 4975(e)(1) of the Code or any entity whose assets include the assets of
any such employee benefit plan or plan by reason of 29 C.F.R. 2510.3-101 or
otherwise, or by reason of any substantially similar Federal, state or local
law. If requested by Lender, Obligor shall deliver to Lender within thirty (30)
days after the request, an opinion of counsel stating that Obligor is in
compliance with the first sentence of this section 5.1(v).
(w) Consents. No consent, approval, authorization or order of, or
qualification with, any court or Governmental Authority is required in
connection with the execution, delivery or performance by Obligor of this
Agreement or the other Loan Documents.
(x) Environmental Matters. Except for matters set forth in the
Environmental Reports delivered to Lender prior to the date hereof:
(i) each Property in which Obligor owns an interest is in compliance
with all applicable Environmental Laws (which compliance includes, but is
not limited to, the possession by Obligor, the related Property Manager or
other appropriate Person of all Permits required in connection with the
ownership and operation of such Property under all Environmental Laws)
except where the failure to comply with such laws is not reasonably likely
to result in a Material Adverse Effect.
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(ii) There is no Environmental Claim pending or, to the actual
knowledge of Obligor, threatened, except as is not reasonably likely to
result in a Material Adverse Effect.
(iii) There have not been and are no past or present Releases of any
Hazardous Substance that are reasonably likely to form the basis of any
Environmental Claim except as is not reasonably likely to result in a
Material Adverse Effect.
(iv) Without limiting the generality of the foregoing, there is not
present at, on, in or under any such property, PCB-containing equipment,
asbestos or asbestos containing materials, underground storage tanks or
surface impoundments for Hazardous Substances, lead in drinking water
(except in concentrations that comply with all Environmental Laws), or
lead-based paint, except as is not reasonably likely to result in a
Material Adverse Effect.
(v) No Liens are presently recorded with the appropriate land records
under or pursuant to any Environmental Law with respect to any such
Property and, to Obligor's actual knowledge, no Governmental Authority has
been taking or is in the process of taking any action to subject such
Property to Liens under any Environmental Law.
(vi) There have been no material environmental investigations,
studies, audits, reviews or other analyses conducted by or that are in the
possession of Obligor in relation to the Property which have not been made
available to Lender.
(y) Assignment or Participation of Notes. In the event that Lender
notifies Obligor that a sale of any of the Notes or any interest in any thereof
(an "Assignment") (including, without limitation, a sale or transfer of any of
the Notes held by Lender to a trust, partnership, business trust or other
issuance vehicle accompanied by the simultaneous issuance by such vehicle of a
security backed by or representing an interest in such Notes, either alone or
together with other assets transferred by Lender or other parties), or a sale of
a participation interest in any of the Notes (a "Participation"), to another
party is desirable, then Obligor agrees reasonably to cooperate with Lender in
order to effectuate such Assignment or Participation, including in connection
with the Participation to be purchased by Goldman Sachs Mortgage Company or its
designee on the Closing Date; provided, however, that Obligor shall not be
required to incur any out-of-pocket cost or pay any amount under the Loan
Documents in connection with the origination of an Assignment or Participation,
other than the Participation to be sold to GSMC or its designee on the Closing
Date.
(z) Standards for Hotels. It shall perform such work as is necessary
to maintain standards at least as high as those standards that currently apply
to each Property and otherwise are in compliance with the standards of the
applicable Franchisor under the applicable Franchise Agreement or, if there is
no Franchise Agreement, then in the franchise agreement
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which is standard for such Franchisor. Any work to be completed in accordance
with this provision shall be completed despite the unavailability or
insufficiency, if any, of funds in the Deferred Maintenance and Environmental
Conditions Reserve Account or any reserve account maintained by such Borrower to
complete such work.
(aa) Hotel Open for Business. It shall operate (or cause the Property
Manager to operate) each Property owned directly or indirectly by it as a hotel
open for business under the applicable Franchise Agreement, or, if there is no
Franchise Agreement, under the brand name in place as of the date hereof.
(bb) Cause Performance by Other Parties. It shall use its best efforts
to cause the applicable Property Managers to perform their obligations under the
applicable Property Management Agreements.
(cc) Physical Condition. With respect to each Property in which it
owns an interest, it shall repair and restore such Property, including all
buildings, improvements, parking facilities, sidewalks, storm drainage systems,
roofs, plumbing systems, HVAC systems, fire protection systems, electrical
systems, equipment, elevators, exterior sidings and doors, landscaping,
irrigation systems and all structural components (the "Improvements"), to the
extent that such Property and such Improvements are not in good condition, order
and repair in all respects material to the use, operation or value of such
Property.
(dd) Conflicts. It acknowledges that in the event of a conflict
between the provisions of the Operating Leases and the Loan Documents
(including, without limitation, provisions relating to reports and records,
financial plans, capital expenditures by the lessor under the Operating Leases,
liquor licenses, and destruction and eminent domain (including any termination
rights of any party in connection therewith)), the provisions of the Loan
Documents shall govern.
(ee) Deferred Maintenance and Environmental Remediation. Obligors
shall substantially complete the remediation of all Deferred Maintenance
Conditions and Environmental Conditions described on Schedule E hereto on or
before the dates set forth on such Schedule; provided that for purposes hereof,
substantial completion shall mean completion of the items in question other than
immaterial punch list items without regard to the $50,000 amount set forth in
the definition of "Substantial Completion."
(ff) Westin Mission Hills Closure Report. With respect to the Property
known as the Westin Mission Hills, Borrowers shall deliver to Lender as soon as
possible after the Closing a closure report from the relevant governmental
authority relating to the underground diesel storage tanks recently removed by
Borrowers from such Property.
Section 5.2 Operator Covenants. Each Operator covenants and agrees
with Lender that:
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(a) Operating Lease Payments. With respect to each Operating Lease, it
will make all Operating Lease Payments to the Clearing Account relating to the
Property which is the subject of such Operating Lease.
(b) Conflicts between Operating Leases and Loan Documents.
Notwithstanding the terms and provisions of the Operating Leases, in the event
of a conflict between the Operating Leases and the Loan Documents, such Operator
shall act in accordance with the terms of the Loan Documents.
ARTICLE VI
NEGATIVE COVENANTS
Section 6.1 Obligor's Negative Covenants. Each Obligor covenants and
agrees with Lender that it will not, directly or indirectly, violate or permit
the direct or indirect violation of any of the following:
(a) Operation of Property. Obligor shall not, without Lender's prior
consent (except as elsewhere herein expressly provided): (i) surrender or
terminate any Material Agreements which are service agreements or retail tenant
leases (unless the other party thereto is in material default and the
termination of such agreement would be commercially reasonable), (ii) surrender
or terminate any Property Management Agreements, or permit or suffer any
significant delegation or contracting of any Property Manager's duties (unless
the Property Manager is in material default and the termination of such
agreement would be commercially reasonable or unless the Property Manager is
being replaced with an Acceptable Property Manager pursuant to a commercially
reasonable property management agreement), (iii) increase or consent to the
increase of the amount of any charges under any Material Agreement, except as
provided therein or on an arms'-length basis and commercially reasonable terms;
(iv) otherwise modify, change, supplement, alter or amend, or waive or release
any of its rights and remedies under any Material Agreement in any material
respect, except on an arms'-length basis and commercially reasonable terms, or
(v) (1) surrender or terminate any Franchise Agreement to which it is a party or
permit any surrender or termination thereof or (2) amend, modify or alter the
terms of such Franchise Agreement in any material respect; provided, however,
that it may cancel, release, terminate or surrender any such Franchise Agreement
in connection with the substitution of an Acceptable Franchisor (such
cancellation, release, termination or surrender to be referred to as a
"Reflagging") only if (a) it shall deliver to Lender no later than thirty (30)
days prior to the proposed Reflagging an Officer's Certificate stating that it
shall cause the Property in which it owns an interest to come under a new
Franchise Agreement with an Acceptable Franchisor of equal or better class and
of the same type, (b) it shall deliver to Lender no later than thirty (30) days
prior to the proposed Reflagging a copy of such new Franchise Agreement
(including a Franchisor Letter) to Lender for its consideration, and such new
Franchise Agreement and Franchisor Letter shall be in form and substance
satisfactory to Lender in its sole discretion and with terms as favorable to
such Obligor as the Franchise Agreement in effect on the date hereof, (c) it
shall deliver to Lender no later than thirty (30) days prior to the proposed
Reflagging an Officer's Certificate stating the costs, nature, scope and timing
of the work or
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changes associated with such Reflagging, and Lender shall determine that any
Alteration, Expansion or other work or changes associated with such Reflagging
shall be reasonably likely to be completed no later than three years prior to
the Maturity Date, (d) with respect to all of the Properties, there shall be no
more than one such Reflagging each year, (e) Borrowers shall have received a
Rating Confirmation with respect to such Reflagging, and (f) in the event that
the costs associated with such Reflagging involve costs for any Alteration or
Expansion or any other construction, reserves or improvements which Lender
reasonably estimates to be greater than the Threshold Amount applicable to such
Property, Obligor shall deposit Eligible Collateral in an amount equal to such
unpaid costs into an escrow account which Eligible Collateral, in the case of an
Alteration, Expansion, construction or other improvement, shall be deposited and
released in accordance with Section 7.1(j) hereto, and in all other cases shall
be deposited in an escrow account and ultimately released to Borrower upon
delivery to Lender of (a) an Officer's Certificate stating that (i) to the
knowledge of the certifying person, no Event of Default has occurred and is
continuing and (ii) such unpaid costs have been paid and (b) copies of receipts
evidencing the same. Such escrow accounts shall be in the name of Lender and,
except to the extent required by law, such accounts shall be maintained in
accordance with the terms of Section 12.2 hereof. Notwithstanding anything
herein to the contrary, in no event shall a Reflagging take place during the
three years prior to the Maturity Date.
(b) Liens. Subject to Section 5.1(b)(ii) hereof, Obligor shall not,
without the prior written consent of Lender, create, incur, assume, permit or
suffer to exist any Lien on any portion of any Property in which it owns an
interest, except (i) Permitted Encumbrances, (ii) Liens created by or permitted
pursuant to the Loan Documents and (iii) Liens for Taxes or Other Charges not
yet delinquent.
(c) Dissolution. Obligor shall not dissolve, terminate, liquidate,
merge with or consolidate into another Person. Except as expressly permitted in
Section 6.1(h)(ii), Obligor shall not, and shall not permit or suffer any
Affiliate, directly or indirectly, to (i) transfer, lease or sell, in one
transaction or any combination of transactions, the assets or all or
substantially all of the properties or assets of Obligor, or (ii) cause the
managing member of Obligor, or any other member of Obligor to (A) dissolve, wind
up or liquidate or take any action, or omit to take any action, as a result of
which the Obligor or its managing member would be dissolved, wound up or
liquidated in whole or in part, (B) amend, modify, waive or terminate the
articles of incorporation or by-laws of the managing member of Obligor, or (C)
amend, modify, waive or terminate the operating agreement of Obligor, without,
in each instance, obtaining the prior written consent of Lender or Lender's
designee.
(d) Change in Business. Obligor shall not enter into any line of
business other than the ownership, maintenance, financing, refinancing and
operation of the Properties in which it owns an interest, (in each case subject
to the terms hereof), or make any material change in the scope or nature of its
business objectives or purposes, or undertake or participate in activities other
than the continuance of its present business.
(e) Debt Cancellation. Obligor shall not cancel or otherwise forgive
or release any claim or debt owed to Obligor by any Person, including any
arising under any of the Leases
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and Material Agreements except (i) with respect to the Leases and Material
Agreements, in accordance with and subject to the terms of this Agreement and
(ii) with respect to other matters, for adequate consideration in the ordinary
course of Obligor's business and on commercially reasonable terms, subject to
other restrictions contained herein or in any other Loan Document.
(f) Affiliate Transactions. Obligor shall not enter into, or be a
party to, any transaction with an Affiliate of Obligor or any of the members of
Obligor except in the ordinary course of business and on terms which are fully
disclosed to Lender in advance and are no less favorable to Obligor or such
Affiliate than would be obtained in a comparable arms'-length transaction with
an unrelated third party.
(g) Zoning and Uses. Obligor shall not, with respect to any Property
in which it owns an interest, (i) initiate or support any limiting change in the
permitted uses of the Property (or to the extent applicable, zoning
reclassification of the Property) or any portion thereof, seek any variance
under existing land use restrictions, laws, rules or regulations (or, to the
extent applicable, zoning ordinances) applicable to the Property or use or
permit the use of the Property in a manner that would result in such use
becoming a non-conforming use under applicable land-use restrictions (and, if
any, zoning ordinances) or that would violate the terms of any Lease, Operating
Agreement, Legal Requirements or any Permitted Encumbrance, (ii) modify, amend
or supplement any of the terms of any Permitted Encumbrance in a manner adverse
to the interests of Lender, (iii) modify, amend or supplement any of the terms
of any other Permitted Encumbrance in a manner adverse to the interest of
Lender, (iv) impose or permit or suffer the imposition of any restrictive
covenants, easements or encumbrances upon the Property in any manner that
adversely affects in any material respect the value or utility of the Property,
(v) execute or file any subdivision plat affecting the Property, institute, or
permit the institution of, proceedings to alter any tax lot comprising the
Property or (vi) permit or suffer the Property to be used by the public or any
Person in such manner as might make possible a claim of adverse usage or
possession or of any implied dedication or easement.
(h) Debt. Other than the Permitted Indebtedness, Obligor shall not
create, incur or assume any of the following: (i) indebtedness for borrowed
money or for the deferred purchase price of property or services; (ii)
indebtedness evidenced by a note, bond, debenture or similar instrument; (iii)
any letter or letters of credit issued for the account of Obligor to the extent
there are unreimbursed amounts drawn thereunder; (iv) indebtedness secured by a
Lien on any property owned by Obligor (whether or not such indebtedness has been
assumed) except obligations for impositions which are not yet due and payable;
(v) any obligation of Obligor directly or indirectly guaranteeing any
indebtedness or other obligation of any other Person in any manner; (vi) any
payment obligations of Obligor under any interest rate protection agreement
(including, without limitation, any interest rate swaps, caps, floors, collars
or similar agreements) and similar agreements; or (vii) any contractual
indemnity obligations of Obligor.
(i) Transfers.
(i) General Limitation. Unless such action is permitted by the
subsequent provisions of this Section 6.1(i) or by the terms of Section
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5.1(s) hereof and except for Permitted Encumbrances and Permitted
Indebtedness, Obligor will not, without Lender's prior written consent and
a Rating Confirmation with respect to the transfer or other matter in
question, (A) sell, assign, convey, transfer or otherwise dispose of or
encumber (except as otherwise provided herein) legal, Beneficial or
equitable interests in all or any part of any Property owned by it, the
Obligor or its managing member, (B) permit or suffer any owner, directly or
indirectly, of a legal, Beneficial or equitable interest in any Property
owned by it, the Obligor or its managing member to transfer such interest,
whether by transfer of stock or other Beneficial interest in any entity or
otherwise, (C) mortgage, hypothecate or otherwise encumber or grant a
security interest in all or any part the legal, Beneficial or equitable
interests in all or any part of any Property owned by it, the Obligor or
managing member, or (D) file a declaration of condominium with respect to
any Property owned by it.
(ii) Sale of the Property. Except as may be set forth elsewhere in
this Section 6.1(i), Borrowers shall have the one-time right with respect
to each Property, subject to a Rating Confirmation with respect to such
transaction (and subject to the consent in writing of one hundred percent
(100%) of the holders of the Certificates, in the case of a sale of the
Properties known as the Phoenician and the Sheraton San Diego resulting in
less than 51% of the direct or indirect legal, Beneficial and equitable
interests in the applicable Borrowers and such Properties being owned by
Sponsors) (or Lender's consent, in its sole discretion, if prior to a
Securitization), to sell, assign, convey, transfer or otherwise dispose of
legal or equitable title to or any interest in such Property, subject to
the Loan and at any time prior to the Anticipated Repayment Date if:
(A) after giving effect to the proposed transaction:
(1) the Property will be owned by a Single Purpose
Entity (the "Permitted Transferee") which will be in
compliance with the representations, warranties and
covenants contained in Section 4.1(cc) hereof (as if the
Permitted Transferee shall have remade all of such
representations, warranties and covenants as of, and after
giving effect to, the proposed transaction), and which shall
have executed and delivered to Lender an assumption
agreement in form and substance acceptable to Lender,
evidencing the proposed transferee's agreement to act as the
Borrower and to abide and be bound by all the terms,
covenants and conditions set forth in this Agreement, the
Notes, the Security Instrument and the other Loan Documents,
together with such legal opinions and title
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insurance endorsements as may be reasonably requested by
Lender;
(2) an Acceptable Property Manager shall continue to
act as Property Manager;
(3) no Event of Default shall have occurred and be
continuing;
(4) at least 51% (or, in the case of the Properties
known as the Phoenician and the Sheraton San Diego Hotel &
Marina, 10%) of the direct or indirect legal, Beneficial and
equitable interests in Borrower (i.e., the Permitted
Transferee) and such Property shall be owned by Sponsors,
and all of such interests which are not held by Sponsors
shall be held by one or more Approved Transferees;
(5) Sponsor shall continue to possess Management
Control of such Property and the Borrower owning such
Property; and
(B) prior to any such transaction, the proposed transferee shall
deliver to Lender an Officer's Certificate stating that either (x) such
transferee is an employee pension plan or other retirement arrangement or
account that is subject to Title I of ERISA or is a Plan and the
obligations under this Agreement are not, and the exercise of rights under
this Agreement will not, constitute a non-exempt prohibited transaction; or
(y) the transferee is a "governmental plan" (as defined in Section 3(32) of
ERISA), and the obligations under this Agreement, and the exercise of
rights under this Agreement, do not and will not violate any applicable
state statutes regulating investments by or fiduciary obligations with
respect to governmental plans; or (z) the proposed transferee is not an
Employee Benefit Plan or a "governmental plan" or a Plan, and (i) such
proposed transferee is not subject to state statutes regulating investments
by or fiduciary obligations with respect to "governmental plans" and (ii)
the underlying assets of the proposed transferee do not, for purposes of
ERISA, constitute assets of the Employee Benefit Plans holding an equity
interest in such proposed transferee; and
(C) Lender shall have received payment of, or reimbursement for, all
reasonable costs and expenses incurred by Lender (and the Servicer) in
connection therewith (including, without limitation, reasonable attorneys'
fees and disbursements).
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(iii) Transfers of Interests in Borrower. If no Event of Default shall
have occurred and be continuing, the holder of any direct or indirect
interest in Borrower may transfer such interest to any Person if after
giving effect to such transfer:
(A) the Properties in which Borrower owns an interest, will be
directly owned by a Single Purpose Entity in compliance with the
representations, warranties and covenants in Section 4.1(cc) hereof
(as if Borrower shall have remade all of such representations,
warranties and covenants as of, and after giving effect to, the
transfer);
(B) Sponsor directly or indirectly owns at least fifty-one
percent (51%) of the legal, Beneficial and equity interests in
Borrower and the remaining interests in such Borrower are owned by one
or more Approved Transferees and each such proposed transfer has been
affirmed by a Rating Confirmation; provided that, after giving effect
to any transfer described in the immediately preceding clause, in no
event shall any Person other than Sponsor exercise Management Control
over the Borrower or any Property owned by such Borrower;
(C) if there has been a transfer of any portion of any managing
member's interest in Borrower, Borrower shall have first delivered to
Lender an Officer's Certificate and legal opinion of the types
described in clause 6.1(i)(iv) below; and
(D) if there has been a transfer of any direct interest in the
managing member of Borrower which managing member is the requisite
Single Purpose Entity, such transfer will require an Officer's
Certificate and legal opinion of the types described in clause
6.1(i)(iv) below.
(iv) Notice Required. Not less than five (5) Business Days prior to
the closing of any transaction permitted under the provisions of this
Section 6.1(i), Borrower shall deliver or cause to be delivered to Lender
(A) an Officer's Certificate describing the proposed transaction and
stating that such transaction is permitted hereunder and under the other
Loan Documents, together with any documents upon which such Officer's
Certificate is based, and (B) a legal opinion of counsel to Borrower or the
transferee selected by either of them (to the extent approved by Lender and
the Rating Agencies), in form and substance consistent with similar
opinions then being required by the Rating Agencies, confirming, among
other things, that the assets of the Borrower, and of its managing member,
will not be substantively consolidated with
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the assets of such owners of Borrower as Lender or the Rating Agencies may
specify, in the event of a bankruptcy or similar proceeding involving such
owners.
(v) Sale of Equipment. Notwithstanding the above provisions of this
Section 6.1(i), Obligor may transfer or dispose of Equipment that is either
being replaced or that is no longer necessary in connection with the
operation of any owned by Obligor, free from the interest of Lender under
this Agreement or any other Loan Document, provided such transfer or
disposal (when compared to the non-transfer or non-disposal of such
Equipment) will not materially adversely affect the value of the related
Property, will not impair the utility thereof and will not result in a
reduction or abatement of, or right of offset against, the rentals or other
amounts payable under any Lease or any Operating Agreement, in either case
as a result thereof, provided that any new Equipment acquired by Obligor
(and not so disposed of) shall be subject to the interest of Lender under
this Agreement and the other Loan Documents unless leased to Obligor (in
which event, Lender shall be made a collateral assignee of Obligor's
interest in such lease (but, unless expressly subsequently assumed by
Lender, Lender shall have no obligations under Obligor's interest
therein)).
(j) Nonexempt ERISA Transactions. Obligor shall not engage in a
nonexempt prohibited transaction described in Section 406 of ERISA or Section
4975 of the Code, as such sections relate to Obligor, or in any transaction that
would cause any obligation or action taken or to be taken hereunder (or the
exercise by Lender of any of its rights under the Notes, this Agreement, the
Security Instruments or any other Loan Document) to be a non-exempt prohibited
transaction under ERISA.
The Obligor shall not, and it shall not permit any ERISA Affiliate to,
(i) permit any Plan to incur any "accumulated funding deficiency" (within the
meaning of Section 302 of ERISA or Section 412 of the Code), whether or not
waived, or (ii) permit the Underfunding with respect to all Plans which have any
Underfunding to give rise to a Material Adverse Effect.
(k) Misapplication of Funds. Obligor shall not distribute any
Operating Income from any Property in which it owns an interest or any Proceeds
in violation of the provisions of this Agreement, fail to remit amounts to the
Deposit Account or any of the Collateral Accounts as required under this
Agreement, or misappropriate any security deposits or portion thereof.
(l) Assignment of Licenses and Permits. Except in connection with a
transfer permitted under Section 6.1(i) hereof, or otherwise required by law,
Obligor shall not assign or transfer any of its interest in any Permits
pertaining to any Property in which it owns an interest, or assign, transfer or
remove or permit any other Person to assign, transfer or remove any records
pertaining to such Property.
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(m) Place of Business. Obligor shall not change its chief executive
office or its principal place of business without giving Lender at least 30
days' prior written notice thereof and promptly providing Lender such
information as Lender may reasonably request in connection therewith.
(n) Modifications and Waivers. Obligor shall not:
(i) Amend, modify or surrender any material rights or remedies under
any of the Leases with Major Tenants without the approval of the Lender;
(ii) Enter into any Lease which does not provide that it is subject
and subordinate to the lien of the Security Instrument and under which the
Tenant agrees to attorn to Lender;
(iii) amend, modify or surrender any material rights under or
terminate any Material Agreement without the consent of Lender in its
Discretion;
(iv) amend, modify or terminate the operating agreement of Obligor in
any manner that would reasonably be expected to have a Material Adverse
Effect; or
(v) amend, modify or surrender or waive any material rights or
remedies under, or enter into or exercise an option to terminate, any other
agreement material to the value or operation of the Properties unless, in
the case of any such termination, Obligor replaces the terminated agreement
within a commercially reasonable period with another agreement which
provides substantially equivalent benefits to Obligor, on terms and
conditions no worse to Obligor, than the corresponding benefits, terms and
conditions which applied under the agreement replaced.
(o) The Obligors owning an interest in the Property known as the
Westin Mission Hills shall not grant any easement or other encumbrance on
such Property or otherwise transfer, sell or hypothecate any portion of
such Property to the property developers known as the Toll Brothers or to
any other property developers of adjacent properties, unless such easement
or encumbrance is limited to the perimeter of such Property (provided,
however, that such Obligors may grant an easement or encumbrance for an
access road and may construct a golf cart tunnel over which such access
road may run) but only if, in each such case, the granting of such easement
has no impact on the use, operation or value of the Property, as evidenced
by the delivery by such Obligors of an appraisal and a determination by
Lender in its Discretion that the construction and use of such road shall
not interrupt hotel services, facilities or amenities and shall not
encroach on any of the improvements situated on the
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Property, including, without limitation, buildings, parking lots, golf
courses, swimming pools and other amenities. Lender in its Discretion may
additionally require a Qualified Survey to confirm that such road shall not
encroach on improvements located on such Property. In the event that
Borrowers comply with each of the conditions set forth in this paragraph
and grant only the easements which conform thereto and do not grant any
other easement with respect to such Property, then Lender agrees to
subordinate its Security Instruments relating to such Property to such
easements.
(p) Obligors shall not take more than 2% of all rooms at any single
Property out of service in connection with Material Alterations or
Expansions during periods which in the applicable location have
historically been "peak seasons."
(q) None of the real or personal property currently owned by Borrowers
or Operator shall be transferred to or otherwise owned by Operator II. If
at any time Operator II comes to own such real or personal property,
Borrowers and Operator II shall promptly so notify Lender and Operator II
shall execute a security agreement and/or mortgage, as applicable, in
respect of such real or personal property, which agreement or mortgage
shall constitute additional collateral for the Loan.
Section 6.2 Operator's Negative Covenants. Each Operator covenants and
agrees with Lender that it will not, directly or indirectly, assign, transfer,
or encumber any interest in the Operating Lease to which it is a party or permit
or agree to any supplement, modification, amendment, renewal, extension or
subordination of such Operating Lease, or accept any waiver from the lessor
thereunder.
ARTICLE VII
ALTERATIONS AND EXPANSIONS; LEASING
Section 7.1 Alterations and Expansions. No Obligor shall perform or
undertake any Alteration or Expansion, except in accordance with the following
terms and conditions:
(a) The Alteration or Expansion shall be undertaken in accordance with
the applicable provisions of this Agreement, the other Loan Documents, the
Operating Agreements and the Leases, and all Legal Requirements.
(b) No Event of Default shall have occurred and be continuing or shall
occur as a result of such action.
(c) A Material Alteration or Material Expansion shall not be commenced
unless Obligors have obtained the prior approval of Lender (which approval shall
not be
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unreasonably withheld or delayed). Any request for approval of a Material
Alteration or Material Expansion shall be in writing and accompanied by a
reasonably detailed description of such Material Alteration or Material
Expansion.
(d) A Material Alteration or Material Expansion shall be conducted
under the supervision of an Independent Architect or Engineer and shall not be
commenced by or on behalf of any Obligor at any Property unless (i) the
applicable Obligor shall have caused to be delivered to Lender detailed plans
and specifications and cost estimates therefor, which plans, specifications and
estimates shall have been prepared and approved in writing by the Independent
Architect, and (ii) Lender shall have approved such plans, specifications and
estimates in writing, which approval (A) shall be deemed given with respect to
cost estimates for each Material Alteration and Material Expansion described in
the Approved Budget, and (B) shall otherwise not be unreasonably withheld or
delayed by Lender.
(e) Any approval of Lender required in clause (c) or (d) above
accompanied by the items referred to in clause (c) or (d) above shall be deemed
given if Lender shall not have notified the relevant Obligor in writing of its
disapproval within fifteen (15) Business Days after such Obligor has given
Lender written notice that at least fifteen (15) Business Days have elapsed
since such first written request was given and which is captioned on the first
page of such request with the following legend in bold face type: "WARNING:
FAILURE TO RESPOND TO THIS COMMUNICATION WITHIN FIFTEEN (15) BUSINESS DAYS OF
THE DATE OF RECEIPT OF THIS NOTICE WILL BE DEEMED CONSENT TO THE ACTIONS FOR
WHICH YOUR CONSENT IS REQUESTED HEREIN."
(f) Other than in connection with any Restoration, the Alteration or
Expansion may not in and of itself, either during the Alteration or Expansion or
upon completion, adversely affect the fair market value of the relevant Property
or the annual Net Operating Income, taking into account the required escrows (or
completion bond) provided under Section 7.1(j)(i) below; provided that if, as
reasonably determined by the Lender, such Alteration or Expansion would
adversely affect the annual Net Operating Income, then in order to proceed with
the Alteration or Expansion, the Lender may, in its sole discretion, as a
condition to granting the consent to the Alteration or Expansion, require the
Obligor to deliver to Lender Eligible Collateral in the total amount of the
estimated reduction in Net Operating Income resulting from the Alteration or
Expansion as additional security for the Debt, which Eligible Collateral shall
be returned to Obligor after completion of the Alteration or Expansion if the
reduction in Net Operating Income has been restored and no Event of Default has
occurred and is continuing.
(g) All work done in connection with any Alteration or Expansion shall
be performed with due diligence to Final Completion in a good and workmanlike
manner, all materials used in connection with any Alteration or Expansion shall
be not less than the standard of quality of the materials generally used at such
Property as of the date hereof (or, if greater, the then-current customary
quality in the submarket in which such Property is located) and all work shall
be performed and all materials used in accordance with all applicable Legal
Requirements and Insurance Requirements.
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(h) The cost of any Alteration or Expansion shall be promptly and
fully paid for by Obligor, subject to the next succeeding sentence. No payment
made to any contractor, subcontractor, materialman, supplier, engineer,
architect, project manager or other Person who renders services or furnishes
materials in connection with an Alteration, Expansion or Restoration shall
exceed ninety percent (90%) of the first 50% of the value of such work performed
from time to time and materials furnished and incorporated into the
Improvements.
(i) Other than in connection with any Restoration, the Alteration or
Expansion will not, (i) under any then existing Lease with a Major Tenant,
entitle one or more Major Tenants to terminate their respective Leases or any
operating covenant under any Material Agreements or abate rent or otherwise give
rise to any other rights of lessees or such other parties that would have a
Material Adverse Effect on the value of such Property.
(j) With respect to any Material Alteration or Material Expansion:
(i) Obligor shall have delivered to Lender Eligible Collateral in an
amount equal to at least the total estimated remaining unpaid costs of such
Material Alteration or Material Expansion which Eligible Collateral shall
be held by Lender as security for the Debt and released to the applicable
Obligor as such work progresses in accordance with Section 7.1(j)(iii)
hereof; provided, however, in the event that any Material Alteration or
Material Expansion shall be made in conjunction with any Restoration with
respect to which Obligor shall be entitled to withdraw Proceeds pursuant to
Section 8.1.2(b) hereof (including any Proceeds remaining after completion
of such Restoration), the amount of the Eligible Collateral to be furnished
pursuant hereto need not exceed the aggregate cost of such Restoration and
such Material Alteration or Material Expansion (in either case, as
estimated by the Independent Architect) less the sum of the amount of any
Proceeds which Obligor is entitled to withdraw pursuant to Section 8.1
hereof;
(ii) Prior to commencement of construction of such Material Alteration
or Material Expansion, Obligor shall deliver to Lender a schedule (which
shall be concurred in by the Independent Architect) setting forth the
projected stages of completion of such Alteration or Expansion and the
corresponding amounts expected to be due and payable by or on behalf of
Obligor in connection with such completion, such schedule to be updated
quarterly by Obligor (and concurred with by an Independent Architect)
during the performance of such Alteration or Expansion.
(iii) Any Eligible Collateral that Obligor delivers to Lender pursuant
hereto (and the proceeds of any such Eligible Collateral) shall be invested
(to the extent such Eligible Collateral can be invested) by Lender as
directed by Obligor in Permitted Investments for a period of time
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consistent with the date on which Obligor notifies Lender that Obligor
expects to request a release of such Eligible Collateral in accordance with
the next succeeding sentence. From time to time as the Alteration or
Expansion progresses, the amount of any Eligible Collateral so furnished
may, upon the written request of Obligor to Lender, be withdrawn by Obligor
and paid or otherwise applied by or returned to Obligor in an amount equal
to the amount Obligor would be entitled to so withdraw if Section 8.1.2(e)
hereof were applicable, and any Eligible Collateral so furnished which is a
Credit Facility may be reduced by Obligor in an amount equal to the amount
Obligor would be entitled to so reduce if Section 8.1.2(e) hereof were
applicable, subject, in each case, to the satisfaction of the conditions
precedent to withdrawal of funds or reduction of the Credit Facility set
forth in Section 8.1.2(e) hereof. In connection with the above-described
quarterly update of the projected stages of completion of the Material
Alteration or Material Expansion (as concurred with by an Independent
Architect), Obligor shall increase (or be permitted to decrease, as
applicable) the Eligible Collateral then deposited with Lender as necessary
to comply with Section 7.1(j)(i) hereof.
(iv) At any time after Final Completion of such Alterations or
Expansions, the whole balance of any Cash deposited with Lender pursuant to
Section 7.1(j) hereof then remaining on deposit may be withdrawn by Obligor and
shall be paid by Lender to Obligor, and any Eligible Collateral so deposited
shall, to the extent it has not been called upon, reduced or theretofore
released, be released by Lender to Obligor, within ten (10) days after receipt
by Lender of an application for such withdrawal and/or release together with an
Officer's Certificate, and as to the following clauses (A) and (B) of this
clause also a certificate of the Independent Architect, setting forth in
substance as follows:
(A) that such Alteration(s) or Expansions has been completed in
accordance with any plans and specifications therefor previously filed
with Lender under Section 7.1(c) hereof;
(B) that to the knowledge of the certifying Person, (x) such
Alteration(s) or Expansion(s) has been completed in compliance with
all Legal Requirements, and (y) to the extent required for the legal
use or occupancy of the portion of the Property affected by such
Alteration(s) or Expansion(s), Obligor has obtained a temporary or
permanent certificate of occupancy (or similar certificate) or, if no
such certificate is required, a statement to that effect;
(C) that to the knowledge of the certifying Person, all amounts
that Obligor is or may become liable to pay in respect of
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such Alteration(s) or Expansion(s) through the date of the
certification have been paid in full or adequately provided for and,
to the extent that such are customary and reasonably obtainable by
prudent property owners in the area where the Property are located,
that Lien waivers have been obtained from the general contractor and
subcontractors performing such Alteration or Expansion or at its sole
cost and expense, Obligor shall cause a nationally recognized title
insurance company to deliver to Lender an endorsement or title update,
as applicable, to the Qualified Title Policy, updating such policy and
insuring over such Liens without further exceptions to such policy
other than Permitted Encumbrances, or shall, at its sole cost and
expense, cause a reputable title insurance company to deliver a
lender's title insurance policy, in such form, in such amounts and
with such endorsements as the Qualified Title Policy, which policy
shall be dated the date of completion of the Material Alteration and
shall contain no exceptions other than Permitted Encumbrances;
provided, however, that if, for any reason, Obligor is unable to
deliver the certification required by this clause (C) with respect to
any costs or expenses relating to the Alteration or Expansion, then,
assuming Obligor is able to satisfy each of the other requirements set
forth in clauses (A) and (B) above, Obligor shall be entitled to the
release of the difference between the whole balance of such Eligible
Collateral and the total of all costs and expenses to which Obligor is
unable to certify; and
(D) that to the knowledge of the certifying Person, no Event of
Default has occurred and is continuing.
(v) At any time prior to Final Completion but after Substantial
Completion of such Alterations or Expansions, the whole balance of any Cash
(less 110% of the amount of the Remaining Work, as such amount is reasonably
estimated in writing by an Independent Architect) (the "Cash Holdback Amount")
but in no event less than zero, deposited with Lender pursuant to Section 7.1(j)
hereof then remaining on deposit, may be withdrawn by Obligor and shall be paid
by Lender to Obligor, and any Eligible Collateral so deposited (less an amount
of Eligible Collateral totalling the difference between the Cash Holdback Amount
and the balance of any Cash deposited with Lender pursuant to Section 7.1(j)
hereof then remaining on deposit) (the "Collateral Holdback Amount") shall, to
the extent it has not been called upon, reduced or theretofore released, be
released by Lender to Obligor, in each case within ten (10) days after receipt
by Lender of an application for such withdrawal and/or release together with an
Officer's Certificate, and as to the following
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clauses (A) and (B) of this clause also a certificate of the Independent
Architect, setting forth in substance as follows:
(A) that such Alteration(s) or Expansions has been completed in
accordance with any plans and specifications therefor previously filed
with Lender under Section 7.1(c) hereof (other than the Remaining
Work);
(B) that to the knowledge of the certifying Person, (x) such
Alteration(s) or Expansion(s) has been completed in compliance with
all Legal Requirements, and (y) to the extent required for the legal
use or occupancy of the portion of the Property affected by such
Alteration(s) or Expansion(s), Obligor has obtained a temporary or
permanent certificate of occupancy (or similar certificate) or, if no
such certificate is required, a statement to that effect;
(C) that to the knowledge of the certifying Person, all amounts
that Obligor is or may become liable to pay in respect of such
Alteration(s) or Expansion(s) through the date of the certification
have been paid in full or adequately provided for and, to the extent
that such are customary and reasonably obtainable by prudent property
owners in the area where the Property are located, that Lien waivers
have been obtained from the general contractor and subcontractors
performing such Alteration or Expansion or at its sole cost and
expense, Obligor shall cause a nationally recognized title insurance
company to deliver to Lender an endorsement or title update, as
applicable, to the Qualified Title Policy, updating such policy and
insuring over such Liens without further exceptions to such policy
other than Permitted Encumbrances, or shall, at its sole cost and
expense, cause a reputable title insurance company to deliver a
lender's title insurance policy, in such form, in such amounts and
with such endorsements as the Qualified Title Policy, which policy
shall be dated the date of Substantial Completion of the Material
Alteration and shall contain no exceptions other than Permitted
Encumbrances; provided, however, that if, for any reason, Obligor is
unable to deliver the certification required by this clause (C) with
respect to any costs or expenses relating to the Alteration or
Expansion, then, assuming Obligor is able to satisfy each of the other
requirements set forth in clauses (A) and (B) above, Obligor shall be
entitled to the release of the difference between the whole balance of
such Eligible Collateral and the total of all costs and expenses to
which Obligor is unable to certify; and
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(D) that to the knowledge of the certifying Person, no Event of
Default has occurred and is continuing.
Upon completion of the Remaining Work, Lender shall release to Obligor
the Cash Holdback Amount and the Collateral Holdback Amount within ten (10)
days after receipt by it of an application for such withdrawal and/or
release together with an Officer's Certificate setting forth in substance
as follows (provided, that Lender shall be entitled to keep the Cash
Holdback Amount and the Collateral Holdback Amount until the following
documents are received by it):
(A) that the Remaining Work has been completed in accordance with
any plans and specifications therefor previously filed with Lender
under Section 7.1(c) hereof;
(B) that to the knowledge of the certifying Person, the Remaining
Work has been completed in compliance with all Legal Requirements;
(C) that to the knowledge of the certifying Person, all amounts
that Obligor is or may become liable to pay in respect of the
Remaining Work through the date of the certification have been paid in
full or adequately provided for and, to the extent that such are
customary and reasonably obtainable by prudent property owners in the
area where the Property are located, that Lien waivers have been
obtained from the general contractor and subcontractors performing
such Remaining Work or, in the alternative, at its sole cost and
expense, Obligor shall cause a nationally recognized title insurance
company to deliver to Lender an endorsement or title update, as
applicable, to the Qualified Title Policy, updating such policy and
insuring over such Liens without further exceptions to such policy
other than Permitted Encumbrances, or shall, at its sole cost and
expense, cause a reputable title insurance company to deliver a
lender's title insurance policy, in such form, in such amounts and
with such endorsements as the Qualified Title Policy, which policy
shall be dated the date of completion of the Remaining Work and shall
contain no exceptions other than Permitted Encumbrances; and
(D) that to the knowledge of the certifying Person, no Event of
Default has occurred and is continuing.
(k) Notwithstanding anything in the foregoing to the contrary, any
expansion or alteration contemplated by the approved capital budget attached
hereto as Schedule 9.2 shall not (during the first five years after Closing) be
considered a Material Alteration or Expansion for which Lender's consent is
required. In addition, during the first two years after Closing, any
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Alteration or Expansion shall be exempt from the requirement to deposit Eligible
Collateral, as set forth in Section 7.1(j). Except as set forth in the preceding
two sentences, any other Material Alteration or Material Expansion shall require
the consent of Lender and the deposit of Eligible Collateral pursuant to the
terms of Section 7.1(j) hereof.
Section 7.2 Inspections; Undertaking of Work. (a) (i) Obligors shall
permit Lender and Lender's agents and representatives (including Servicer,
Lender's engineer, architect or inspector) to enter onto each Property during
normal business hours after reasonable notice to inspect the progress of any
work being performed by or on behalf of any Obligor, including any Alterations
or Expansions, and all materials being used in connection therewith, to examine
all plans and shop drawings relating thereto and, following an Event of Default,
to undertake and complete any work required to be undertaken in accordance with
the terms hereof. Obligors shall cause all contractors and subcontractors to
cooperate with Lender or Lender's representatives or such other persons
described above in connection with inspections described in this Section 7.2 or
the undertaking or completion of work pursuant to this Section 7.2.
(ii) Lender may inspect any Property in connection with any work
undertaken by or on behalf of a Obligor at any Property (subject to the
limitations set forth in Section 7.2(a) above) prior to disbursing funds from
any reserve account or otherwise, for such work. For any work (or series of
related items of work) at any Property costing in excess of the Threshold Amount
for such Property, Lender, at the applicable Obligor's expense, may require that
such inspection be conducted by an appropriate independent qualified
professional selected by Lender and/or may require a copy of a certificate of
completion by an independent qualified professional acceptable to Lender prior
to the disbursement of any amounts therefor. The applicable Obligor shall pay a
reasonable inspection fee for each inspection, conducted by an independent
qualified professional.
(b) Each Obligor shall collaterally assign to Lender, as additional
security for the Loan, all rights and claims such Obligor may have against all
Persons supplying labor or materials in connection with any Alterations or
Expansions; provided, however, Lender may not pursue any such right or claim
unless an Event of Default has occurred and remains uncured.
Section 7.3 Leasing.
(a) Obligor shall observe the covenants set forth in Section 5.1(s)
hereof.
(b) At Obligor's request, Lender shall execute and deliver a
Subordination, Non-disturbance and Attornment Agreement, among Lender, Obligor
and any Tenant under a Lease permitted under Section 5.1(s) hereof, provided
that such Tenant also executes and delivers such agreement in favor of Lender.
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ARTICLE VIII
CASUALTY AND CONDEMNATION
Section 8.1 Insurance; Casualty and Condemnation.
8.1.1 Insurance.
(a) Each Borrower, at its sole cost and expense, for the mutual
benefit of such Borrower and Lender, shall keep each Property in which it owns
an interest insured and obtain and maintain policies of insurance insuring
against loss or damage by standard perils included within the classification
"All Risks of Physical Loss" including earthquake damage. Such insurance (i)
shall be in an aggregate amount equal to the then full replacement cost of each
such Property and the Equipment (without deduction for physical depreciation)
and (ii) shall have deductibles no greater than $100,000 (with deductibles for
wind and earthquake coverage of no greater than 5% of replacement cost). The
policies of insurance carried in accordance with this paragraph shall be paid
annually in advance and shall contain a "Replacement Cost Endorsement" with a
waiver of depreciation.
(b) Such Borrower, at its sole cost and expense, for the mutual
benefit of such Borrower and Lender, shall also obtain and maintain the
following policies of insurance:
(i) Flood insurance if any part of each such Property is located in an
area identified by the Federal Emergency Management Agency as an area
federally designated a "100 year flood plain" and (A) flood insurance is
generally available at reasonable premiums and in such amount as generally
required by institutional lenders for similar properties or (B) if not so
available from a private carrier, from the federal government at
commercially reasonable premiums to the extent available. In either case,
the flood insurance shall be in an amount at least equal to the Loan Amount
or the maximum limit of coverage available with respect to such Property
under said program, whichever is less;
(ii) Comprehensive general liability insurance, including broad form
property damage, blanket contractual and personal injuries (including death
resulting therefrom) coverages and containing minimum limits per occurrence
of $2,000,000 with a $4,000,000 general aggregate for any policy year. In
addition, at least $100,000,000 excess and/or umbrella liability insurance
shall be obtained and maintained for any and all claims, including all
legal liability imposed upon Borrower and all related court costs and
attorneys' fees and disbursements;
(iii) Rental loss and/or business interruption insurance in an amount
sufficient to avoid any co-insurance penalty and equal to the greater of
(A) the estimated gross revenues from the operation of such Property
(including (x) the total payable under the Leases and (y) the total
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amount of all other amounts to be received by Borrower or third parties
that are the legal obligation of the Tenants), net of nonrecurring
expenses, for a period of up to the next succeeding eighteen (18) months,
or (B) the projected Operating Expenses (including debt service) for the
maintenance and operation of the Property for a period of up to the next
succeeding eighteen (18) months as the same may be reduced or increased
from time to time due to changes in such Operating Expenses. The amount of
such insurance shall be increased from time to time as and when the Rents
increase or the estimate of (or the actual) gross revenue, as may be
applicable, increases or decreases to the extent Rents or the estimates of
gross revenue decrease;
(iv) Insurance against loss or damage from (A) leakage of sprinkler
systems and (B) explosion of steam boilers, air conditioning equipment,
high pressure piping, machinery and equipment, pressure vessels or similar
apparatus now or hereafter installed in any of the Improvements (without
exclusion for explosions) and insurance against loss of occupancy or use
arising from any breakdown, in such amounts as are generally available at
reasonable premiums and are generally required by institutional lenders for
properties comparable to each such Property;
(v) Worker's compensation insurance with respect to all employees of
Borrower as and to the extent required by any Governmental Authority or
Legal Requirement and employer's liability coverage of at least $2,000,000
which is scheduled to the excess and/or umbrella liability insurance as
referenced in clause (ii) above;
(vi) During any period of repair or restoration, builder's "all risk"
insurance in an amount equal to not less than the full insurable value of
such Property against such risks (including fire and extended coverage and
collapse of the Improvements to agreed limits) as Lender may reasonably
request, in form and substance reasonably acceptable to Lender;
(vii) Coverage to compensate for the cost of demolition and the
increased cost of construction for each such Property in an amount
reasonably satisfactory to Lender;
(viii) If required by Lender, earthquake insurance in an amount equal
to the probable maximum loss (as determined by Lender in its sole
discretion) of such Property, provided, that any credit enhancement
proposed to be provided by or on behalf of Borrower in connection with the
deductible on such earthquake insurance shall be subject to the prior
approval of the Rating Agencies (or Lender's approval, prior to a
Securitization); and
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(ix) Such other insurance as may from time to time be reasonably
required by Lender in order to protect its interests, including, without
limitation, law and ordinance coverage with respect to the Property.
(c) All policies of insurance (the "Policies") required pursuant to
this Section 8.1.1 shall be issued by companies approved by Lender and licensed
to do business in the state where the Property is located. Further, unless
otherwise approved by Lender and the Rating Agencies in writing, the issuer(s)
of the Policies required under this Section 8.1.1 shall have a claims paying
ability rating of "AA" or better by the Rating Agencies and an A.M. Best rating
of A/X or better, except that the issuer(s) of the Policies required under
Section 8.1.1(b)(viii) hereof shall have a claims paying ability rating of "A"
or better by the Rating Agencies and an A.M. Best rating of A/X or better. The
Policies (i) shall name Lender and its successors and/or assigns as their
interest may appear as an additional insured or as a loss payee (except that in
the case of general liability insurance, Lender shall be named an additional
insured and not a loss payee); (ii) shall contain a Non-Contributory Standard
Lender Clause and, except with respect to general liability insurance, a
Lender's Loss Payable Endorsement, or their equivalents, naming Lender as the
person to which all payments made by such insurance company shall be paid; (iii)
shall include effective waivers by the insurer of all claims for insurance
premiums against all loss payees, additional insureds and named insureds (other
than such Borrower) and all rights of subrogation against any loss payee,
additional insured or named insured; (iv) shall be assigned to Lender; (v)
except as otherwise provided above, shall be subject to a deductible, if any,
not greater in any material respect, in proportion to the coverage maintained,
than the deductible for such coverage on the date hereof; (vi) shall contain
such provisions as Lender deems reasonably necessary or desirable to protect its
interest including endorsements providing that neither Borrower, Lender nor any
other party shall be a co-insurer under said Policies and that no modification,
reduction, cancellation or termination in amount of, or material change (other
than an increase) in, coverage of any of the Policies shall be effective until
at least ten (10) days after receipt by each named insured, additional insured
and loss payee of written notice thereof or ten (10) days after receipt of such
notice with respect to nonpayment of premium (provided, however, any insurance
policies existing prior to and which are in full force and effect as of Closing
may have a notice period of no less than ten (10) days only until such time as
such policies are renewed, at which time such notice periods shall be no less
than thirty (30) days); (vii) shall permit Lender to pay the premiums and
continue any insurance upon failure of Borrower to pay premiums when due, upon
the insolvency of Borrower or through foreclosure or other transfer of title to
the Property (it being understood that Borrower's rights to coverage under such
policies may not be assignable without the consent of the insurer); (viii) shall
provide that any proceeds shall be payable to Lender and that the insurance
shall not be impaired or invalidated by virtue of (A) any act, failure to act,
negligence of, or violation of declarations, warranties or conditions contained
in such policy by Borrower, Lender or any other named insured, additional
insured or loss payee, except for the willful misconduct of Lender knowingly in
violation of the conditions of such policy, (B) the occupation, use, operation
or maintenance of the Property for purposes more hazardous than permitted by the
terms of the Policy, (C) any foreclosure or other proceeding or notice of sale
relating to the related Property or (D) any change in the possession of the
related Property without a change in the identity of the
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holder of actual title to such Property (provided that with respect to items (C)
and (D), any notice requirements of the applicable Policies are satisfied); and
(ix) shall contain ordinance and law coverage.
(d) Insurance Premiums; Certificates of Insurance.
(i) Each Borrower shall pay the premiums for such Policies (the
"Insurance Premiums" ) as the same become due and payable and shall furnish
to Lender the receipts for the payment of the Insurance Premiums or other
evidence of such payment reasonably satisfactory to Lender (provided,
however, that such Borrower is not required to furnish such evidence of
payment to Lender if such Insurance Premiums are to be paid by Lender
pursuant to the terms of this Agreement). Within thirty (30) days after
request by Lender, such Borrower shall obtain such increases in the amounts
of coverage required hereunder as may be requested by Lender or as may be
requested by the Rating Agencies, taking into consideration changes in
liability laws, changes in prudent customs and practices, and the like. In
the event such Borrower satisfies the requirements under this Section 8.1.1
through the use of a Policy covering properties in addition to the Property
owned by such Borrower, then (unless such policy is provided in
substantially the same manner as it is as of the date hereof), Borrower
shall provide evidence satisfactory to Lender that the Insurance Premiums
for such Property are separately allocated under such Policy to the
Property and that payment of such allocated amount (A) shall maintain the
effectiveness of such Policy as to the Property and (B) shall otherwise
provide the same protection as would a separate policy that complies with
the terms of this Agreement as to the Property, notwithstanding the failure
of payment of any other portion of the insurance premiums. If no such
allocation is available, Lender shall have the right to increase the amount
required to be deposited into the Tax, Insurance and Ground Rents Escrow
Account in an amount sufficient to purchase a non-blanket Policy covering
such Property from insurance companies which qualify under this Agreement.
(ii) Borrower shall deliver to Lender on or prior to the Closing Date
certificates setting forth in reasonable detail the material terms
(including any applicable notice requirements) of all Policies from the
respective insurance companies (or their authorized agents) that issued the
Policies, including that such Policies may not be canceled or modified
without thirty (30) days' prior notice to Lender, or thirty (30) days'
notice with respect to nonpayment of premium. Borrower shall deliver to
Lender, concurrently with each change in any Policy, a binder with respect
to such changed Policy certified by the insurance company issuing that
Policy who is an agent of such insurance company with power to bind such
company, in substantially the same form and containing substantially
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the same information as the certificates required to be delivered by
Borrower pursuant to the first sentence of this clause (d)(ii) and stating
that all premiums then due thereon have been paid to the applicable
insurers and that the same are in full force and effect (or if such
certificate and report shall not be obtainable by Borrower, Borrower may
deliver an Officer's Certificate to such effect in lieu thereof).
(e) Renewal and Replacement of Policies.
(i) Not less than fifteen (15) Business Days prior to the expiration,
termination or cancellation of any Policy, Borrowers shall renew such
policy or obtain a replacement policy or policies (or a binding commitment
for such replacement policy or policies), which shall be effective no later
than the date of the expiration, termination or cancellation of the
previous policy, and shall deliver to Lender a binder and certificate in
respect of such policy or policies (A) containing the same information as
the certificates required to be delivered by Borrowers pursuant to clause
(d)(ii) above, or a copy of the binding commitment for such policy or
policies and (B) confirming that such policy complies with all requirements
hereof.
(ii) If Borrowers do not furnish to Lender the certificates as
required under clause (e)(i) above, Lender may procure, but shall not be
obligated to procure, such replacement policy or policies and pay the
Insurance Premiums therefor, and Borrowers agree to reimburse Lender for
the cost of such Insurance Premiums promptly on demand.
(iii) Concurrently with the delivery of each replacement policy or a
binding commitment for the same pursuant to this clause (e), Borrowers
shall deliver to Lender a report from a reputable and experienced insurance
broker or from the insurer, setting forth the particulars as to all
insurance obtained by Borrower pursuant to this Section 8.1.1 and then in
effect and stating that all Insurance Premiums then due thereon have been
paid in full to the applicable insurers, that such insurance policies are
in full force and effect and that, in the opinion of such insurance broker
or insurer, such insurance otherwise complies with the requirements of this
Section 8.1.1 (or if such report shall not be available after Borrowers
shall have used their reasonable efforts to provide the same, Borrowers
will deliver to Lender an Officer's Certificate containing the information
to be provided in such report).
(f) Separate Insurance. Borrowers will not take out separate insurance
concurrent in form or contributing in the event of loss with that required to be
maintained pursuant to this Section 8.1.1 unless such insurance complies with
clause (c) above. In addition, the Borrower who is the owner of the Property
known as the Sheraton Colony Square shall at all
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times maintain separate insurance covering boiler, machinery and other matters
in connection with the central plant required by the Reciprocal Easement
Agreement (Colony Square).
(g) In the event of a Securitization, Borrower shall name any trustee,
Servicer or Special Servicer designated by Lender as a loss payee, and any
trustee, Servicer and Special Servicer as additional insureds, with respect to
any Policy for which Lender is to be so named hereunder.
8.1.2 Casualty; Application of Proceeds.
(a) Right to Adjust.
(i) If a Property is damaged or destroyed, in whole or in part, by a
Casualty, the Borrower owning an interest in such Property shall give
prompt written notice thereof to Lender, generally describing the nature
and extent of such Casualty. Following the occurrence of a Casualty, such
Borrower, regardless of whether proceeds are available, shall in a
reasonably prompt manner proceed to restore, repair, replace or rebuild the
affected Property to the extent practicable to be of at least equal value
and of substantially the same character as prior to the Casualty, all in
accordance with the terms hereof applicable to Alterations.
(ii) Subject to clause (v) below, in the event of a Casualty with
respect to a Property where the loss does not exceed $1 million (in the
case of the hotels known as the Phoenician and the Sheraton San Diego) and
$500,000 (in the case of all other Properties) for such Property, such
Borrower may settle and adjust such claim; provided that such adjustment is
carried out in a competent and timely manner. In such case, Borrower is
hereby authorized to collect and receipt for Lender any Proceeds.
(iii) Subject to clause (v) below, in the event of a Casualty with
respect to a Property where the loss exceeds $1 million (in the case of the
hotels known as the Phoenician and the Sheraton San Diego) and $500,000 (in
the case of all other Properties) for such Property, such Borrower may
settle and adjust such claim only with the consent of Lender (which consent
shall not be unreasonably withheld or delayed) and Lender shall have the
opportunity to participate, at such Borrower's cost, in any such
adjustments.
(iv) The proceeds of any Policy shall be due and payable solely to
Lender and held and applied in accordance with the terms hereof (or, if
mistakenly paid to such Borrower, shall be held in trust by such Borrower
for the benefit of Lender and shall be paid over to Lender by Borrower
within one Business Day of receipt).
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(v) Notwithstanding the terms of clauses (ii) and (iii) above, Lender
shall have the sole authority to adjust any claim with respect to a
Casualty and to collect all Proceeds if an Event of Default shall have
occurred and is continuing.
(b) Borrower's Right to Apply to Restoration. In the event of (i) a
Casualty that does not constitute a Material Casualty, or (ii) a Condemnation
that does not constitute a Material Condemnation, Lender shall permit the
application of the Proceeds (after reimbursement of any expenses incurred by
Lender) to reimburse the applicable Borrower for the cost of restoring,
repairing, replacing or rebuilding the related Property (the "Restoration"), in
the manner required hereby, provided and on the condition that, no Event of
Default shall have occurred and be then continuing and, in the reasonable
judgment of Lender:
(i) such Property can be restored to an economic unit not less
valuable (taking into account the effect of the termination of any Leases
or Material Agreements and the proceeds of any rental loss or business
interruption insurance which such Borrower receives or is entitled to
receive, in each case, due to such Casualty or Condemnation) and not
materially less useful than the same was prior to the Casualty or
Condemnation,
(ii) such Property together with all the other Properties after such
restoration will adequately secure the outstanding balance of the Loan,
(iii) the Restoration can be completed by the earliest to occur of:
(A) the 365th day following the receipt of the Proceeds (or if
earlier, the 365th day after the Casualty or Condemnation, as
applicable), or, with Rating Confirmation, such longer period as may
reasonably be required,
(B) the 365th day prior to the Maturity Date, and
(C) with respect to a Casualty, the expiration of the payment
period on the business interruption insurance coverage in respect of
such Casualty, and
(iv) after receiving reasonably satisfactory evidence to such effect,
during the period of the Restoration, the sum of (A) income derived from
such Property, plus (B) proceeds of rent loss insurance or business
interruption insurance, if any, payable together with such other monies as
the applicable Borrower may irrevocably make available for the restoration,
will equal or exceed 105% of the sum of (1) Operating Expenses and (2) the
Debt Service.
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Notwithstanding the foregoing, if any of the conditions set forth in the proviso
in this clause (b) is not satisfied, then, notwithstanding anything herein to
the contrary, unless Lender shall otherwise elect, at its sole option, the
Proceeds shall be applied to the prepayment of the Loan in accordance with the
terms of Section 8.1.2(d) hereof.
(c) Lender's Right to Apply to Repayment. In the event of a Material
Casualty or a Material Condemnation, then Lender shall have the option, subject
to the terms of the Reciprocal Easement Agreement on the Mortgaged Property
known as the Sheraton Colony Square with respect to the central plant, which is
required to be covered by separate insurance maintained by the related Obligors,
(to be exercised by notice to Lender given not later than the thirtieth (30th)
day after the receipt of the Proceeds) to apply the net Proceeds to the
prepayment of the Debt in accordance with Section 8.1.2(d) hereof (and Borrower
shall be entitled to receive a release of the Lien affecting such Property in
accordance with the terms of Section 2.4.2 hereof, in which event such Proceeds
shall be applied against the Release Amount for such Property) or, provided the
conditions set forth in the proviso in Section 8.1.2(b) hereof are complied
with, to have such Proceeds applied to reimburse Borrower for the cost of any
Restoration in the manner set forth below in Section 8.1.2(e) hereof (and Lender
shall be deemed to have elected prepayment if it shall fail to have given such
notice within said 30-day period); provided, however, that if (x) in the
reasonable judgment of Lender, the Property can be restored within twelve (12)
months and prior to the Maturity Date to an economic unit not less valuable and
not less useful than the same was prior to the Casualty or Condemnation and,
after such restoration, will adequately secure the outstanding balance of the
Loan, and (y) no Event of Default has occurred and is continuing, Lender shall
be obligated to make such Proceeds available for the Restoration of such
Property; provided further, however, that if such Casualty or Condemnation
occurs during the six (6) months prior to the Maturity Date, Lender shall have
no obligation to make such Proceeds available for the Restoration of the
Property.
(d) Application of Prepayment. Any application of Proceeds to the Debt
pursuant to Section 8.1.2(b) or (c) above or 8.1.3(b) below shall be without any
applicable prepayment premium except that if an Event of Default has occurred
and is continuing, then Borrower shall pay to Lender an additional amount equal
to the Yield Maintenance Payments, if any, that would be required in respect of
the principal being prepaid assuming Section 2.3.3 hereof were applicable. Any
such application to the Debt shall be applied to those payments of principal and
interest last due under the Notes and shall not postpone or reduce any payments
otherwise required pursuant to the Notes other than such last due payments;
provided, however, that other than in connection with the release of the Westin
Washington D.C., the amount secured by the Security Instrument on such Property
shall not be reduced until such time as the aggregate principal balance of the
Loan is less than or equal to 125% of the Allocated Loan Amount of such Property
(i.e., $29,600,000).
(e) Manner of Restoration and Reimbursement. If the applicable
Borrower is entitled pursuant to Section 8.1.2(b) or (c) above to reimbursement
out of Proceeds (and the conditions specified therein shall have been
satisfied), such Proceeds shall be disbursed on a monthly basis upon Lender
being furnished with (i) such architect's certificates, waivers of lien,
contractor's sworn statements, title insurance endorsements, bonds, plats of
survey and such
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other evidences of cost, payment and performance as Lender may reasonably
require and approve, and (ii) all plans and specifications for such Restoration,
such plans and specifications to be approved by Lender prior to commencement of
any work (such approval not to be unreasonably withheld or delayed). In
addition, no payment made in connection with the Restoration shall exceed ninety
percent (90%) of the first fifty percent (50%) of the value of the work
performed from time to time; funds other than Proceeds shall be disbursed prior
to disbursement of such Proceeds; and at all times, the undisbursed balance of
such Proceeds remaining in the hands of Lender, together with funds deposited
for that purpose or irrevocably committed to the satisfaction of Lender by or on
behalf of such Borrower for that purpose, shall be at least sufficient in the
reasonable judgment of Lender to pay for the cost of completion of the
Restoration, free and clear of all Liens or claims for Lien. Prior to any
disbursement, Lender shall have received evidence reasonably satisfactory to it
of the estimated cost of completion of the Restoration (such estimate to be made
by Borrower's architect or contractor and approved by Lender in its reasonable
discretion), and Borrower shall have deposited with Lender Eligible Collateral
in an amount equal to the excess (if any) of such estimated cost of completion
over the net Proceeds. Any surplus which may remain out of Proceeds received
pursuant to a Casualty shall be paid to Borrower after payment of such costs of
Restoration. Any surplus which may remain out of Proceeds received pursuant to a
Condemnation shall be delivered to Lender for deposit into the Capital Reserve
Account to be held and disbursed in accordance with the terms of this Agreement.
8.1.3 Condemnation.
(a) Each Obligor shall promptly give Lender written notice of the
actual or threatened commencement of any Condemnation affecting a Property in
which it owns an interest and shall deliver to Lender copies of any and all
papers served in connection with such Condemnation. Following the occurrence of
a Condemnation, such Borrower, regardless of whether Proceeds are available,
shall promptly proceed to restore, repair, replace or rebuild the same to the
extent practicable to be of at least equal value and of substantially the same
character as prior to such Condemnation, all to be effected in accordance with
the terms hereof applicable to Alterations.
(b) Lender is hereby irrevocably appointed as Borrower's
attorney-in-fact, coupled with an interest, with exclusive power to collect,
receive and retain any Proceeds in respect of a Condemnation and to make any
compromise or settlement in connection with such Condemnation, subject to the
provisions of this Section. Provided no Event of Default has occurred and is
continuing, (x) in the event of a Condemnation where the loss does not exceed
$500,000, Borrower may settle and compromise such Proceeds; provided that the
same is effected in a competent and timely manner, and (y) in the event a
Condemnation, where the loss exceeds $500,000, Borrower may settle and
compromise the Proceeds only with the consent of Lender (which consent shall not
be unreasonably withheld or delayed) and Lender shall have the opportunity to
participate, at Borrower's cost, in any litigation and settlement discussions in
respect thereof. Notwithstanding any Condemnation by any public or quasi-public
authority (including any transfer made in lieu of or in anticipation of such a
Condemnation), such Borrower shall continue to pay the Debt at the time and in
the manner provided for in the Notes,
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this Agreement and the other Loan Documents, and the Debt shall not be reduced
unless and until any Proceeds shall have been actually received and applied by
Lender to expenses of collecting such Proceeds and to discharge of the Debt.
Lender shall not be limited to the interest paid on the Proceeds by the
condemning authority but shall be entitled to receive out of the Proceeds
interest at the rate or rates provided in the Notes. Each Borrower shall cause
any Proceeds that are payable to such Borrower to be paid directly to Lender to
be held and applied in accordance with the terms hereof.
ARTICLE IX
ACCOUNTS AND RESERVES
9.1 Clearing Accounts.
(a) Obligors shall establish and maintain with respect to each
Property, with one or more depository institutions reasonably satisfactory to
Lender, an account for the receipt of Rents, including without limitation credit
card receivables (each, a "Clearing Account"). Each Clearing Account shall be an
Eligible Account in the name of Obligors as debtor and Lender as secured party.
Obligors shall cause such depository institutions to forward monthly statements
of such accounts to Lender. Funds in the Clearing Accounts shall not be
commingled with any other monies at any time.
(b) Obligors hereby covenant to cause all Rents (including, without
limitation, proceeds of business interruption insurance and credit card
receivables) and all other moneys, cash, rights to deposit or savings accounts
or other items of legal tender obtained from or for use in connection with the
ownership or operation of the Properties to be deposited in the respective
Clearing Accounts within 24 hours of receipt by the applicable Property Manager.
(c) Obligors shall make no withdrawals from the Clearing Accounts, and
Obligors shall not permit disbursement of any funds therefrom; provided, that on
a daily basis, Obligors shall be required under the Clearing Account Agreement
to cause the balance of such Clearing Accounts to be remitted into the Deposit
Account.
(d) On or prior to the Closing Date, Obligors shall execute and
deliver to Lender, and cause each bank in which a Clearing Account is located to
execute and deliver to Lender, a Clearing Account Agreement. In the event any
bank in which a Clearing Account is located fails to comply therewith, Obligors
will promptly move such Clearing Account to a bank which satisfies the
applicable requirements set forth in the definition of Eligible Account and
which will promptly execute and deliver to Lender such a Clearing Account
Agreement.
9.2 Deposit Account.
(a) On or prior to the Closing Date, Obligors shall establish and
thereafter maintain with a financial institution selected by Lender (as such
financial institution may be changed from time to time by Lender in accordance
with Section 9.2(d), the "Deposit Account Bank") an operating account (the
"Deposit Account"), which shall be an Eligible Account in the
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name of Lender as secured party and under the sole dominion and control of
Lender. For purposes of the foregoing sentence, the definition of Eligible
Account shall include an account which is approved by the applicable Rating
Agencies rating the Certificates, and the definition of Eligible Institution
shall include an institution whose ratings are approved by the applicable Rating
Agencies rating the Certificates. Obligors shall have no right to make
withdrawals from the Deposit Account. The Deposit Account Bank and Obligors
shall execute and deliver to Lender on the Closing Date a Deposit Account
Agreement which provides, inter alia, that no party other than Lender and the
Servicer shall have the right to withdraw funds from the Deposit Account.
(b) On each Payment Date (or on such prior date as the Deposit Account
contains the sum applicable to such month of the amounts set forth in Section
9.2(b)(i) through (xiv)) (any such prior date, an "Early Payment Date"),
provided no Event of Default has occurred and is continuing, the Servicer or
Lender shall transfer from the Deposit Account, to the extent available therein,
the following payments in the following order of priority (the "Waterfall
Payments"); and provided, further, that any sums on deposit in the Deposit
Account from the Early Payment Date up to but not including the next succeeding
Payment Date, after the Waterfall Payments are made, shall be distributed on a
daily basis to Borrowers, provided no Event of Default has occurred and is
continuing and provided no Low NOI Period has occurred and is occurring (in
which case such amounts shall be distributed to the Reserve Account):
(i) to the Tax, Insurance and Ground Rents Escrow Account, the amounts
then required to be reserved pursuant to Section 9.4 hereof;
(ii) to Lender, the Monthly Debt Service Payment Amount;
(iii) during the pendency of a monetary or other Specified Default, a
Low NOI Period or after the Anticipated Repayment Date (if applicable), to
Borrowers, an amount equal to the operating expenditures approved by Lender
in the applicable Annual Budget (the "Budget Operating Amount") for the
month immediately prior to the month in which such Payment Date occurs,
exclusive of any Management Fees and Franchise Fees payable to Affiliates
of the Sponsors, but inclusive of amounts necessary to reimburse actual
third-party costs of such Property Managers (including salaries and costs
for centralized services of the type described in Exhibit B to the
Management Contracts, even if payable to Affiliates of Sponsors), provided
that (a) no claims are then outstanding against any Obligor for the payment
of money which are delinquent for more than 60 days (except for claims such
Obligor is both contesting in good faith and as to which such Obligor has
escrowed 125% of the amount thereof with Lender) (in the event that such
claims are outstanding, Lender shall not be obligated to disburse to
Obligors the Budget Operating Amount), and (b) the amounts disbursed to a
Obligor pursuant to this clause (iii) shall be used by such Obligor solely
to pay operating expenses properly allocable to such month (the receipt by
a Obligor on a Payment
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Date of funds pursuant to this clause (iii) shall constitute a
representation and covenant by Obligors that the foregoing subclauses (a)
and (b) are accurate, unless Obligors shall have notified Lender of any
inaccuracy therein prior to such Payment Date). Cost savings from one line
item in such budget may be reallocated to other line items in such budget,
provided that without the consent of Lender, no such reallocation shall
cause an overall variance in the budget of more than 5%;
(iv) during the pendency of a monetary or other Specified Default, a
Low NOI Period or after an Anticipated Repayment Date (if applicable), to
Borrower, an amount equal to the Capital Expenditures approved by Lender in
the Annual Budget for the month immediately prior to the month in which
such Payment Date occurs (the "Budget Capital Amount"), to the extent that
such Capital Expenditures exceed amounts required then to be on deposit in
the FF&E Reserve Account pursuant to Section 9.6 hereof, provided that (a)
no claims are then outstanding against a Obligor for the payment of money
which are delinquent for more than 60 days (except for claims such Obligor
is both contesting in good faith and as to which such Obligor has escrowed
125% of the amount thereof with Lender) (in the event that such claims are
outstanding, Lender shall not be obligated to disburse to Obligors the
Budget Capital Amount), and (b) the amounts disbursed to a Obligor pursuant
to this clause (iv) shall be used by such Obligor solely to pay Capital
Expenditures properly allocable to such month (the receipt by such Obligor
on a Payment Date of funds pursuant to this clause (iv) shall constitute a
representation and covenant by Obligors that the foregoing subclauses (a)
and (b) are accurate, unless Obligors shall have notified Lender of any
inaccuracy therein prior to such Payment Date). Cost savings from one line
item in such budget may be reallocated to other line items in such budget,
provided that without the consent of Lender, no such reallocation shall
cause an overall variance in the budget of more than 5%;
(v) to the FF&E Reserve Account, the amount described in Section 9.5;
(vi) following the occurrence of any earthquake with respect to any
Property or Properties for which earthquake insurance is carried pursuant
to Article VIII hereof, to the Earthquake Deductible Account, an amount
equal to the deductible on such insurance policies applicable to such
Property or Properties;
(vii) to Lender, an amount equal to all interest, costs, expenses,
fees and other amounts then due and payable under the Loan Documents, other
than amounts paid to Lender pursuant to clause (ii);
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(viii) to any Property Managers which are not Affiliates of the
Sponsors, in an amount equal to the Management Fee then payable to each
such Manager;
(ix) during the continuance of a Low NOI Period, to the Reserve
Account;
(x) after the Anticipated Repayment Date (if applicable), to Lender to
prepay the outstanding principal amount of the Notes (pro rata based on the
then outstanding principal amount of each of the Notes) until such
principal is paid in full;
(xi) after the Anticipated Repayment Date (if applicable), to Lender
to be applied to payment of Accrued Additional Interest (pro rata based
upon the Accrued Additional Interest accrued on each of such Notes);
(xii) to Lender, an amount equal to interest accrued and unpaid under
the Notes at the excess of the Default Rate over the Interest Rate;
(xiv) Prior to the Anticipated Repayment Date, if no Low NOI Period is
then continuing, to a single account of Obligor as Obligor may direct, from
which account Obligor shall first make payments to any Property Managers
which are Affiliates of the Sponsors (including Operator), in an amount
equal to the Management Fee then payable to each such Property Manager and
to any Franchisors which are Affiliates of the Sponsors (including
Operator), in an amount equal to the Franchise Fee then payable to each
such Franchisor.
Notwithstanding anything herein to the contrary, the failure of
Obligors to make all of the payments required under clauses (i) through (x)
above in full on each Payment Date shall constitute an Event of Default.
However, the failure of Obligors to pay any amounts required to be paid under
clauses (xi) through (xv) above (subject to, in the case of clause (xi), the
agreement of such Property Managers to waive their fees) shall not in itself
constitute a Default or Event of Default hereunder.
(c) Obligation to Fund; Deemed Payment. In the event that on any
Payment Date the amount in the Deposit Account shall be insufficient to make all
of the transfers described in Section 9.2(b)(i) through (x), Obligors shall
deposit into the Deposit Account on such Payment Date the amount of such
deficiency (without the need for any notice or demand from Lender), and if
Obligors shall fail to make such deposit, the same shall constitute an Event of
Default and, in addition to all other rights and remedies provided for under the
Loan Documents, Lender may disburse and apply the amounts in the Deposit Account
in such manner as Lender may determine. If on any Payment Date the amount in the
Deposit Account shall be sufficient to make all of the transfers described in
Section 9.2(b)(i) through (x), Obligor shall be deemed to have paid the such
amounts on such Payment Date unless Lender is legally
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constrained from transferring such amounts in accordance with such Section by
reason of any insolvency related to Obligor or any other event.
(d) Lender shall have the right to replace the Deposit Account Bank
with any other financial institution reasonably satisfactory to Borrowers which
will promptly execute and deliver to Lender a Deposit Account Agreement (and
Obligors shall cooperate with Lender in connection with such transfer) in the
event that (i) at any time the short-term debt obligations of the Deposit
Account Bank are rated below "A-1" (or the equivalent) by any of the Rating
Agencies or the long-term debt obligations of the Deposit Account Bank are rated
below "AA" by any of the Rating Agencies, (ii) Lender reasonably determines that
use of another financial institution as the Deposit Account Bank would be
advisable or convenient in connection with a Securitization, or (iii) the
Deposit Account Bank fails to execute and deliver, or to comply with, the
Deposit Account Agreement.
9.3 Reserve Account.
(a) On or prior to the Closing Date, Obligors shall establish and
thereafter maintain with the Deposit Account Bank an account (the "Reserve
Account") which shall be an Eligible Account in the name of Lender as secured
party and under the sole dominion and control of Lender for the deposit of
amounts required to be deposited therein in accordance herewith. Obligor shall
have no right to make withdrawals from the Reserve Account. Funds in the Reserve
Account shall not be commingled with any other monies at any time. Funds in the
Reserve Account may be used, following the occurrence of an Event of Default,
for, among other things, the payment of mortgage recording tax and other costs
and expenses incurred in increasing the amount of the Loan secured by the
Mortgages encumbering the Mortgaged Property known as the Westin Washington D.C.
to an amount equal to 110% of the appraised value of such Mortgaged Property set
forth in the related Appraisal.
(b) Lender shall release to the Deposit Account all amounts contained
in the Reserve Account on the first Payment Date after Obligor delivers to
Lender evidence reasonably satisfactory to Lender establishing that a Low NOI
Period has ended.
9.4 Tax, Insurance and Ground Rents Escrow Account.
(a) On or prior to the Closing Date, Obligors shall establish and
thereafter maintain with the Deposit Account Bank an account (the "Tax and
Ground Rents Escrow Account") which shall be an Eligible Account in the name of
Lender as secured party and which shall be under the sole dominion and control
of Lender. Obligor shall have no right to make withdrawals from the Tax and
Ground Rents Escrow Account. Funds in the Tax and Ground Rents Escrow Account
shall not be commingled with any other monies at any time.
(b) On each Payment Date Obligors shall deposit or monies shall be
transferred in accordance with Section 9.2(b)(1) hereof from the Deposit Account
into the Tax, Insurance and Ground Rents Escrow Account:
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(i) one-twelfth (1/12) of the Taxes and Other Charges that Lender
reasonably estimates will be payable during the next ensuing twelve
(12) months in order to accumulate with Lender sufficient funds to pay
all such Taxes and Other Charges at least thirty (30) days prior to
their respective past due dates;
(ii) one-twelfth (1/12) of the Insurance Premiums that Lender
estimates will be payable for the renewal (or maintenance, if
applicable) of the coverage afforded by the Policies upon the
expiration thereof in order to accumulate with Lender sufficient funds
to pay all such Insurance Premiums at least thirty (30) days prior to
the expiration of the Policies; and
(iii) one-twelfth (1/12) of the ground rents that Lender
estimates will be payable with respect to the Ground Leased Property
during the next ensuing twelve (12) months in order to accumulate with
Lender sufficient funds to pay all such rents at least thirty (30)
days prior to the due date.
(c) On the Closing Date, Obligors shall deposit to the Tax, Insurance
and Ground Rents Escrow Account an amount equal to (i) the product of the next
installment of Taxes and Other Charges times a fraction, the numerator of which
is the number of months in the installment period for such Taxes and Other
Charges elapsed as of the Closing Date (rounded up to the nearest integer) and
the denominator of which is the number of months in such installment period,
(ii) the product of the next scheduled payment of ground rents times a fraction,
the numerator of which is the number of months in the installment period for
such ground rents elapsed as of the Closing Date and the denominator of which is
the number of months in such installment period, and (iii) the product of the
next installment of Insurance Premiums payable times a fraction, the numerator
of which is the number of months in the installment period for such premiums
elapsed as of the Closing Date (rounded up to the nearest integer) and the
denominator of which is the number of months in such installment period;
provided that if Obligor has a blanket Policy that covers properties in addition
to the Properties, Lender shall have the right to increase the amount required
to be deposited into the Tax, Insurance and Ground Rents Escrow Account in an
amount sufficient to purchase a non-blanket Policy in accordance with the terms
of Section 8.1(d)(i) hereof. Amounts in the Tax, Insurance and Ground Rents
Escrow Account shall be invested in Permitted Investments selected by Obligor
and Borrower shall be entitled to the income earned therefrom.
9.4.1 Application Generally. Lender will apply amounts in the Tax,
Insurance and Ground Rents Escrow Account either: (x) to pay Taxes and Other
Charges, Insurance Premiums and rents payable pursuant to the Ground Leases
required to be made by Obligor hereunder (and so long as the Tax, Insurance and
Ground Rents Escrow Account shall have a balance at least equal to the
then-payable Taxes, Other Charges, Insurance Premiums and ground rents, Obligors
shall not be in default hereunder if Lender shall have not so applied such
balance to the payment of such Taxes, Other Charges, Insurance Premiums and
ground rents, unless
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Lender shall have not so applied such balance at the request of Obligor) or (y)
to pay such amounts or to reimburse Obligors for such amounts upon presentation
of evidence of payment and an Officer's Certificate in form and substance
reasonably satisfactory to Lender, subject, however, to Obligors' right to
contest Taxes and Other Charges in accordance with the terms hereof. In making
any payment from or to the Tax, Insurance and Ground Rents Escrow Account,
Lender may do so according to any bill, statement or estimate procured from the
appropriate public office (with respect to Taxes and Other Charges) or insurer
or agent (with respect to Insurance Premiums) or ground lessor (with respect to
ground rents), without inquiry into the accuracy of such bill, statement or
estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien
or title or claim thereof unless given written notice by Obligor of such
inaccuracy, invalidity or other contest, in each case in accordance with Section
5.1(b)(ii) hereof. If Obligors reasonably determine that amounts contained in
the Tax, Insurance and Ground Rents Escrow Account exceed the amounts required
to be contained therein, due to a decrease in tax or insurance rates in the
applicable jurisdiction or for the applicable Property or as caused by another
similar event, Obligors may submit once during each fiscal year to Lender
evidence of the existence of such excess, and Lender shall have a period of one
month to consider such evidence. Provided no Event of Default is then
continuing, there is no pendency of a Low NOI Period and Lender reasonably
determines that such excess exists, Lender shall remit such excess amounts to
Obligors on the first Payment Date (not to exceed one Payment Date per fiscal
year) following such one-month period. Provided no Event of Default has occurred
and is continuing, Obligors shall have the right to have Lender apply amounts
deposited in the Tax, Insurance and Ground Rents Escrow Account on account of
Taxes and Other Charges toward the payment of such Taxes and Other Charges prior
to their delinquent dates for the purpose of achieving a discount on such Taxes
and Other Charges obligation. If at any time Lender reasonably determines that
the amount in the Tax, Insurance and Ground Rents Escrow Account is not or will
not be sufficient to pay the items set forth in Sections 9.4(a), 9.4(b) and
9.4(c) above, Lender shall notify Obligors of such determination and the amounts
paid for these items shall be increased by the amount that Lender reasonably
estimates is sufficient to make up the deficiency at least thirty (30) days
prior to delinquency of the Taxes and Other Charges and/or expiration of the
Policies and/or delinquency of the ground rent payments, as the case may be.
9.5 FF&E Reserve Account.
(a) Obligors shall establish and thereafter maintain with the Deposit
Account Bank an account (the "FF&E Reserve Account") which shall be an Eligible
Account in the name of Lender as secured party and under the sole dominion and
control of Lender and into which Obligors shall deposit on the Closing Date,
from the proceeds of the Loan, an amount equal to the FF&E Required Reserve
Amount at Closing. In no event shall the amount on deposit in the FF&E Reserve
Account be less than the then applicable FF&E Required Reserve Amount at any
time during the term of the Loan.
(b) (i) During each Interest Accrual Period, Obligors shall be
required to (i) make FF&E Expenditures in an amount equal to the then applicable
FF&E Required Reserve Amount less the aggregate FF&E Credit Amount from prior
Interest Accrual Periods and (ii) deliver an Officer's Certificate to Lender no
later than the last day of such Interest Accrual
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Period certifying as to (a) the amount of FF&E Expenditures (with copies of
invoices and receipts attached to such certification) actually paid during such
Interest Accrual Period and (b) the extent of any FF&E Credit Amount or any FF&E
Shortfall Amount, as applicable, relating to such Interest Accrual Period.
(ii) To the extent there is an FF&E Shortfall Amount with respect to
an Interest Accrual Period, then, beginning on the Payment Date immediately
following such Interest Accrual Period, Obligors shall deposit into the FF&E
Reserve Account an amount equal to such FF&E Shortfall Amount in accordance with
the priorities set forth in Section 9.2.
(c) The FF&E Required Reserve Amount shall be reset on each Reference
Date. Beginning on each Reference Date, Obligors shall, to the extent the amount
on deposit in the FF&E Reserve Account (without taking into account the
aggregate FF&E Shortfall Amounts) is less than the then applicable FF&E Required
Reserve Amount, deposit into the FF&E Reserve Account an amount equal to the
positive difference between the then applicable FF&E Required Reserve Amount and
the FF&E Required Reserve Amount relating to the prior Reference Date. To the
extent the amount on deposit in the FF&E Reserve Account plus the aggregate FF&E
Shortfall Amounts then held in the FF&E Reserve Account through such date
exceeds the then applicable FF&E Required Reserve Amount, such excess shall be
advanced to Obligors to pay the costs of FF&E Expenditures for subsequent
Interest Accrual Periods, upon delivery by Obligors to Lender of an Officer's
Certificate certifying as to the amount of FF&E Expenditures (with copies of
invoices and receipts attached to such certification) actually paid during the
relevant Interest Accrual Period or Periods.
(d) (i) During each Quarterly Period, Obligors shall be required to
(i) make FF&E Expenditures in respect of the work generally described in the
capital budget applicable to the calendar year containing such Quarterly Period
(as attached hereto as Schedule 9.2) in an amount equal to the then applicable
Quarterly FF&E Reserve Amount less the aggregate FF&E Credit Amount from prior
Interest Accrual Periods and (ii) deliver an Officer's Certificate to Lender no
later than the last day of such Quarterly Period certifying as to (a) the amount
of FF&E Expenditures (with copies of invoices and receipts attached to such
certification) actually paid during such Quarterly Period and (b) the extent not
already taken into account of any Quarterly FF&E Credit Amount or any Quarterly
FF&E Shortfall Amount, as applicable, relating to such Quarterly Period.
(ii) To the extent there is a Quarterly Shortfall Amount with respect
to a Quarterly Period, then, beginning on the Payment Date immediately following
such Quarterly Period, Obligors shall deposit into the FF&E Reserve Account an
amount equal to such Quarterly Shortfall Amount (less the amount of any FF&E
Shortfall deposited pursuant to Section 9.5(b) and then held on deposit in the
FF&E Reserve Account) in accordance with the priorities set forth in Section
9.2.
(e) The Quarterly FF&E Reserve Amount shall be reset on January 1,
2000. Beginning on the Quarterly Reference Date, Obligors shall, to the extent
the amount on deposit in the FF&E Reserve Account (without taking into account
the aggregate Quarterly Shortfall
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Amounts) is less than the then applicable Quarterly FF&E Reserve Amount, deposit
into the FF&E Reserve Account an amount equal to the positive difference between
the then applicable Quarterly FF&E Reserve Amount and the Quarterly FF&E Reserve
Amount relating to the calendar year. To the extent the amount on deposit in the
FF&E Reserve Account plus the aggregate Quarterly Shortfall Amounts currently on
deposit through such date exceeds the then applicable Quarterly FF&E Reserve
Amount, such excess shall be advanced to Obligors to pay the costs of FF&E
Expenditures for subsequent Interest Accrual Periods, upon delivery by Obligors
to Lender of an Officer's Certificate certifying as to the amount of FF&E
Expenditures (with copies of invoices and receipts attached to such
certification) actually paid during the relevant Interest Accrual Period or
Periods.
(f) Obligors shall have no right to make withdrawals from the FF&E
Reserve Account. Funds in the FF&E Reserve Account shall not be commingled with
any other monies at any time.
(g) (i) During each of the calendar years 1999 and 2000, Obligors
shall be required to (i) make FF&E Expenditures in respect of the work generally
described in the capital budget applicable to such calendar year (as attached
hereto as Schedule 9.2) in an amount equal to the then applicable Annual FF&E
Amount and (ii) deliver an Officer's Certificate to Lender no later than the
last day of such calendar year certifying as to (a) the amount of FF&E
Expenditures (with copies of invoices and receipts, to the extent not previously
delivered as a part of previously submitted Officer's Certificates) attached to
such certification) actually paid during such calendar year and (b) the extent
of any Annual FF&E Credit Amount or any Annual FF&E Shortfall Amount, as
applicable, relating to such calendar year.
(ii) To the extent there is an Annual Shortfall Amount with respect to
a calendar year, then, beginning on the Payment Date immediately following such
calendar year, Obligors shall deposit into the FF&E Reserve Account an amount
equal to such Annual Shortfall Amount (less the amount of any FF&E Shortfall
deposited pursuant to Section 9.5(b) and then held on deposit in the FF&E
Reserve Account) in accordance with the priorities set forth in Section 9.2.
(h) The failure of Obligors to fulfill the covenants set forth in
paragraphs (b)(i) and (d)(i) of this Section 9.5 shall not constitute an Event
of Default hereunder if Obligors deposit the shortfall amounts set forth in
paragraphs (b)(ii) and (d)(ii) of this Section 9.5.
"Annual Credit Amount" means, with respect to any Annual Period, the
amount by which (a) the FF&E Expenditures during such Annual Period exceeds (b)
the Annual FF&E Amount.
"Annual FF&E Amount" means, for calendar years 1999 and 2000,
$35,000,000 and $25,000,000, respectively, provided that such $35,000,000 amount
for calendar year 1999 shall be reduced by the amount of FF&E Expenditures made
in calendar year 1999 prior to the Closing Date, as evidenced by an Officer's
Certificate delivered to Lender certifying as to the amount of FF&E Expenditures
made during such period (with copies of invoices and receipts
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attached to such certification) but shall in no event include amounts spent in
respect of Deferred Maintenance and Environmental Remediation Conditions.
"Annual Shortfall Amount" means, with respect to any Annual Period,
the amount by which (a) the Annual FF&E Amount exceeds (b) the FF&E Expenditures
during such Annual Period plus any FF&E Credit Amount applicable to such period.
"FF&E Credit Amount" means, with respect to any Interest Accrual
Period, the amount by which (a) the FF&E Expenditures during such Interest
Accrual Period exceeds (b) the FF&E Required Reserve Amount applicable to such
Interest Accrual Period.
"FF&E Deposit Amount" shall have the meaning given thereto in Section
9.5(a).
"FF&E Expenditures" means, with respect to any period, the amounts
spent by Obligors in respect of FF&E for the Properties but shall in no event
include amounts spent in respect of Deferred Maintenance and Environmental
Remediation Conditions.
"FF&E Required Reserve Amount" means, for any Interest Accrual Period,
an amount equal to the product of (x) one twelfth (1/12) and (y) four percent
(4%) and (z) Rents for all the Properties during the twelve-month period
immediately preceding the Reference Date immediately preceding such Interest
Accrual Period.
"FF&E Shortfall Amount" means, with respect to any Interest Accrual
Period, the amount by which (a) the FF&E Required Reserve Amount applicable to
such Interest Accrual Period exceeds (b) the FF&E Expenditures during such
Interest Accrual Period plus any FF&E Credit Amount applicable to such period.
"Quarterly Credit Amount" means, with respect to any Quarterly Period,
the amount by which (a) the amount of FF&E Expenditures during such Quarterly
Period exceeds (b) the Quarterly FF&E Reserve Amount applicable to such
Quarterly Period.
"Quarterly FF&E Reserve Amount" means, for calendar years 1999 and
2000 the amounts set forth on Schedule 9.6 hereto.
"Quarterly Payment Date" means the first Payment Date occurring after
the Payment Date marking the end of a Quarterly Period.
"Quarterly Period" means, for each of calendar years 1999 and 2000,
each successive three Interest Accrual Periods beginning on (and including) the
Interest Accrual Period commencing on January 1, 1999.
"Quarterly Reference Date" means January 1, 2000.
"Quarterly Reference Payment Date" means the first Payment Date
immediately succeeding the Closing Date, and each successive Payment Date
occurring in three month intervals thereafter through the end of 2000.
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"Quarterly Shortfall Amount" means, with respect to any Quarterly
Period, the amount by which (a) the Quarterly FF&E Reserve Amount applicable to
such Quarterly Period exceeds (b) the amount of FF&E Expenditures during such
Quarterly Period plus any Quarterly Credit Amount applicable to such period.
Section 9.6 Deferred Maintenance and Environmental Remediation Reserve
Account.
(a) Obligors shall establish and thereafter maintain with the Deposit
Account Bank an account (the "Deferred Maintenance Account") which shall be an
Eligible Account in the name of Lender as secured party and under the sole
dominion and control of Lender and into which Obligors shall deposit on the
Closing Date, from the proceeds of the Loan, an amount equal to the Deferred
Maintenance and Environmental Conditions Amount. Obligor shall have no right to
make withdrawals from the Deferred Maintenance Account. Funds in such Account
shall not be commingled with any other monies at any time.
(b) Obligors shall have the right to obtain disbursements from time to
time from the Deferred Maintenance Account, to reimburse Obligors for or to pay
expenses incurred by any Obligor in remediating any Deferred Maintenance
Condition or Environmental Condition in accordance with the terms hereof, in
each case on the following terms and conditions:
(i) disbursements shall be made only to pay to contractors or vendors
or to other parties to which funds are owing in connection with such work
or to reimburse Obligors in respect of any actual costs of the work, which
costs were approved by Lender (such approval not to be unreasonably
withheld or delayed) or made in accordance with Section 7.1;
(ii) each request for disbursement from the Deferred Maintenance
Account shall be substantially in a form attached hereto as Exhibit G,
shall specify the work for which the disbursement is requested and shall
include an Officer's Certificate certifying that (i) all funds previously
disbursed from the Deferred Maintenance Account have been applied by the
applicable Obligors toward the expenses for which they were disbursed and
the Obligors have paid their remaining share of all such expenses, and (ii)
the funds being requested will be applied to pay or reimburse for materials
or work permitted hereunder and done in accordance herewith and copies of
invoices for all items or materials purchased and all contracted labor or
services provided;
(iii) Lender shall have received from the applicable Obligor or
Obligors evidence reasonably satisfactory to Lender that such Obligors have
incurred such expenses and that the materials for which the request is made
are on site at the applicable Property and are properly secured or have
been installed in the Property; and funds remaining in the Deferred
Maintenance Account after such disbursements will be, in Lender's
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reasonable judgment, sufficient to pay the balance of the items
contemplated to be funded therefrom when required to be so paid, and Lender
shall receive copies of partial lien releases and waivers from contractors,
subcontractors and others with respect to amounts for which Obligors have
previously received disbursements under this Section 9.6(b)(iii);
(iv) Lender shall disburse from the Deferred Maintenance Account, or
authorize such disbursement, within five (5) Business Days after the
receipt of any Obligor's request for such disbursement and the satisfaction
of the other conditions set forth above in this Section, the amount
requested by any Obligor for such expenses.
Section 9.7 Earthquake Deductible Account.
Obligors shall establish and thereafter maintain with the Deposit
Account Bank an account (the "Earthquake Deductible Account") which shall be an
Eligible Account in the name of Lender and under the sole dominion and control
of Lender and into which shall be deposited, following the occurrence of any
earthquake with respect to any Property or Properties for which earthquake
insurance is carried pursuant to Article VIII hereof (an "Earthquake Insurance
Property"), amounts pursuant to 9.2(b) above equal to the deductible on such
insurance policies applicable to such Property or Properties. Obligors shall
have no right to make withdrawals from the Earthquake Deductible Account. Funds
in the Earthquake Deductible Account shall not be commingled with any other
monies at any time.
At any time that an earthquake occurs with respect to an Earthquake
Insurance Property, Lender shall be entitled to withdraw and apply the amounts
in the Earthquake Deductible Account toward the cost of any deductibles payable
on the earthquake insurance policy for such Property or Properties with respect
to which earthquake damage has occurred.
Section 9.8. Account Collateral.
(a) Obligors hereby grant a perfected first-priority security interest
in favor of Lender in and to the Account Collateral as security for the Debt,
together with all rights of a secured party with respect thereto. Obligors shall
execute any additional documents that Lender in its reasonable discretion may
require and shall provide all other evidence reasonably requested by Lender to
evidence or perfect its first-priority security interest in the Account
Collateral.
(b) So long as no Event of Default shall be continuing, Borrowers
shall be permitted to direct the investment of the funds from time to time held
in the Collateral Accounts in Permitted Investments and to sell and reinvest
proceeds from the sale or liquidation of Permitted Investments in other
Permitted Investments, with all such proceeds and reinvestments to be held in
the applicable Collateral Account; provided, however, that the maturity of an
adequate portion of the Permitted Investments on deposit in the Collateral
Accounts shall be no later than the Business Day immediately preceding the date
on which such funds are required to be withdrawn therefrom pursuant to this
Agreement. All income and gains from the investment
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of funds in the Collateral Accounts shall be credited to the Collateral Accounts
from which they were derived. As between Borrowers and Lender, Borrowers shall
treat all income, gains and losses from the investment of amounts in the
Collateral Accounts as its income or loss for federal, state and local income
tax purposes and Borrower shall receive all benefit from such income.
(c) After the Loans and all other Debt have been paid in full, the
Collateral Accounts shall be closed and the balances, if any, therein shall be
disbursed to Borrowers.
Section 9.9 Remedies. In addition to other rights and remedies
provided Lender elsewhere in this Agreement and the other Loan Documents, upon
the occurrence and during the continuance of an Event of Default, Lender may, in
its sole discretion, without notice or liability to Obligor, apply any or all
Account Collateral for any of the following purposes relating to the Properties,
the Loan or Obligors' obligations hereunder or under any other Loan Document, in
the following or any other order:
First: reimbursement of Lender for all losses and expenses (including
reasonable legal fees) actually suffered or incurred by such persons as a
result of such Event of Default;
Second: payment of any amount expended in exercising rights and
remedies available to Lender at law or in equity or under this Agreement or
under any of the other Loan Documents;
Third: payment of any other portion or portions of the Debt other than
principal and interest;
Fourth: payment of interest then due and payable on the Loans; and
Fifth: prepayment of the unpaid principal amount of the Loans and
payment of interest accrued thereon and any applicable Yield Maintenance
Payments.
Notwithstanding the foregoing, after the occurrence and during the continuation
of an Event of Default, Lender may, in its sole discretion, cause all or a
portion of the Account Collateral to be applied toward payment of operating
expenses and/or Capital Expenditures.
Section 9.10 Special Reserve Account. Obligors shall establish and
thereafter maintain with the Deposit Account Bank or such other Bank as is
satisfactory to Lender, an account (the "Special Reserve Account") which shall
be an Eligible Account in the name of Lender (or in the name of any Trustee or
custodian for the benefit of Lender) and under the sole dominion and control of
Lender and into which shall be deposited at Closing $42,000,000. Obligors shall
have no right to make withdrawals from the Special Reserve Account and
disbursements from such account prior to an Event of Default hereunder shall be
determined by
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Lender in accordance with the Cooperation Agreement. Funds in the Special
Reserve Account shall not be commingled with any other monies at any time.
ARTICLE X
DEFAULTS
Section 10.1 Event of Default.
(a) Each of the following events shall constitute an event of default
hereunder (each, an "Event of Default"):
(i) Payment. If any portion of the Debt is not paid when due;
(ii) Taxes and Other Charges. If any of the Taxes or Other Charges are
not paid prior to the date when the same become delinquent, subject to
Obligors' right to contest Taxes in accordance with Section 5.1(b)(ii)
hereof;
(iii) Insurance Policies. If the Policies are not kept in full force
and effect, or if the Policies are not delivered to Lender upon request,
and in either case, such Default is not cured within ten (10) days after
written notice thereof from Lender;
(iv) Transfers. If (A) Obligors transfer or encumber all or any
portion of the Properties, or (B) any direct or indirect interest in any
Obligor is transferred or assigned, other than, in each case, for Permitted
Encumbrances or as is permitted in Section 6.1(i) hereof;
(v) Representations. If any representation or warranty made by any
Obligor herein or in any other Loan Document shall be false in any material
respect as of the date the representation or warranty was made;
(vi) Inability to Pay Debts. If any Obligor shall make an assignment
for the benefit of creditors, or if any Obligor shall generally not be
paying its debts as they become due or has admitted in writing its
inability to pay its debts;
(vii) Bankruptcy. If a receiver, liquidator or trustee shall be
appointed for any Obligor or if any Obligor shall be adjudicated a bankrupt
or insolvent, or if any petition for bankruptcy, reorganization or
arrangement pursuant to federal bankruptcy law, or any similar federal or
state law, shall be filed by or against, consented to, or acquiesced in by,
any Obligor, or if any proceeding for the dissolution or liquidation of any
Obligor shall be instituted; provided, however, if such appointment,
adjudication, petition or proceeding was involuntary and not consented to
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by such Obligor, upon the same not being discharged, stayed or dismissed
within sixty (60) days;
(viii) Prohibited Assignment. If any Obligor attempts to assign its
respective rights under this Agreement or under any other Loan Document or
any interest herein or therein in contravention of this Agreement or any of
the Loan Documents;
(ix) Breach of Covenant. If any Obligor breaches the negative covenant
contained in Section 4.1(cc) hereof and, if the same is susceptible of
cure, the same is not cured within ten (10) days after written notice
thereof from Lender; provided, that no cure of a breach of any covenant
contained in Section 4.1(cc) hereof shall be effective unless such Obligor
causes to be delivered to Lender an opinion as to non-consolidation in form
and substance and from counsel reasonably satisfactory to Lender, which
opinion takes into account such breach;
(x) Default under Other Loan Documents. If an Event of Default as
defined or described in any of the other Loan Documents occurs, or a
default under the Cooperation Agreement occurs prior to Securitization, or
if any other such event shall occur or condition shall exist, if the effect
of such event or condition is to accelerate the maturity of any portion of
the Debt or to permit Lender to accelerate the maturity of all or any
portion of the Debt in accordance with the terms of any such Loan Document
or the Cooperation Agreement;
(xi) Failure to Deposit Account Payments. If there shall be an Event
of Default as set forth in the final paragraph of Section 9.2(b);
(xii) Covenant Defaults. If any Obligor shall continue to be in
default under any of the other terms, covenants or conditions of this
Agreement not specified in subsections (i) to (xi) above, for ten (10) days
after notice to such Obligor from Lender, in the case of any Default which
can be cured by the payment of a sum of money, or for thirty (30) days
after notice from Lender in the case of any other Default; provided,
however, that if such nonmonetary Default is susceptible of cure but cannot
reasonably be cured within such 30-day period and provided further that
such Obligor shall have commenced to cure such default within such 30-day
period and thereafter diligently and expeditiously proceeds to cure the
same, such 30-day period shall be extended for an additional period of time
as is reasonably necessary for Obligor in the exercise of due diligence to
cure such Default, but the aggregate cure period under this subsection
(xii) shall not exceed 120 days; or
(xiv) Ground Lease Default. If such Borrower shall fail, beyond any
applicable notice and grace period permitted to Borrower under any
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Ground Lease, to pay any rent, additional rent or other charge mentioned in
or made payable pursuant to any Ground Lease when such rent, additional
rent or other charge is due and payable; or if the leasehold estate created
by any Ground Lease shall be surrendered or any Ground Lease shall be
terminated or cancelled for any reason or under any circumstances
whatsoever.
(xv) ERISA Defaults. (A) If any of the following events occurs:
(1) any Plan shall fail to satisfy the minimum funding standards
required for any Plan year or part thereof under Section 412 of the
Code or Section 302 of ERISA or an application may reasonably be
expected to be or has been made for a waiver of modification of the
minimum funding standard (including any required installment payments)
or an extension of any amortization period under Section 412 of the
Code or Section 303 or 304 of ERISA with respect to a Plan or Section
303 or 304 of ERISA with respect to a Plan,
(2) an ERISA Event with respect to any Plan has occurred,
(3) a contributing sponsor (as defined in Section 4001(a)(13) of
ERISA) of a Plan subject to Title IV of ERISA is subject to the
advance reporting requirement of PBGC Regulation Section 4043.61
(without regard to subparagraph (b)(1) thereof), and an event
described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC
Regulation Section 4043 is reasonably expected to occur with respect
to such Plan within the following 30 days,
(4) a Plan has been or may be terminated, reorganized, partitioned or
declared insolvent under Title IV of ERISA,
(5) any Obligor or any ERISA Affiliate has incurred or is likely to
incur any liability to or on account of an employee benefit plan under
Section 409 of ERISA,
(6) any Obligor or any ERISA Affiliate has incurred or is reasonably
likely to incur any material increase in liability (including any
indirect, contingent or secondary liability) to or on account of the
imposition of Withdrawal Liability by a Multiemployer Plan, the
determination that a Multiemployer Plan is, or is expected to be, in
reorganization within the meaning of Title IV of ERISA, or the
termination of a Multiemployer Plan with the meaning of Title IV of
ERISA,
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(7) any contribution with respect to a Plan or Foreign Pension Plan
has not been timely made, or
(8) any Obligor or any ERISA Affiliate has incurred or is reasonably
expected to incur any material increase in liability with respect to a
group health plan as defined in Section 607(l) of ERISA or Section
4980B(g)(2) of the Code) under Section 4980B of the Code or any Plan,
or that the Obligor or any ERISA Affiliate could reasonably be
expected to incur any material increase in liability pursuant to an
employee welfare benefit plan (as defined in Section 3(1) of ERISA)
that provides benefits to retired employees or other former employees
(other than as required by Section 601 of ERISA) or Plan or Foreign
Pension Plan; and
(B) there shall result from the occurrence of any such event or events described
in section 10.1(a)(xv)(A) the imposition of a lien, granting of a security
interest or a liability or material risk of incurring a liability and (C) such
lien, security interest or liability individually, and/or in the aggregate has
had, or could reasonably be expected to have, a Material Adverse Effect.
(xv) If Obligors fail to spend the Annual FF&E Amount within six
months of the end of the applicable Annual Period.
(b) Upon the occurrence of an Event of Default and at any time
thereafter, Lender may, in addition to any other rights or remedies available to
it pursuant to this Agreement or any other Loan Document, or at law or in
equity, take such action, without notice or demand, that Lender deems advisable
to protect and enforce its rights against Obligor and in and to all or any of
the Properties, including declaring the Debt to be immediately due and payable
(provided, however, with respect to an Event of Default described in clauses
(vi), (vii) or (viii) above, the Debt and all other obligations of Obligors
hereunder and under the other Loan Documents shall immediately and automatically
become due and payable, without notice or demand, and Obligors hereby expressly
waive any such notice or demand, anything contained herein or in any other Loan
Document to the contrary notwithstanding), and Lender may enforce or avail
itself of any or all rights or remedies provided in the Loan Documents against
Obligors and all or any portion of the Properties, including all rights or
remedies available at law or in equity.
(c) Upon the occurrence of any Event of Default, Lender may, but
without any obligation to do so and without notice to or demand on Obligors and
without releasing Obligors from any obligation hereunder, take any action to
cure such Event of Default. Lender may enter upon any of the Properties upon
reasonable notice to the applicable Obligor for such purposes or appear in,
defend, or bring any action or proceeding to protect their interests and the
interests of Lender in the Properties or to foreclose the Security Instruments
or collect the Debt. The costs and expenses incurred by Lender in exercising
rights under this paragraph (including reasonable attorneys' fees to the extent
permitted by law), with interest at the Default Rate for the period after notice
from the relevant Lender that such costs or expenses were incurred to the date
of payment to Lender, shall constitute a portion of the Debt, shall be secured
by the Security
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Instrument and the other Loan Documents and shall be due and payable to Lender
upon demand therefor.
Section 10.2 Remedies. Upon the occurrence of an Event of Default, all
or any one or more of the rights, powers, privileges and other remedies
available to Lender against Obligors under this Agreement or any of the other
Loan Documents executed and delivered by, or applicable to, Obligors or at law
(including, without limitation, an action for collection) or in equity may be
exercised by Lender at any time and from time to time, whether or not all or any
of the Debt shall be declared due and payable, and whether or not Lender shall
have commenced any foreclosure proceeding or other action for the enforcement of
its rights and remedies under any of the Loan Documents with respect to all or
any portion of any of the Properties. Any such actions taken by Lender shall be
cumulative and concurrent and may be pursued independently, singly,
successively, together or otherwise, at such time and in such order as Lender
may determine in its sole discretion, to the fullest extent permitted by law,
without impairing or otherwise affecting the other rights and remedies of Lender
permitted by law, equity or contract or as set forth herein or in the other Loan
Documents. Without limiting the generality of the foregoing, and to the extent
enforceable under applicable law, Obligors agree that if an Event of Default is
continuing (i) Lender is not subject to any "one action" or "election of
remedies" law or rule, and (ii) all liens and other rights, remedies or
privileges provided to Lender shall remain in full force and effect until Lender
has exhausted all of its remedies against each of the Properties and each
Security Instrument has been foreclosed, sold and/or otherwise realized upon in
satisfaction of the Debt or the Debt has been paid in full.
Section 10.3 Remedies Cumulative. The rights, powers and remedies of
Lender under this Agreement shall be cumulative and not exclusive of any other
right, power or remedy which Lender may have against Obligors pursuant to this
Agreement or the other Loan Documents, or existing at law or in equity or
otherwise. Lender's rights, powers and remedies may be pursued singly,
concurrently or otherwise, at such time and in such order as Lender may
determine in Lender's sole discretion. No delay or omission to exercise any
remedy, right or power accruing upon an Event of Default shall impair any such
remedy, right or power or shall be construed as a waiver thereof, but any such
remedy, right or power may be exercised from time to time and as often as may be
deemed expedient. A waiver of one Default or Event of Default with respect to
Obligors shall not be construed to be a waiver of any subsequent Default or
Event of Default with respect to Obligors or to impair any remedy, right or
power consequent thereon.
ARTICLE XI
PROPERTY MANAGEMENT
Section 11.1 Termination of Property Managers. Each Borrower
represents, warrants and covenants that the Subordination, Assignment and
Attornment Agreement provides, with respect to each of the Properties in which
it owns an interest, and each Property Management Agreement hereafter entered
into shall provide, Lender with the right to terminate such Property Management
Agreement with respect to the applicable Property, without any
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penalty or fee (other than accrued and unpaid fees thereunder) on thirty (30)
days' notice, if there exists (i) a monetary Event of Default under this
Agreement which has been uncured, or (ii) a default by such Manager under such
Property Management Agreement.
Borrowers represent, warrant and covenant that each Property shall at
all times be managed by an Acceptable Property Manager and shall be operated
pursuant to a Franchise Agreement with an Acceptable Franchisor. Each Property
Management Agreement entered into by Borrowers shall be in form and substance
satisfactory to Lender in its Discretion and shall be collaterally assigned to
Lender and such new Property Manager shall agree to attorn to Lender and
Lender's assigns, including a purchaser upon foreclosure. If such agreement is
with an Affiliate of any Borrower or any Sponsor, such agreement shall be
assigned to Lender as additional security for the Loan pursuant to an agreement
substantially similar to the Subordination, Assignment and Attornment Agreement.
Lender hereby approves the Management Contracts. Each Franchise Agreement
entered into by any Borrower after the date hereof shall be in form and
substance satisfactory to Lender in its Discretion and, if such agreement is
with an Affiliate of any Borrower or any Sponsor, shall be assigned to Lender as
additional security for the Loan pursuant to an agreement substantially similar
to the Subordination, Assignment and Attornment Agreement and, in any event,
shall be accompanied with a Franchisor Letter which shall be satisfactory to
Lender in its Discretion.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Survival. This Agreement and all covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the making by Lender of the Loan and the execution
and delivery to Lender of the Notes, and shall continue in full force and effect
so long as all or any of the Debt of Borrower is outstanding and unpaid.
Whenever in this Agreement any Person is referred to, such reference shall be
deemed to include the legal representatives, successors and assigns of such
Person (provided that the foregoing shall not be deemed to permit any transfer
of any ownership interest that is otherwise prohibited hereunder). All
covenants, promises and agreements in this Agreement contained, by or on behalf
of Obligors, shall inure to the benefit of the respective legal representatives,
successors and assigns of Lender.
Section 12.2 Permitted Investments; Eligible Accounts; Eligible
Institutions. Lender shall invest any amounts to be held by Lender in accordance
with the terms of this Agreement or any other Loan Document (other than amounts
held in the Deposit Account, which may be an interest bearing account), pending
the application of such amounts to the purposes herein or therein provided, in
one of the Permitted Investments as directed by Borrowers from time to time
(provided no Event of Default has occurred and is continuing); or Lender from
time to time (if any Event of Default has occurred and is continuing). Lender
shall not be responsible for its inability to invest funds received after 1:30
p.m. New York City time, but shall invest such sums on the following Business
Day. After application to the purposes for which any amounts invested pursuant
to this Section 12.2 are held and so long as no Event of Default has occurred
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and is continuing hereunder, any investment income earned from such investments
shall be paid to Borrowers, subject to the provisions of the Deposit Account
Agreement. All accounts maintained hereunder shall, at Lender's election, be
Eligible Accounts. No Eligible Account shall be evidenced by a certificate of
deposit, passbook or other instrument. Each Eligible Account (A) shall be a
separate and identifiable account from all other funds held by the holding
institution, (B) shall be established and maintained in the name of the Lender
as secured party (and subsequent to any Securitization, shall bear a designation
clearly indicating that the funds deposited therein are held for the benefit of
the holders of the Certificates), (C) shall be under the sole dominion and
control of Lender, and should contain only funds held for its benefit. Following
a rating downgrade, withdrawal, qualification or suspension of an Eligible
Institution which maintains an Eligible Account each such Eligible Account must
promptly (and in any case within not more than thirty (30) calendar days) be
moved to a qualifying Eligible Institution. The out-of-pocket costs reasonably
incurred in establishing and maintaining any account or reserve held by Lender
pursuant to this Agreement or any other Loan Document shall be borne by
Borrowers.
Section 12.3 Governing Law; Consent to Jurisdiction.
(a) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE
BY LENDER AND ACCEPTED BY BORROWERS AND NONRECOURSE CARVEOUT INDEMNITORS IN THE
STATE OF NEW YORK, AND THE PROCEEDS OF THE NOTE DELIVERED PURSUANT HERETO WERE
DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A
SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION
EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY
APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE
PROVISIONS FOR THE CREATION, PERFECTION, AND ENFORCEMENT OF THE LIENS AND
SECURITY INTERESTS CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN
DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE
IN WHICH THE APPLICABLE PROPERTY IS LOCATED, IT BEING UNDERSTOOD THAT, TO THE
FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF NEW
YORK SHALL GOVERN THE VALIDITY AND THE ENFORCEABILITY OF ALL LOAN DOCUMENTS AND
ALL OF THE INDEBTEDNESS OR OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO THE
FULLEST EXTENT PERMITTED BY LAW, EACH BORROWER HEREBY UNCONDITIONALLY AND
IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION
GOVERNS THIS AGREEMENT AND THE NOTE, AND THIS AGREEMENT AND THE NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
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(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER, BORROWERS OR
NONRECOURSE CARVEOUT INDEMNITORS ARISING OUT OF OR RELATING TO THIS AGREEMENT
SHALL BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK,
PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, AND
BORROWERS AND NONRECOURSE CARVEOUT INDEMNITORS WAIVE ANY OBJECTION WHICH THEY
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING, AND BORROWERS AND NONRECOURSE CARVEOUT INDEMNITORS HEREBY
IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR
PROCEEDING. BORROWERS AND NONRECOURSE CARVEOUT INDEMNITORS DO HEREBY DESIGNATE
AND APPOINT STARWOOD HOTELS AND RESORTS, GENERAL COUNSEL, WITH OFFICES AT 777
WESTCHESTER AVENUE, WHITE PLANS, NY, 10604, OR AT SUCH OTHER OFFICE IN NEW YORK,
NEW YORK, AS THEIR AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON THEIR BEHALF
SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR
PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREE THAT
SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND WRITTEN NOTICE OF SAID
SERVICE OF BORROWERS AND NONRECOURSE CARVEOUT INDEMNITORS MAILED OR DELIVERED TO
BORROWERS AND NONRECOURSE CARVEOUT INDEMNITORS IN THE MANNER PROVIDED HEREIN
SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON BORROWERS AND
NONRECOURSE CARVEOUT INDEMNITOR, IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE
STATE OF NEW YORK. BORROWERS AND NONRECOURSE CARVEOUT INDEMNITORS(I) SHALL GIVE
PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS OF THEIR AUTHORIZED AGENT
HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE
AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH OFFICE SHALL BE
DESIGNATED AS THE ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY
DESIGNATE SUCH A SUBSTITUTE IF THEIR AUTHORIZED AGENT CEASES TO HAVE AN OFFICE
IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.
Section 12.4 Modification, Waiver in Writing. No modification,
amendment, extension, discharge, termination or waiver of any provision of this
Agreement, or of any of the Notes, or of any other Loan Document, nor consent to
any departure by Obligors therefrom, shall in any event be effective unless the
same shall be in a writing signed by the party against whom enforcement is
sought, and then such waiver or consent shall be effective only in the specific
instance, and for the purpose, for which given. Except as otherwise expressly
provided herein, no notice to, or demand on Obligors, shall entitle Obligors to
any other or future notice or demand in the same, similar or other
circumstances.
Section 12.5 Delay Not a Waiver. Neither any failure nor any delay on
the part of Lender in insisting upon strict performance of any term, condition,
covenant or agreement, or exercising any right, power, remedy or privilege
hereunder, or under any of the Notes or under
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any other Loan Document, or any other instrument given as security therefor,
shall operate as or constitute a waiver thereof, nor shall a single or partial
exercise thereof preclude any other future exercise, or the exercise of any
other right, power, remedy or privilege. In particular, and not by way of
limitation, by accepting payment after the due date of any amount payable under
this Agreement, any of the Notes or any other Loan Document, Lender shall not be
deemed to have waived any right either to require prompt payment when due of all
other amounts due under this Agreement, the any of the Notes or the other Loan
Documents, or to declare a default for failure to effect prompt payment of any
such other amount.
Section 12.6 Notices. All notices, consents, approvals and requests
required or permitted hereunder or under any other Loan Document shall be given
in writing and shall be effective for all purposes if hand delivered or sent by
(a) certified or registered United States mail, postage prepaid, or (b)
expedited prepaid delivery service, either commercial or United States Postal
Service, with proof of attempted delivery, addressed as follows (or at such
other address and person as shall be designated from time to time by any party
hereto, as the case may be, in a written notice to the other parties hereto in
the manner provided for in this Section):
If to Lender:
Lehman Brothers Holdings Inc.
200 Vesey Street
3 World Financial Center
New York, NY 10285
Attention: Larry Kravetz
Phone: 212-526-5838
Fax: 212-526-8679
with copies to:
Goldman Sachs Mortgage Company
85 Broad Street
New York, New York 10004
Attention: Mark J. Kogan
Phone: 212-902-2565
Fax: 212-902-1691
for such time as Wells Fargo Bank, N.A. is acting as Servicer,
with copies to:
Wells Fargo Bank, N.A.
417 Montgomery Street
5th Floor
San Francisco, California 94111
Attention: Stewart McAdams
with copies to:
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Robert F. Darling, Esq.
Wells Fargo Bank, N.A.
633 Folson Street
San Francisco, California 94107
and
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attn: Steven Wilner, Esq.
If to Borrower:
Starwood Hotels and Resorts
777 Westchester Avenue
White Plains, NY 10604
Attn: General Counsel
with a copy to:
Starwood Hotels & Resorts Worldwide, Inc.
2231 East Camelback Road
#400
Phoenix, Arizona 85016
Attn: Treasurer
and
Sidley & Austin
875 Third Avenue
New York, NY 10222132
Attn: Alan Weil, Esq.
If to Operator:
Starwood Hotels and Resorts
777 Westchester Avenue
White Plains, NY 10604
Attn: General Counsel
with a copy to:
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Starwood Hotels & Resorts Worldwide, Inc.
2231 East Camelback Road
#400
Phoenix, Arizona 85016
Attn: Treasurer
A notice shall be deemed to have been given: in the case of hand delivery, at
the time of delivery; in the case of registered or certified mail, when
delivered or the first attempted delivery on a Business Day; or in the case of
expedited prepaid delivery, upon the first attempted delivery on a Business Day.
Section 12.7 Trial by Jury. LENDER, BORROWERS AND EACH
NONRECOURSE CARVEOUT INDEMNITOR EACH HEREBY AGREE NOT TO ELECT A TRIAL BY JURY
OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY
FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD
TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN
CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY
AND VOLUNTARILY BY EACH OF LENDER, BORROWERS AND EACH NONRECOURSE CARVEOUT
INDEMNITOR AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH
ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER
AND BORROWERS AND EACH NONRECOURSE CARVEOUT INDEMNITOR ARE HEREBY AUTHORIZED TO
FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS
WAIVER.
Section 12.8 Headings. The Article and/or Section headings and
the Table of Contents in this Agreement are included herein for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.
Section 12.9 Severability. Wherever possible, each provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
Section 12.10 Preferences. Subject to Article IX hereof,
Lender shall have the continuing and exclusive right to apply or reverse and
reapply any and all payments by Borrowers to any portion of the obligations of
Borrowers hereunder. To the extent Borrowers make a payment or payments to
Lender, which payment or proceeds or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, receiver or any other party under any bankruptcy law,
state or federal law, common law or equitable cause, then, to the extent of such
payment or proceeds received, the
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obligations hereunder or part thereof intended to be satisfied shall be revived
and continue in full force and effect, as if such payment or proceeds had not
been received by Lender.
Section 12.11 Waiver of Notice. Obligors shall not be entitled to any
notices of any nature whatsoever from Lender except with respect to matters for
which this Agreement or the other Loan Documents specifically and expressly
provide for the giving of notice by Lender to Obligors and except with respect
to matters for which Obligors are not, pursuant to applicable Legal
Requirements, permitted to waive the giving of notice. Obligors hereby expressly
waive the right to receive any notice from Lender with respect to any matter for
which this Agreement or the other Loan Documents do not specifically and
expressly provide for the giving of notice by Lender to Obligor.
Section 12.12 Remedies of Obligor. In the event that a claim or
adjudication is made that Lender or its agents, including Servicer or Special
Servicer, have acted unreasonably or unreasonably delayed (or refrained from),
acting in any case where by law or under this Agreement or the other Loan
Documents, Lender or such agent, as the case may be, has an obligation to act
reasonably or promptly, Obligors agree that neither Lender nor its agents,
including Servicer and Special Servicer, shall be liable for any monetary
damages, and Obligors' sole remedies shall be limited to commencing an action
seeking injunctive relief or declaratory judgment, except in any instance in
which it has been finally determined that Lender's action, delay or inaction has
constituted gross negligence, fraud, willful misconduct or an illegal act. The
parties hereto agree that any action or proceeding to determine whether Lender
has acted reasonably shall be determined by an action seeking declaratory
judgment.
Section 12.13 Expenses; Indemnity. (a) Borrowers covenant and agree to
reimburse Lender upon receipt of written notice from Lender for all (i) Lender
Expenses, including all origination costs and all reasonable out-of-pocket
expenses and costs incurred by Lender (or any of its affiliates) after the
Closing in connection with any Securitization; (ii) costs and expenses
reasonably incurred by Lender in connection with (A) Borrower's ongoing
performance of and compliance with Borrower's respective agreements and
covenants contained in this Agreement and the other Loan Documents on its part
to be performed or complied with after the Closing Date, including confirming
compliance with environmental and insurance requirements; (B) the negotiation,
preparation, execution, delivery and administration of any consents, amendments,
waivers or other modifications to this Agreement and the other Loan Documents
and any other documents or matters requested by Borrowers or by Lender; (C)
filing and recording fees and expenses, title insurance and reasonable fees and
disbursements of counsel for providing to Lender all required legal opinions,
and other similar expenses incurred in creating and perfecting the Liens in
favor of Lender pursuant to this Agreement and the other Loan Documents; (D)
enforcing or preserving any rights, in response to third party claims or the
prosecuting or defending of any action or proceeding or other litigation, in
each case against, under or affecting Borrowers, this Agreement, the other Loan
Documents or any other security given for the Loan or the Properties; (E)
enforcing any obligations of or collecting any payments due from Borrowers under
this Agreement, the other Loan Documents or with respect to the Properties or in
connection with any refinancing or restructuring of the credit arrangements
provided under this Agreement in the nature of a "work-out" or of any insolvency
or bankruptcy
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proceedings; and (F) any brokers or finders fees in connection with the Loan;
provided, however, Borrowers shall not be liable for the payment of any such
costs and expenses to the extent the same arise by reason of the gross
negligence, illegal acts, fraud or willful misconduct of Lender. Any costs and
expenses due and payable to Lender hereunder which are not paid by Borrowers
within ten (10) days after demand may be paid from any amounts in the Deposit
Account, with notice thereof to Borrowers.
(b) Subject to the provisions of Section 12.24 hereof, Borrowers shall
indemnify and hold harmless Lender from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including the reasonable fees and disbursements of counsel for Lender in
connection with any investigative, administrative or judicial proceeding
commenced or threatened, whether or not Lender shall be designated a party
thereto), that may be imposed on, incurred by, or asserted against Lender in any
manner relating to or arising out of any breach by Borrowers of their
obligations under, or any misrepresentation by Borrowers contained in this
Agreement or the other Loan Documents; provided, however, Borrowers shall not be
liable for the payment of any such costs and expenses to the extent the same
arise by reason of the gross negligence, illegal acts, fraud or willful
misconduct of Lender. Any costs and expenses due and payable to Lender hereunder
which are not paid by Borrower within ten (10) days after demand may be paid
from any amounts in the Deposit Account, with notice thereof to Borrowers.
(c) For purposes of this Section 12.13 only, Borrowers hereby
acknowledge and agree that the defined term Lender shall be deemed to include
Goldman Sachs Mortgage Company, a New York limited partnership.
Section 12.14 Exhibits and Schedules Incorporated. The Exhibits and
Schedules annexed hereto are hereby incorporated herein as a part of this
Agreement with the same effect as if set forth in the body hereof.
Section 12.15 Offsets, Counterclaims and Defenses. Any assignee of
Lender's interest in and to this Agreement, the Notes and the other Loan
Documents shall take the same free and clear of all offsets, counterclaims or
defenses which are unrelated to such documents which Borrowers may otherwise
have against any assignor of such documents, and no such unrelated counterclaim
or defense shall be interposed or asserted by Borrowers in any action or
proceeding brought by any such assignee upon such documents and any such right
to interpose or assert any such unrelated offset, counterclaim or defense in any
such action or proceeding is hereby expressly waived by Borrowers.
Section 12.16 No Joint Venture or Partnership. Obligors and Lender
intend that the relationships created hereunder and under the other Loan
Documents be solely that of borrower and lender. Nothing herein or therein is
intended to create a joint venture, partnership, tenancy-in-common, or joint
tenancy relationship between Obligors and Lender nor to grant Lender any
interest in the Properties other than that of mortgagee or lender.
Section 12.17 Publicity. All news releases, publicity or advertising
by Obligors or their Affiliates through any media intended to reach the general
public which refers to the
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<PAGE> 160
Loan Documents or the financing evidenced by the Loan Documents, to Lender, the
Loan purchaser, the Servicer or the trustee in a Securitization (except for
filings required by the Securities and Exchange Commission) shall be subject to
the prior written approval of Lender (with such consent not to be unreasonably
withheld or delayed).
Section 12.18 Waiver of Marshalling of Assets. To the fullest extent
Obligors may legally do so, Obligors waive all rights to a marshalling of the
assets of Obligors, Obligors' partners, if any, and others with interests in
Obligors, and of the Properties, or to a sale in inverse order of alienation in
the event of foreclosure of the interests hereby created, and agrees not to
assert any right under any laws pertaining to the marshalling of assets, the
sale in inverse order of alienation, homestead exemption, the administration of
estates of decedents, or any other matters whatsoever to defeat, reduce or
affect the right of Lender under the Loan Documents to a sale of the Properties
for the collection of the related Debt without any prior or different resort for
collection, of the right of Lender or any deed of trust trustee to the payment
of the related Debt out of the net proceeds of the Properties in preference to
every other claimant whatsoever. In addition, Obligors, for themselves and their
successors and assigns, waive in the event of foreclosure of any or all of the
Security Instruments, any equitable right otherwise available to the Obligors
which would require the separate sale of portions of any of the Properties.
Section 12.19 Waiver of Counterclaim. Obligors hereby waive the right
to assert a counterclaim, other than a compulsory counterclaim, in any action or
proceeding brought against it by Lender or its agents, including Servicer and
Special Servicer.
Section 12.20 Conflict; Construction of Documents. In the event of any
conflict between the provisions of this Agreement and any of the other Loan
Documents, the provisions of this Agreement shall control. The parties hereto
acknowledge that they were represented by counsel in connection with the
negotiation and drafting of the Loan Documents and that such Loan Documents
shall not be subject to the principle of construing their meaning against the
party which drafted same.
Section 12.21 Brokers and Financial Advisors. Each of Obligors and
Lender hereby represent that they have dealt with no financial advisors,
brokers, underwriters, placement agents, agents or finders (other than Holliday
Fenoglio Fowler, L.P.) in connection with the transactions contemplated by this
Agreement. Each Borrower hereby indemnifies Lender and holds Lender harmless
from and against any and all claims, liabilities, costs and expenses of any kind
in any way relating to or arising from a claim by any Person that such Person
acted on behalf of such Obligor in connection with the transactions contemplated
herein. Lender hereby indemnifies Borrowers and holds Borrowers harmless from
and against any and all claims, liabilities, costs and expenses of any kind in
any way relating to or arising from a claim by any Person that such Person acted
on behalf of Lender in connection with the transactions contemplated herein. The
provisions of this Section 12.21 shall survive the expiration and termination of
this Agreement and the repayment of the Debt.
Section 12.22 No Third Party Beneficiaries. This Agreement and the
other Loan Documents are solely for the benefit of Lender and the Obligors, and
nothing contained in this
159
<PAGE> 161
Agreement or the other Loan Documents shall be deemed to confer upon anyone
other than Lender and Obligors any right to insist upon or to enforce the
performance or observance of any of the obligations contained herein or therein.
All conditions to the obligations of Lender to make the Loan hereunder are
imposed solely and exclusively for the benefit of Lender, and no other Person
shall have standing to require satisfaction of such conditions in accordance
with their terms or be entitled to assume that Lender will refuse to make the
Loan in the absence of strict compliance with any or all thereof and no other
Person shall under any circumstances be deemed to be a beneficiary of such
conditions, any or all of which may be freely waived in whole or in part by
Lender if, in Lender's sole discretion, Lender deems it advisable or desirable
to do so.
Section 12.23 Prior Agreements. This Agreement and the other Loan
Documents contain the entire agreement of the parties hereto and thereto in
respect of the transactions contemplated hereby and thereby, and all prior
agreements among or between such parties, whether oral or written, between
Obligor and Lender are superseded by the terms of this Agreement and the other
Loan Documents.
Section 12.24 Recourse. Anything contained herein, in the Notes or in
any other Loan Document to the contrary notwithstanding (except as set forth in
the balance of this Section or in the Environmental Indemnity), no recourse
shall be had for the payment of the principal or interest on the Notes or for
any other portion of the Debt hereunder or under the other Loan Documents
against (i) any Affiliate, parent company, trustee or advisor of each Obligor,
any member in such Obligor, or any member therein; (ii) any legal
representative, heir, estate, successor or assign of any thereof; (iii) any
corporation (or any officer, director, employee or shareholder thereof),
individual or entity to which any ownership interest in Obligor shall have been
transferred; (iv) any purchaser of any asset of Obligors; or (v) any other
Person (except Obligors), for any deficiency or other sum owing with respect to
the Notes or the Debt; provided, however, that the foregoing shall not (a)
prevent recourse to Obligors or the assets of Obligors, or enforcement of any
Security Instrument or other instrument or document by which Obligors are bound
pursuant to the Loan Documents, or (b) be applicable with respect to any
Nonrecourse Carveout Indemnitor to the extent of actual Damages to Lender
resulting from any of the following (collectively, the "Indemnified
Liabilities"):
(i) Any Waste with respect to the Properties committed or permitted by
an Obligor, any Nonrecourse Carveout Indemnitor or any of their respective
Affiliates.
(ii) Any fraud or intentional misrepresentation committed by an
Obligor, any Nonrecourse Carveout Indemnitor or any of their respective
Affiliates.
(iii) The misappropriation or misapplication of any funds from the
Properties by an Obligor, any Nonrecourse Carveout Indemnitor or any of
their respective Affiliates (whether occurring prior to or from and after
the occurrence of and during the continuation of an Event of Default),
160
<PAGE> 162
including of any Rents, security deposits or other similar sums paid to or
held by a Obligor or any of their respective Affiliates in connection with
the Properties (provided, however, that, so long as no Default or Event of
Default has occurred and remains uncured and so long as all of Borrowers'
Obligations hereunder then due and payable have been paid, any
distributions by Borrowers to its Affiliates of any funds received by
Borrowers pursuant to Section 9.2(b) shall not constitute a misapplication
of funds).
(iv) (A) The misappropriation by an Obligor, any Nonrecourse Carveout
Indemnitor or any of their respective Affiliates of any Proceeds, or (B)
any Proceeds shall not be applied as required under any Loan Document due
to the acts or omissions of an Obligor, any Nonrecourse Carveout Indemnitor
or any of their respective Affiliates (other than as a result of an
involuntary bankruptcy of an Obligor).
(v) Any transfers or encumbrances by an Obligor of the Properties in
violation of the Loan Agreement.
(vi) The filing by an Obligor or any Member of such Obligor of any
petition or the commencement of any proceeding (a "Proceeding") seeking
relief from creditors under any Federal or State bankruptcy, insolvency,
reorganization, dissolution, adjustment of debt or similar law (or the
commencement by any Affiliate of such Obligor, as a creditor of Obligor, of
any such Proceeding in respect of Obligor or any member of Obligor, or the
conspiracy of Obligor or any such Affiliate with a third-party creditor in
connection with such third-party's commencement of a Proceeding in respect
of Obligor or any member thereof).
(vii) Any failure by Borrowers to make the prepayments required
pursuant to Sections 2.3.6 and 3.1(c)(ii) and (iii) hereof in the event of
a Title Defect or a Survey Defect.
(b) Each Nonrecourse Carveout Indemnitor agrees, as evidenced by his
or her signature below, that he or she shall, jointly and severally, indemnify
and hold harmless Lender from and against any and all actual Damages to Lender
resulting from or arising out of the Indemnified Liabilities (including, without
limitation, the legal and other expenses of enforcing the obligations of the
Nonrecourse Carveout Indemnitors under this Section 12.24). The liability of
each Nonrecourse Carveout Indemnitor under this Agreement shall be direct and
immediate and not conditional or contingent upon the pursuit of any remedies
against an Obligor or any other Person, nor against the Collateral, and shall
not be impaired or limited by any of the following events, whether occurring
with or without notice to the Nonrecourse Carveout Indemnitors or with or
without consideration:
161
<PAGE> 163
(i) any extensions of time for performance required by any of the Loan
Documents or otherwise granted by Lender or extension or renewal of the
Notes;
(ii) any sale, assignment or foreclosure of the Notes, the Mortgage or
any of the other Loan Documents or any sale or transfer of any Property
pursuant to the Loan Documents;
(iii) any change in the composition of an Obligor, including, without
limitation, the withdrawal or removal of one or both of the Nonrecourse
Carveout Indemnitors from any current or future position of ownership,
management or control of Obligors;
(iv) the accuracy or inaccuracy of the representations and warranties
made by Obligors in any of the Loan Documents;
(v) the release of Obligors or of any other Person or entity from
performance or observance of any of the agreements, covenants, terms or
conditions contained in any of the Loan Documents by operation of law,
Lender's voluntary act or otherwise; or
(vi) the modification of the terms of any one or more of the Loan
Documents.
Each Nonrecourse Carveout Indemnitor hereby acknowledges that the
Lender would not make the Loan but for the personal liability undertaken by such
Nonrecourse Carveout Indemnitor as expressly set forth and limited above. Each
Nonrecourse Carveout Indemnitor agrees that it shall not demand or accept any
payment from Obligors in respect of any amounts owing or paid by such
Nonrecourse Carveout Indemnitor hereunder until such time as the Debt has been
paid in full.
Notwithstanding anything to the contrary in this Agreement or any of
the Loan Documents, Lender shall not be deemed to have waived any right which
Lender may have under Sections 506(a), 506(b), 1111(b) or any other provisions
of the Bankruptcy Code to file a claim for the full amount of the Debt secured
by the Security Instruments or to require that all collateral shall continue to
secure all of the Debt owing to Lender in accordance with the Loan Documents;
provided, however, that the foregoing sentence shall not create any additional
liability for the Nonrecourse Carveout Indemnitors other than that set forth
elsewhere in this Agreement.
Section 12.25 Loan Assignability. The Loan, and all of Lender's
rights, remedies and privileges hereunder and the other Loan Documents, shall be
assignable by Lender at any time and from time to time. Obligors may not sell,
assign or transfer any interest in the Loan Documents or any portion thereof
(including, without limitation, Obligors' rights, title, interests, remedies,
powers and duties hereunder and thereunder).
162
<PAGE> 164
Section 12.26 Exculpation of Lender. Lender neither undertakes nor
assumes any responsibility or duty to Obligors or any other party to select,
review, inspect, examine, supervise, pass judgment upon or inform Obligors or
any third party of (a) the existence, quality, adequacy or suitability of
appraisals of the Properties or any other collateral, (b) any environmental
report, or (c) any other matters or items, including, but not limited to,
engineering, soils and seismic reports which are contemplated in the Loan
Documents. Any such selection, review, inspection, examination and the like, and
any other due diligence conducted by Lender, is solely for the purpose of
protecting Lender's rights under the Loan Documents, and shall not render Lender
liable to Obligors or any third party for the existence, sufficiency, accuracy,
completeness or legality thereof.
Section 12.27 Exculpation of REIT Trustee. Lender acknowledges and
agrees that the name "Starwood Hotels & Resorts" (as noted in the defined term
"Sponsor") is a designation of a REIT and its Trustees (as Trustees but not
personally) under a Declaration of Trust dated August 25, 1969, as amended and
restated as of June 6, 1988, as further amended on February 1, 1995 as further
amended on June 19, 1995 and as further amended and restated on January 6, 1999
and as the same may be further amended from time to time, and all persons
dealing with the REIT shall look solely to the REIT's assets for the enforcement
of any claims against the REIT, as the Trustees, officers, agents and security
holders of the REIT assume no personal liability for obligations entered into on
behalf of the REIT, and their respective individual assets shall not be subject
to the claims of any person relating to such obligations. The foregoing shall
govern all direct and indirect obligations of the REIT under this Agreement and
the Loan Documents.
ARTICLE XIII
RETENTION OF SERVICER
Section 13.1 Retention of Servicer. Notwithstanding Section 12.22
hereof, Lender reserves the right to retain a Servicer (as well as a Special
Servicer) (other than the Bank of New York) to act as its agent with respect to
the Loan and the Loan Documents with such powers as are specifically delegated
to the Servicer (or such Special Servicer) by Lender, whether pursuant to this
Agreement, the Servicing Agreement, the Deposit Account Agreement or otherwise,
together with such other powers as are reasonably incidental thereto. Borrowers
shall not be responsible for the payment of the Servicer's fees for master
servicing or subservicing, provided upon the occurrence and during the
continuance of an Event of Default, Borrowers shall pay any fee for any special
servicing Lender reasonably deems to be required and further provided that
Borrowers shall pay any reasonable fees and expenses of the Servicer in
connection with a release of any Property, substitution of a Property, partial
or total defeasance of the Loan, satisfaction of a Security Instrument,
assumption of the Loan, modification of the Loan made at Borrower's request, any
requests by a Borrower for waivers or consents, any costs and expenses
associated with the transfer of any interest in Borrowers pursuant to Section
6.1 hereof or with the approval by Lender of a Material Alteration or Expansion
pursuant to Section 7.1(c) hereof, and the enforcement of the Loan Documents.
Borrowers shall have the right to
163
<PAGE> 165
rely on any notices given by any Servicer with the same force and effect as if
such notices had been given by Lender.
Upon appointment of a Servicer or Special Servicer, each Borrower,
Operator, Operator II and Property Manager shall also deliver all notices,
reports, documents, financial statements, insurance, tax and any other
instrument, statement or document which it is required to deliver to Lender
hereunder or under any related Loan Document to such Servicer or Special
Servicer as if such Servicer or Special Servicer was Lender hereunder. In
addition, each Borrower, Operator, Operator II and Property Manager hereby
acknowledges that any Servicer or Special Servicer appointed by Lender pursuant
to this Section shall have all the rights and powers granted hereunder or under
applicable law to Lender (except as reserved in writing by Lender) as if such
Servicer or Special Servicer was Lender hereunder, including the right to make
inspections, hold the Collateral Accounts, collect fees, receive reimbursement
of expenses and indemnification from Borrowers and otherwise monitor compliance
with the provisions of this Agreement and any other Loan Agreement.
164
<PAGE> 166
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be duly executed by their duly authorized representatives, all as of the day
and year first above written.
LENDER:
LEHMAN BROTHERS HOLDINGS INC.
D/B/A LEHMAN CAPITAL, A DIVISION
OF LEHMAN BROTHERS HOLDINGS
INC., a Delaware corporation
By: /s/ Larry Kravetz
-------------------------------
Name: Larry Kravetz
Title: Authorized Signatory
165
<PAGE> 167
BORROWERS:
STARWOOD REALTY CMBS I LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
STARWOOD WALTHAM CMBS I LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
STARWOOD NEEDHAM CMBS I LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
166
<PAGE> 168
STARWOOD MISSION HILLS CMBS I LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
STARWOOD CMBS I LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
STARWOOD SHERATON SAN DIEGO CMBS I
LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
167
<PAGE> 169
STARWOOD PHOENICIAN CMBS I LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
STARWOOD CINCINNATI CMBS I LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
OPERATOR:
STARWOOD OPERATOR I LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
OPERATOR II:
STARWOOD OPERATOR II LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
<PAGE> 170
NONRECOURSE CARVEOUT INDEMNITORS
(for purposes of Sections 12.24, 4.2 and 4.5)
STARWOOD HOTELS AND RESORTS
WORLDWIDE, INC.,
A MARYLAND CORPORATION
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
STARWOOD HOTELS AND RESORTS,
A MARYLAND REAL ESTATE INVESTMENT
TRUST
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
<PAGE> 171
MEMBERS:
(for purposes of Sections 4.3 and 4.5)
STARWOOD REALTY CMBS II LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
STARWOOD WALTHAM CMBS II LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
STARWOOD NEEDHAM CMBS II LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
<PAGE> 172
STARWOOD MISSION HILLS CMBS II LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
STARWOOD CMBS II LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
STARWOOD SHERATON SAN DIEGO CMBS II
LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
<PAGE> 173
STARWOOD PHOENICIAN CMBS II LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
STARWOOD CINCINNATI CMBS II LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
STARWOOD OPERATOR II LLC,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
<PAGE> 174
SECOND-TIER MEMBERS:
(for purposes of Sections 4.4 and 4.5)
SLT REALTY LIMITED PARTNERSHIP,
A DELAWARE LIMITED PARTNERSHIP
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
STARWOOD WALTHAM L.L.C.,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
STARWOOD NEEDHAM L.L.C.,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
<PAGE> 175
STARWOOD MISSION HILLS L.L.C.,
A DELAWARE LIMITED LIABILITY
COMPANY
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
SLT FINANCING PARTNERSHIP,
A DELAWARE GENERAL PARTNERSHIP
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
HARBOR - CAL, S.D.,
A CALIFORNIA JOINT VENTURE
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
<PAGE> 176
SHERATON PHOENICIAN CORPORATION,
A DELAWARE CORPORATION
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
STARWOOD HOTELS AND RESORTS,
A MARYLAND REAL ESTATE INVESTMENT
TRUST
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
STARWOOD HOTELS AND RESORTS
WORLDWIDE, INC.,
A MARYLAND CORPORATION
By: /s/ Jonathan H. Yellen
-------------------------------
Name: Jonathan H. Yellen
Title: Authorized Signatory
<PAGE> 1
EXHIBIT 12.1
STARWOOD HOTELS & RESORTS
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CALCULATION OF RATIO OF EARNINGS TO TOTAL FIXED CHARGES
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996 1995 1994
---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EARNINGS
Income (loss) from continuing operations............... $141 $(270) $226 $161 $ 44
Add:
Adjustment for distributions in excess of (less than)
equity earnings and losses(a)..................... (16) (10) (6) 6 --
Provision (benefit) for income taxes................. (108) 159 173 87 27
Minority equity in net income........................ 10 9 7 (1) (4)
Amortization of interest capitalized................. 6 4 4 3 3
---- ----- ---- ---- ----
33 (108) 404 256 70
---- ----- ---- ---- ----
FIXED CHARGES
Interest and other financial charges................... 639 113 164 201 69
Interest factor attributable to rentals(b)............. 15 13 16 17 16
---- ----- ---- ---- ----
654 126 180 218 85
---- ----- ---- ---- ----
Earnings, as adjusted, from continuing operations...... $687 $ 18 $584 $474 $155
==== ===== ==== ==== ====
FIXED CHARGES
Fixed charges above.................................... $654 $ 126 $180 $218 $ 85
Interest capitalized................................... 26 35 13 7 5
---- ----- ---- ---- ----
Total fixed charges.......................... $680 $ 161 $193 $225 $ 90
==== ===== ==== ==== ====
RATIO
Earnings, as adjusted, from continuing operations to
fixed charges........................................ 1.01 (c) 3.03 2.11 1.72
==== ===== ==== ==== ====
</TABLE>
- ---------------
(a) The adjustment represents distributions in excess of (less than)
undistributed earnings and losses of companies in which at least 20% but
less than 50% equity is owned.
(b) The interest factor attributable to rentals consists of one-third of rental
charges, which is deemed by Starwood Hotels to be representative of the
interest factor inherent in rents.
(c) Earnings were not adequate to cover total fixed charges by $143.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANTS
<TABLE>
<CAPTION>
WHOLLY OWNED DIRECT OR
INDIRECT SUBSIDIARIES
CARRYING ON THE SAME
LINE OF BUSINESS AS
NAMED SUBSIDIARY
----------------------
OPERATING OPERATING
JURISDICTION IN THE IN
OF LINE OF UNITED FOREIGN
NAME ORGANIZATION PARENT BUSINESS STATES COUNTRIES
- ---- ------------ ------ -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Starwood Hotels & Resorts Worldwide, Inc.
("SH&RW").................................. Maryland -- Lodging 99 16
SLC Operating Limited Partnership.......... Delaware SH&RW Lodging 10 7
Starwood Hotels & Resorts ("SH&R")......... Maryland SH&RW Lodging 9 --
SLT Realty Limited Partnership.......... Delaware SH&R Lodging 49 --
ITT Corporation ("ITT").................... Nevada SH&RW -- -- --
ITT Sheraton Corporation ("ITTSC")...... Delaware ITT Lodging 38 --
Sheraton Gaming Corporation........... Nevada ITTSC Gaming 10 --
Sheraton International, Inc.
("SII")............................ Delaware ITTSC Lodging -- 41
Ciga S.p.A......................... Italy SII Lodging -- 34
Caesars World, Inc.................... Florida ITTSC Gaming 28 --
</TABLE>
- ---------------
Note: The names of some consolidated wholly owned subsidiaries of the
Corporation carrying on the same lines of business as other subsidiaries
named above have been omitted, the number of such omitted subsidiaries
operating in the United States and in foreign countries being shown. Also
omitted from the list are the names of other subsidiaries that, if
considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Starwood Hotels & Resorts'
and Starwood Hotels & Resorts Worldwide, Inc.'s previously filed Registration
Statements on Form S-2 (File No. 33-59155), Form S-3 (File Nos. 33-64335,
333-13411, 333-13325, 333-22219, 333-40077, 333-47639, 333-49953, 333-49955 and
333-73069), Form S-4 (File No. 333-39409), and Form S-8 (File Nos. 333-02721,
333-49927, 333-49931 and 333-58141). It should be noted that we have not audited
any financial statements of the company subsequent to December 31, 1998 or
performed any audit procedures subsequent to the date of our report.
New York, New York
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<CIK> 0000316206
<NAME> STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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<EXCHANGE-RATE> 1
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<RECEIVABLES> 583
<ALLOWANCES> 0
<INVENTORY> 73
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<PP&E> 6,434
<DEPRECIATION> 995
<TOTAL-ASSETS> 11,214
<CURRENT-LIABILITIES> 2,041
<BONDS> 10,692
0
0
<COMMON> 2
<OTHER-SE> (3,027)
<TOTAL-LIABILITY-AND-EQUITY> 11,214
<SALES> 0
<TOTAL-REVENUES> 4,700
<CGS> 0
<TOTAL-COSTS> 4,546
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 589
<INCOME-PRETAX> (363)
<INCOME-TAX> (109)
<INCOME-CONTINUING> (254)
<DISCONTINUED> 1,114
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 860
<EPS-PRIMARY> 4.65
<EPS-DILUTED> 4.65
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<CIK> 0000048595
<NAME> STARWOOD HOTELS & RESORTS
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
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<SECURITIES> 0
<RECEIVABLES> 2,649
<ALLOWANCES> 0
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<CURRENT-ASSETS> 81
<PP&E> 4,557
<DEPRECIATION> 146
<TOTAL-ASSETS> 8,646
<CURRENT-LIABILITIES> 75
<BONDS> 738
172
0
<COMMON> 2
<OTHER-SE> 7,225
<TOTAL-LIABILITY-AND-EQUITY> 8,646
<SALES> 0
<TOTAL-REVENUES> 600
<CGS> 0
<TOTAL-COSTS> 153
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
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<INCOME-TAX> 1
<INCOME-CONTINUING> 395
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 395
<EPS-PRIMARY> 2.05
<EPS-DILUTED> 2.04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THESE SCHEDULES HAVE BEEN RESTATED TO CONFORM WITH EITF 97-2, AS SUCH, REVENUES
AND EXPENSES OF NON-OWNED MANAGED HOTELS ARE NO LONGER INCLUDED IN THE COMPANY'S
FINANCIAL STATEMENTS.
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000316206
<NAME> STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
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<RECEIVABLES> 876
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<PP&E> 6,612
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<BONDS> 10,542
0
0
<COMMON> 2
<OTHER-SE> (2,666)
<TOTAL-LIABILITY-AND-EQUITY> 11,471
<SALES> 0
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<CGS> 0
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 430
<INCOME-PRETAX> (368)
<INCOME-TAX> (80)
<INCOME-CONTINUING> (288)
<DISCONTINUED> 1,116
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 828
<EPS-PRIMARY> 4.43
<EPS-DILUTED> 4.43
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THESE SCHEDULES HAVE BEEN RESTATED TO CONFORM WITH EITF 97-2, AS SUCH, REVENUES
AND EXPENSES OF NON-OWNED MANAGED HOTELS ARE NO LONGER INCLUDED IN THE COMPANY'S
FINANCIAL STATEMENTS.
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000048595
<NAME> STARWOOD HOTELS & RESORTS
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
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<CURRENT-ASSETS> 348
<PP&E> 4,589
<DEPRECIATION> 314
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<BONDS> 604
454
5
<COMMON> 2
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<SALES> 0
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<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14
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<INCOME-TAX> 1
<INCOME-CONTINUING> 285
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 285
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.43
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THESE SCHEDULES HAVE BEEN RESTATED TO CONFORM WITH EITF 97-2, AS SUCH, REVENUES
AND EXPENSES OF NON-OWNED MANAGED HOTELS ARE NO LONGER INCLUDED IN THE COMPANY'S
FINANCIAL STATEMENTS.
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000316206
<NAME> STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 268
<SECURITIES> 0
<RECEIVABLES> 903
<ALLOWANCES> 0
<INVENTORY> 69
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<PP&E> 6,420
<DEPRECIATION> 953
<TOTAL-ASSETS> 11,486
<CURRENT-LIABILITIES> 2,258
<BONDS> 10,362
0
0
<COMMON> 2
<OTHER-SE> (2,249)
<TOTAL-LIABILITY-AND-EQUITY> 11,486
<SALES> 0
<TOTAL-REVENUES> 2,165
<CGS> 0
<TOTAL-COSTS> 2,010
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237
<INCOME-PRETAX> (30)
<INCOME-TAX> 29
<INCOME-CONTINUING> (59)
<DISCONTINUED> 1,092
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,033
<EPS-PRIMARY> 5.54
<EPS-DILUTED> 5.54
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THESE SCHEDULES HAVE BEEN RESTATED TO CONFORM WITH EITF 97-2, AS SUCH, REVENUES
AND EXPENSES OF NON-OWNED MANAGED HOTELS ARE NO LONGER INCLUDED IN THE COMPANY'S
FINANCIAL STATEMENTS.
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000048595
<NAME> STARWOOD HOTELS & RESORTS
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
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<SECURITIES> 0
<RECEIVABLES> 2,941
<ALLOWANCES> 0
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<CURRENT-ASSETS> 485
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<DEPRECIATION> 233
<TOTAL-ASSETS> 8,495
<CURRENT-LIABILITIES> 418
<BONDS> 591
170
5
<COMMON> 2
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<TOTAL-LIABILITY-AND-EQUITY> 8,495
<SALES> 0
<TOTAL-REVENUES> 256
<CGS> 0
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<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 158
<INCOME-TAX> 1
<INCOME-CONTINUING> 157
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 157
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.79
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THESE SCHEDULES HAVE BEEN RESTATED TO CONFORM WITH EITF 97-2, AS SUCH, REVENUES
AND EXPENSES OF NON-OWNED MANAGED HOTELS ARE NO LONGER INCLUDED IN THE COMPANY'S
FINANCIAL STATEMENTS.
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000316206
<NAME> STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 257
<SECURITIES> 0
<RECEIVABLES> 903
<ALLOWANCES> 0
<INVENTORY> 69
<CURRENT-ASSETS> 1,028
<PP&E> 6,295
<DEPRECIATION> 912
<TOTAL-ASSETS> 11,506
<CURRENT-LIABILITIES> 2,768
<BONDS> 10,512
0
0
<COMMON> 2
<OTHER-SE> (2,587)
<TOTAL-LIABILITY-AND-EQUITY> 11,506
<SALES> 0
<TOTAL-REVENUES> 883
<CGS> 0
<TOTAL-COSTS> 830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95
<INCOME-PRETAX> (27)
<INCOME-TAX> 6
<INCOME-CONTINUING> (33)
<DISCONTINUED> 940
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 907
<EPS-PRIMARY> 5.96
<EPS-DILUTED> 5.96
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THESE SCHEDULES HAVE BEEN RESTATED TO CONFORM WITH EITF 97-2, AS SUCH, REVENUES
AND EXPENSES OF NON-OWNED MANAGED HOTELS ARE NO LONGER INCLUDED IN THE COMPANY'S
FINANCIAL STATEMENTS.
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000048595
<NAME> STARWOOD HOTELS & RESORTS
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
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<SECURITIES> 0
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<CURRENT-ASSETS> 326
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<DEPRECIATION> 207
<TOTAL-ASSETS> 8,569
<CURRENT-LIABILITIES> 418
<BONDS> 592
170
5
<COMMON> 2
<OTHER-SE> 7,348
<TOTAL-LIABILITY-AND-EQUITY> 8,569
<SALES> 0
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<CGS> 0
<TOTAL-COSTS> 18
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 61
<INCOME-TAX> 0
<INCOME-CONTINUING> 61
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.35
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THESE SCHEDULES HAVE BEEN RESTATED TO CONFORM WITH EITF 97-2, AS SUCH, REVENUES
AND EXPENSES OF NON-OWNED MANAGED HOTELS ARE NO LONGER INCLUDED IN THE COMPANY'S
FINANCIAL STATEMENTS.
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000048595
<NAME> STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 201
<SECURITIES> 0
<RECEIVABLES> 536
<ALLOWANCES> 112
<INVENTORY> 63
<CURRENT-ASSETS> 793
<PP&E> 5,609
<DEPRECIATION> 777
<TOTAL-ASSETS> 8,525
<CURRENT-LIABILITIES> 2,410
<BONDS> 1,070
0
0
<COMMON> 1
<OTHER-SE> 2,742
<TOTAL-LIABILITY-AND-EQUITY> 8,525
<SALES> 0
<TOTAL-REVENUES> 2,974
<CGS> 0
<TOTAL-COSTS> 3,242
<OTHER-EXPENSES> (260)
<LOSS-PROVISION> 65
<INTEREST-EXPENSE> 94
<INCOME-PRETAX> (102)
<INCOME-TAX> 159
<INCOME-CONTINUING> (270)
<DISCONTINUED> 25
<EXTRAORDINARY> (42)
<CHANGES> (11)
<NET-INCOME> (298)
<EPS-PRIMARY> (2.36)
<EPS-DILUTED> (2.36)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THESE SCHEDULES HAVE BEEN RESTATED TO CONFORM WITH EITF 97-2, AS SUCH, REVENUES
AND EXPENSES OF NON-OWNED MANAGED HOTELS ARE NO LONGER INCLUDED IN THE COMPANY'S
FINANCIAL STATEMENTS.
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000048595
<NAME> STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
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<INVENTORY> 56
<CURRENT-ASSETS> 1,001
<PP&E> 5,342
<DEPRECIATION> 719
<TOTAL-ASSETS> 8,520
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<BONDS> 1,575
0
0
<COMMON> 1
<OTHER-SE> 3,352
<TOTAL-LIABILITY-AND-EQUITY> 8,520
<SALES> 0
<TOTAL-REVENUES> 2,175
<CGS> 0
<TOTAL-COSTS> 1,903
<OTHER-EXPENSES> (368)
<LOSS-PROVISION> 28
<INTEREST-EXPENSE> 70
<INCOME-PRETAX> 570
<INCOME-TAX> 246
<INCOME-CONTINUING> 321
<DISCONTINUED> 14
<EXTRAORDINARY> 0
<CHANGES> (11)
<NET-INCOME> 324
<EPS-PRIMARY> 2.57
<EPS-DILUTED> 2.53
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THESE SCHEDULES HAVE BEEN RESTATED TO CONFORM WITH EITF 97-2, AS SUCH, REVENUES
AND EXPENSES OF NON-OWNED MANAGER HOTELS ARE NO LONGER INCLUDED IN THE COMPANY'S
FINANCIAL STATEMENTS.
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000048595
<NAME> STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
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<SECURITIES> 0
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<INVENTORY> 57
<CURRENT-ASSETS> 919
<PP&E> 5,149
<DEPRECIATION> 684
<TOTAL-ASSETS> 8,011
<CURRENT-LIABILITIES> 1,157
<BONDS> 866
0
0
<COMMON> 1
<OTHER-SE> 3,332
<TOTAL-LIABILITY-AND-EQUITY> 8,011
<SALES> 0
<TOTAL-REVENUES> 1,434
<CGS> 0
<TOTAL-COSTS> 1,295
<OTHER-EXPENSES> (382)
<LOSS-PROVISION> 19
<INTEREST-EXPENSE> 43
<INCOME-PRETAX> 478
<INCOME-TAX> 200
<INCOME-CONTINUING> 278
<DISCONTINUED> (1)
<EXTRAORDINARY> 0
<CHANGES> (11)
<NET-INCOME> 266
<EPS-PRIMARY> 2.12
<EPS-DILUTED> 2.09
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THESE SCHEDULES HAVE BEEN RESTATED TO CONFORM WITH EITF 97-2, AS SUCH, REVENUES
AND EXPENSES OF NON-OWNED MANAGED HOTELS ARE NO LONGER INCLUDED IN THE COMPANY'S
FINANCIAL STATEMENTS.
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<CIK> 0000048595
<NAME> STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
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<RECEIVABLES> 1,004
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<CURRENT-ASSETS> 1,299
<PP&E> 5,127
<DEPRECIATION> 689
<TOTAL-ASSETS> 8,596
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<BONDS> 1,689
0
0
<COMMON> 1
<OTHER-SE> 3,129
<TOTAL-LIABILITY-AND-EQUITY> 8,596
<SALES> 0
<TOTAL-REVENUES> 666
<CGS> 0
<TOTAL-COSTS> 667
<OTHER-EXPENSES> (181)
<LOSS-PROVISION> 11
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<INCOME-PRETAX> 157
<INCOME-TAX> 64
<INCOME-CONTINUING> 95
<DISCONTINUED> (15)
<EXTRAORDINARY> 0
<CHANGES> (11)
<NET-INCOME> 69
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.54
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THESE SCHEDULES HAVE BEEN RESTATED TO CONFORM WITH EITF 97-2, AS SUCH, REVENUES
AND EXPENSES OF NON-OWNED MANAGED HOTELS ARE NO LONGER INCLUDED IN THE COMPANY'S
FINANCIAL STATEMENTS.
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000048595
<NAME> STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
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<PP&E> 5,390
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0
0
<COMMON> 1
<OTHER-SE> 3,073
<TOTAL-LIABILITY-AND-EQUITY> 8,922
<SALES> 0
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<CGS> 0
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<OTHER-EXPENSES> (33)
<LOSS-PROVISION> 39
<INTEREST-EXPENSE> 96
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<INCOME-TAX> 173
<INCOME-CONTINUING> 226
<DISCONTINUED> 23
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 249
<EPS-PRIMARY> 1.99
<EPS-DILUTED> 1.96
</TABLE>
