Preliminary Copy
STARWOOD FINANCIAL TRUST
1114 Avenue of the Americas
27th Floor
New York, New York 10036
___________ __, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of Starwood Financial Trust, a California business trust (the "Trust"), to be
held at _________ on ______ ___, 1998 at 10:30 a.m. Eastern Standard Time (the
"Annual Meeting").
At the Annual Meeting, the shareholders of the Trust (the
"Shareholders") will be asked to consider and vote on a proposal to reorganize
the Trust under the laws of the State of Maryland through a merger and transfer
of assets (the "Reorganization Merger") of the Trust with and into Starwood
Financial Trust, a Maryland real estate investment trust ("SFT-Maryland"), a
newly-formed wholly-owned subsidiary of the Trust. SFT-Maryland will be the
surviving entity with a declaration of trust ("Declaration of Trust") that
differs from that of the Trust as described in the attached Proxy Statement.
SFT-Maryland was formed for the purpose of redomiciling the Trust as a Maryland
real estate investment trust and acquiring and continuing the business and
operations of the Trust. In the Reorganization Merger, the Trust's Class A
Shares, $1.00 par value ("Class A Shares") will be converted into Class A
Shares, $1.00 par value of SFT-Maryland ("New Class A Shares") on a six for one
basis (the "Exchange Ratio") and Class B Shares, $.01 par value ("Class B
Shares") will be converted into Class B Shares, $.01 par value of SFT-Maryland
("New Class B Shares") at the Exchange Ratio. Unexercised options to purchase
[15,002,057] Class A Shares will be exchanged for new options to purchase New
Class A Shares at the Exchange Ratio. See "REORGANIZATION PROPOSAL."
The Shareholders will also be asked to elect four (4) trustees to the
Board of Trustees and to consider and vote on a proposal to ratify the
appointment of Price Waterhouse LLP as the Trust's independent public
accountants for the year ended December 31, 1998. See "ELECTION OF TRUSTEES" and
"RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS."
Details of the proposals to be voted on at the Annual Meeting (the
"Proposals") and other important matters are contained in the attached Proxy
Statement, which you are encouraged to read carefully.
YOUR BOARD OF TRUSTEES HAS CONCLUDED THAT THE REORGANIZATION MERGER,
THE ELECTION OF THE NOMINEES AS TRUSTEES AND THE RATIFICATION OF THE SELECTION
OF PRICE WATERHOUSE LLP AS THE TRUST'S INDEPENDENT PUBLIC ACCOUNTANTS ARE IN THE
BEST INTERESTS OF
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BOTH THE TRUST AND THE SHAREHOLDERS. THE BOARD OF TRUSTEES RECOMMENDS THAT YOU
VOTE FOR APPROVAL OF ALL OF THE PROPOSALS.
All Shareholders are cordially invited to attend the Annual Meeting in
person. Any Shareholder attending the Annual Meeting may vote in person even if
he or she previously returned a proxy.
Sincerely,
Barry S. Sternlicht
Chairman of the Board
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Preliminary Copy
STARWOOD FINANCIAL TRUST
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Starwood Financial Trust, a California business trust (the "Trust"), will be
held at __________ on ______ __, 1998 at 10:30 a.m. Eastern Standard Time (the
"Annual Meeting"), for the following purposes as further described in the
accompanying Proxy Statement:
1. At the Annual Meeting, the shareholders of the Trust (the
"Shareholders") will be asked to consider and vote on a proposal to reorganize
the Trust under the laws of the State of Maryland through a merger and transfer
of assets (the "Reorganization Merger") with and into Starwood Financial Trust,
a Maryland real estate investment trust ("SFT-Maryland"), a newly-formed
wholly-owned subsidiary of the Trust. SFT-Maryland will be the surviving entity
with a declaration of trust that differs from that of the Trust as described in
the attached Proxy Statement. SFT-Maryland was formed for the purpose of
redomiciling the Trust as a Maryland real estate investment trust and acquiring
and continuing the business and operations of the Trust. In the Reorganization
Merger, the Trust's Class A Shares, $1.00 par value ("Class A Shares") will be
converted into Class A Shares, $1.00 par value of SFT-Maryland ("New Class A
Shares") on a six for one basis (the "Exchange Ratio") and Class B Shares, $.01
par value ("Class B Shares") will be converted into Class B Shares, $.01 par
value of SFT-Maryland ("New Class B Shares") at the Exchange Ratio. Unexercised
options to purchase [15,002,057] Class A Shares will be exchanged for new
options to purchase New Class A Shares at the Exchange Ratio. See
"REORGANIZATION PROPOSAL."
2. To elect to the Board of Trustees four (4) members to hold office
until the next annual meeting of Shareholders and until their successors have
been elected and qualified. The nominees to the Board of Trustees are Jeffrey G.
Dishner, Jonathan D. Eilian, Merrick R. Kleeman and Robin Josephs. See "ELECTION
OF TRUSTEES."
3. To consider and vote upon a proposal to ratify the appointment of
Price Waterhouse LLP as the Trust's independent accountants for the fiscal year
ended December 31, 1998. See "RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC
ACCOUNTANTS."
4. To transact such other business as may properly come before the
Annual Meeting or any postponement or adjournment thereof.
The Board of Trustees has fixed _____ __, 1998 as the record date for
the determination of Shareholders entitled to receive notice of and to vote at
the Annual Meeting or any postponement or adjournment thereof, and only holders
of record of Class A Shares and Class B Shares at the close of business on that
day will be entitled to vote.
By Order of the Board of Trustees
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Jerome C. Silvey
Secretary of the Trust
New York, New York
_____ __, 1998
- --------------------------------------------------------------------------------
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, TO ENSURE YOUR
REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE POSTAGE-PREPAID ENVELOPE
ENCLOSED FOR THAT PURPOSE.
- --------------------------------------------------------------------------------
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Preliminary Copy
STARWOOD FINANCIAL TRUST
1114 Avenue of the Americas
27th Floor
New York, New York 10036
-------------------
PROXY STATEMENT
--------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD _______ __, 1998
This proxy statement (the "Proxy Statement") is being sent to
shareholders of Starwood Financial Trust, a California business trust (the
"Trust"), on or about ______ __, 1998 in connection with the solicitation by the
Board of Trustees of the Trust (the "Board of Trustees") of proxies to be voted
at the Trust's 1998 Annual Meeting of Shareholders (the "Annual Meeting") to be
held at ___________ on _______ __, 1998 at 10:30 a.m. Eastern Standard Time, or
at any postponement or adjournment thereof.
At the Annual Meeting, the shareholders of the Trust (the
"Shareholders") will be asked to consider and vote on a proposal to reorganize
the Trust under the laws of the State of Maryland through a merger and transfer
of assets (the "Reorganization Merger") with and into Starwood Financial Trust,
a Maryland real estate investment trust ("SFT-Maryland"), a newly-formed,
wholly-owned subsidiary of the Trust. SFT-Maryland will be the surviving entity
with a declaration of trust ("Maryland Declaration of Trust") that differs from
that of the Trust as described in this Proxy Statement. SFT-Maryland was formed
for the purpose of redomiciling the Trust as a Maryland real estate investment
trust ("REIT") and acquiring and continuing the business and operations of the
Trust. In the Reorganization Merger, the Trust's Class A Shares, $1.00 par value
("Class A Shares") will be converted into Class A Shares, $1.00 par value of
SFT-Maryland ("New Class A Shares") on a six for one basis (the "Exchange
Ratio") and Class B Shares, $.01 par value ("Class B Shares") will be converted
into Class B Shares, $.01 par value of SFT-Maryland ("New Class B Shares") at
the Exchange Ratio. Unexercised options to purchase ___ Class A Shares will be
exchanged for new options to purchase New Class A Shares at the Exchange Ratio.
See "REORGANIZATION PROPOSAL."
The Shareholders will also be asked to elect four (4) trustees to the
Board of Trustees and to consider and vote on a proposal to ratify the
appointment of Price Waterhouse LLP as the Trust's independent public
accountants for the year ended December 31, 1998. See "ELECTION OF TRUSTEES" and
"RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS.
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TABLE OF CONTENTS
ANNUAL MEETING AND VOTING....................................................3
REORGANIZATION PROPOSAL......................................................4
Overview...................................................................4
Approval and Effectiveness of the Reorganization Merger....................6
Possible Disadvantages.....................................................6
No Change in the Name, Business, Management, Location of
Principal Office or Income Plans of the Trust.............................6
Exchange of Share Certificates and Payment for Fractional
Class A Shares............................................................7
Comparison Of Rights of Shareholders of the Trust and
Shareholders of SFT-Maryland..............................................8
Anti-Takeover Effects....................................................20
Certain Federal Income Tax Consequences of the Reorganization
Merger...................................................................21
Other Tax Consequences....................................................23
Accounting Treatment of Reorganization Merger.............................23
DESCRIPTION OF SFT-MARYLAND SHARES..........................................24
General...................................................................24
New Class A Shares and New Class B Shares.................................24
Authority to Increase or Decrease Authorized Shares.......................25
Restrictions on Transfer..................................................25
Reinvestment and Share Purchase Plan......................................28
CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE MARYLAND DECLARATION OF TRUST AND BYLAWS.......................28
The Board of Trustees.....................................................28
Removal of Trustees.......................................................29
Business Combinations.....................................................29
Control Share Acquisitions................................................29
Anti-Takeover Effects of Maryland Law and the Maryland
Declaration of Trust and Bylaws..........................................30
Board Quorum..............................................................31
Termination of SFT-Maryland...............................................31
Conflicts of Interest.....................................................31
Board of Trustees Recommendation..........................................31
ELECTION OF TRUSTEES........................................................32
Trustees and Nominees.....................................................32
Information Regarding the Board of Trustees and its Committees............35
Board of Trustees and Committee Meetings..................................36
Executive Officers........................................................36
Executive Officers' Compensation..........................................36
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SUMMARY COMPENSATION TABLE..................................................36
Compensation Committee Report on Executive Compensation...................37
Compensation Committee Interlocks and Insider Participation...............37
Trustees' Compensation....................................................37
Certain Relationships and Related Transactions............................39
Performance Graph.........................................................39
Recommendation Regarding the Board Election Proposal......................40
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.....................................................40
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS.................44
Recommendation Regarding Ratification of the Appointment
of Price Waterhouse LLP...................................................44
OTHER MATTERS...............................................................44
No Appraisal or Dissenter's Rights........................................44
Shareholder Proposals for 1999 Annual Meeting.............................45
Solicitation Procedures...................................................45
Other Matters.............................................................45
PROXY.......................................................................46
INDEX TO FINANCIAL STATEMENTS...............................................F-1
Exhibit A Form of Merger Agreement
Exhibit B Form of Maryland Declaration of Trust
Exhibit C Form of Maryland Bylaws
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ANNUAL MEETING AND VOTING
Only holders of record of the Class A Shares and Class B Shares at the
close of business on ______ __, 1998 (the "Record Date") are entitled to receive
notice of and to vote at the Annual Meeting or at any postponement or
adjournment thereof. On the Record Date, the issued and outstanding shares of
the Trust were _________ Class A Shares and ________ Class B Shares. The
presence, either in person or by proxy, of the holders of a majority of the
outstanding Class A Shares and a majority of the Class B Shares on the Record
Date is necessary to constitute a quorum at the Annual Meeting.
Class A Shares and Class B Shares represented by a proxy in the
accompanying form, if such proxy is properly executed and is received by the
Trust prior to voting at the Annual Meeting, will be voted in the manner
specified on the proxy. If no such specification is made, the Class A Shares and
Class B Shares will be voted FOR the proposals as described herein and as
recommended by the Board of Trustees with regard to all other matters in its
discretion. Any Shareholder of the Trust who casts a vote by proxy may revoke it
at any time before it is voted by giving written notice to the Secretary of the
Trust expressly revoking the proxy, by signing and forwarding to the Trust a
later dated proxy, or by attending the Annual Meeting and personally voting the
Class A Shares or Class B Shares owned of record by such Shareholder.
In voting upon any matter which may come before the Annual Meeting,
each Shareholder is entitled to one vote for each Class A Share or Class B Share
registered in the Shareholder's name on the record date. All Shareholders of
both Class A Shares and Class B Shares shall vote together as a single class,
with a majority vote of the outstanding Class A Shares and Class B Shares
required for approval and ratification of each matter except for the
Reorganization Merger which requires the vote of two-thirds of the outstanding
Class A Shares and Class B Shares voting together as a single class.
Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the election inspectors appointed for the meeting and who will
determine whether or not a quorum is present. The election inspectors will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but as unvoted for purposes of determining
the approval of any matter submitted to the Shareholders for a vote. If a broker
indicates on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
The Trust will pay the cost of soliciting proxies from its
Shareholders. In addition to solicitation by mail, certain trustees, officers
and regular employees of the Trust may solicit the return of proxies by
telephone, facsimile, personal interview or otherwise without additional
remuneration. The Trust will also reimburse brokerage firms and other persons
representing the beneficial owners of Class A Shares for their reasonable
expenses in forwarding proxy solicitation material to such beneficial owners in
accordance with the proxy solicitation rules and
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regulations of the Securities and Exchange Commission ("SEC") and the American
Stock Exchange ("AMEX"), on which the Class A Shares are traded under the symbol
"APT."
REORGANIZATION PROPOSAL
Overview
The Board of Trustees believes that it is in the best interest of the
Trust and the Shareholders to change the state of organization of the Trust from
California to Maryland by means of the Reorganization Merger. Maryland law
contains provisions conducive to the operations of a REIT. Many REIT's are
organized under the laws of the State of Maryland and the Board of Trustees
believes that this fact has provided state regulatory authorities and courts in
Maryland with substantial experience in the administration and governance of
REITs. In addition, Maryland law provides clear statutory guidance with respect
to the limited liability of Shareholders and trustees of REITs, providing that
Shareholders and in most circumstances, trustees, are not personally liable for
the obligations of the REIT.
The Reincorporation Merger will be effected through a merger of the
Trust with and into SFT-Maryland, a wholly owned subsidiary of the Trust that
was organized in April 1998 for the purpose of redomiciling the Trust as a
Maryland REIT and acquiring, recapitalizing and continuing the business and
operations of the Trust. Upon consummation of the Reincorporation Merger, the
Trust will cease to exist and SFT-Maryland will continue to operate the business
of the Trust under the name Starwood Financial Trust.
Approval of the Reorganization Merger will also include approval of an
amendment to the Declaration of Trust specifically authorizing the merger of the
Trust with and into another entity upon approval of two-thirds of the
outstanding Class A Shares and Class B Shares voting as a single class. The
amendment to the Declaration of Trust will be effective prior to the
consummation of the Reorganization Merger. If the Reorganization Merger is
approved, the Declaration of Trust will be amended by adding a new section
3.2(x) which reads as follows:
[3.2 . . . The Trustees without any action or consent of the
Shareholders shall have and may exercise at any time and from time to
time the following powers and authorities which may be exercised by
them in their sole judgment and discretion and in such manner and upon
such terms and conditions as they may form time to time deem
appropriate. . . ]
(x) Upon approval by vote or written consent of Shareholders holding
two-thirds of the Class A Shares and Class B Shares voting together as
a single class with each Share of record entitled to one vote per
share, to participate in any reorganization, readjustment,
consolidation, merger, dissolution, sale or purchase of assets, lease
or similar proceedings of any corporation, partnership, business trust
or other organization in which the Trust shall have an interest,
including a merger of the Trust with any other trust or corporation and
in connection
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therewith to delegate discretionary powers to any reorganization,
protective or similar committee and to pay assessments and other
expenses in connection therewith; and
by renumbering the current Section 3.2(x) as Section 3.2(y).
Pursuant to an Agreement and Plan of Merger and Sale of Assets (the
"Merger Agreement"), the outstanding Class A Shares will be converted into New
Class A Shares at the Exchange Ratio and the outstanding Class B Shares will be
converted into New Class B Shares at the Exchange Ratio at the effective time of
the merger (the "Effective Date") and outstanding, unexercised options to
purchase Class A Shares will be exchanged for new options to purchase New Class
A Shares at the Exchange Ratio. Each certificate representing issued and
outstanding Class A Shares and Class B Shares (collectively, "Shares"), will
represent one-sixth as many New Class A Shares and one-sixth as many Class B
Shares, respectively. Options issued and outstanding will represent the right to
purchase one-sixth as many New Class A Shares. The New Class A Shares and New
Class B Shares are referred to collectively as "New Shares."
Fractional New Class A Shares will not be issued as a result of the
Reorganization Merger. Shareholders entitled to receive fractional New Class A
Shares as a consequence of the Reorganization Merger will, instead, receive from
SFT-Maryland a cash payment in United States dollars equal to such fraction
multiplied by the average closing price of the Class A Shares on the AMEX for
the five trading days immediately preceding the Effective Date (adjusted for the
Reorganization Merger). Holders of Class B Shares will receive fractional
shares.
Illustration
On the Effective Date, each Share will be converted into one-sixth of a
New Share. Each Shareholder who owns fewer than six Class A Shares will have its
fractional Class A Shares converted into the right to receive cash as set forth
below in "--Exchange of Share Certificates and Payment for Fractional Class A
Shares." The interest of such Shareholder in the Trust will thereby be
terminated, and such Shareholder will have no right to share in the assets and
future growth of SFT-Maryland as successor to the Trust. Each Shareholder who
owns six or more Class A Shares will be issued New Class A Shares and will have
a right to share in the assets and future growth of SFT-Maryland as successor to
the Trust. Such interest will be represented by one-sixth as many New Class A
Shares as such Shareholder owned before the Reorganization Merger, except that
no fractional New Class A Shares will be issued.
A vote for the Reorganization Merger proposal will include
authorization for the payment of cash in lieu of the issuance of fractional New
Class A Shares. Neither the par value of the Class A Shares or the Class B
Shares nor any distribution rights presently accruing to any of the holders of
the Shares will be affected by the Reorganization Merger.
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The Class A Shares are listed for trading on the AMEX, and after the
Reorganization Merger, the New Class A Shares will continue to be listed on the
AMEX without interruption under the same symbol "APT".
Approval and Effectiveness of the Reorganization Merger
Pursuant to the Amended and Restated Declaration of Trust of the Trust
(the "Declaration of Trust"), the affirmative vote of two-thirds of the
outstanding Class A Shares and Class B Shares, voting as a single class, is
required for approval of the Merger Agreement and the other terms of the
Reorganization Merger. The Reorganization Merger has been approved by the
Trust's Board of Trustees, which unanimously recommends a vote in favor of the
proposal. If approved by the Shareholders, it is anticipated that the
Reorganization Merger will become effective as soon as practicable following
approval by the Shareholders. However, pursuant to the Merger Agreement, the
merger may be abandoned or the Merger Agreement may be amended by the Board of
Trustees (except that the principal terms may not be amended without Shareholder
approval) either before or after Shareholder approval has been obtained and
prior to the Effective Date if, in the opinion of the Board of Trustees of
either the Trust or SFT-Maryland, circumstances arise which make either action
advisable. Shareholders of the Trust do not have any dissenters' rights of
appraisal with respect to the Reorganization Merger.
The discussion set forth below is qualified in its entirety by
reference to the Merger Agreement, the Maryland Declaration of Trust and the
bylaws of SFT-Maryland (the "Maryland Bylaws"), which will be substantially in
the forms attached hereto as Exhibits A, B and C, respectively, and to the
Declaration of Trust and the Trustees' regulations of the Trust ("Trustees
Regulations").
APPROVAL BY SHAREHOLDERS OF THE REORGANIZATION MERGER WILL CONSTITUTE
APPROVAL OF AMENDING THE DECLARATION OF TRUST TO SPECIFICALLY PROVIDE FOR THE
MERGER, THE MERGER AGREEMENT, THE MARYLAND DECLARATION OF TRUST AND THE MARYLAND
BYLAWS.
Possible Disadvantages
Despite the unanimous belief of the Board of Trustees that the
Reorganization Merger is in the best interests of the Trust and its
Shareholders, it should be noted that California and Maryland law differ in
certain respects. Maryland law may not afford shareholders the same substantive
rights as California law. For a comparison of Shareholders' rights and the
powers of management under Maryland and California law, see "--Comparison of
Rights of Shareholders of the Trust and Shareholders of SFT-Maryland."
No Change in the Name, Business, Management, Location of Principal
Office or Income Plans of the Trust
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The Reorganization Merger will effect a change in the legal domicile of
the Trust and other changes of a legal nature, certain of which are described in
this Proxy Statement. The Reorganization Merger will not result in a change in
the name of the Trust. The business, management, fiscal year, location of the
principal office, assets and liabilities of the Trust will not change as a
result of the Reorganization Merger. The individuals listed in "ELECTION OF
TRUSTEES," all current members of the Board of Trustees, will become the
trustees of SFT-Maryland and the current officers of the Trust will become
officers of SFT-Maryland. All employee benefit and share option plans of the
Trust will be continued by SFT-Maryland, and each option or right issued
pursuant to any such plan will be converted into an option or right to purchase
one-sixth as many of the New Class A Shares, at six times the price per share,
upon the same terms, and subject to the same conditions, as set forth in such
plan. Shareholders should note that approval of the Reorganization Merger will
also constitute approval of the assumption of these plans by SFT-Maryland.
Exchange of Share Certificates and Payment for Fractional Class A Shares
The exchange of Shares for New Shares will occur automatically on the
Effective Date without regard to the date certificates representing Shares are
physically surrendered for certificates representing New Shares. The Trust's
transfer agent will exchange certificates. No scrip or fractional certificates
of New Class A Shares will be issued in connection with the Reorganization
Merger. Fractional Class B Shares will be issued. In the event that the number
of New Class A Shares to be issued to a Shareholder includes a fraction,
SFT-Maryland will pay to the Shareholder, in lieu of the issuance of fractional
New Class A Shares, a cash amount in United States dollars which will be equal
to such fraction multiplied by the average closing price of the Class A Shares
on AMEX for the five trading days immediately preceding the Effective Date
(adjusted for the Reorganization Merger). For example, if a Shareholder owns 25
Class A Shares and the average closing price was $30.00, the Shareholder would
receive four New Class A Share and $5.00 in cash (1/6 multiplied by $30.00).
As soon as practicable after the Effective Date, each holder of New
Shares will be mailed transmittal forms for use in forwarding their certificates
for surrender and exchange for certificates representing the number of New
Shares such Shareholders are entitled to receive as a consequence of the
Reorganization Merger. Each holder who surrenders certificates will receive new
certificates representing the number of New Shares to which it is entitled and
any cash payable in lieu of any fractional New Class A Shares. The transmittal
forms will be accompanied by instructions specifying other details of the
exchange.
SHAREHOLDERS SHOULD NOT SEND THEIR CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL
FORM. NO CERTIFICATES SHOULD BE SENT DIRECTLY TO THE TRUST OR SFT-MARYLAND.
After the Effective Date, each certificate representing Shares will,
until surrendered and exchanged as described above, be deemed, for all Trust and
SFT-Maryland purposes, to evidence ownership of the whole number and in the case
of New Class B Shares only, a fraction of, New
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Shares, and the right to receive the amount of cash for any fractional New Class
A Shares, into which the Shares evidenced by such certificate have been
converted, except that the holder of such unexchanged certificates will not be
entitled to receive any dividends or other distributions payable by SFT-Maryland
after the Effective Date, until the certificates representing New Shares have
been surrendered. Such dividends and distributions, if any, will be accumulated,
and at the time of the surrender of the certificates for New Shares, all such
unpaid dividends or distributions will be paid without interest.
SFT-Maryland will pay all service charges incurred in connection with
the exchange of certificates. SFT-Maryland will obtain a new CUSIP number with
respect to the New Class A Shares.
Comparison Of Rights of Shareholders of the Trust and Shareholders of
SFT-Maryland
The Trust is organized as a business trust under the laws of the State
of California, and SFT-Maryland is organized as a REIT under the laws of the
State of Maryland. As a California business trust, the Trust is subject to the
common law of California with respect to business trusts, which is not well
developed. There is no statutory framework governing the Trust in California.
The Trust also is governed by the Declaration of Trust and the Trustees
Regulations. As a Maryland REIT, SFT-Maryland is governed by (i) Title 8 of the
Corporations and Associations Article of the Annotated Code of Maryland, as
amended ("Title 8"), a general statute governing Maryland REITs and dealing with
a wide variety of matters, including duties and liabilities of trustees,
liability of shareholders, extraordinary actions, such as amendments to the
declaration of trust and mergers, the election and removal of trustees, the
powers of a REIT, and rights of shareholders, (ii) the Maryland Declaration of
Trust and (iii) the Maryland Bylaws. The material differences between the
applicable California law and Title 8 and among these various documents are
summarized below. The comparison of certain rights of the Shareholders of the
Trust and the shareholders of SFT-Maryland set forth below does not purport to
be complete and is subject to and qualified in its entirety by reference to the
common law of California, Title 8, the Maryland Declaration of Trust (Exhibit B
hereto) and the Maryland Bylaws (Exhibit C hereto) and also to the Declaration
of Trust and the Trustees' Regulations, copies of which may be obtained from the
Trust by writing to the Trust at 1114 Avenue of the Americas, 27th Floor, New
York, New York, Attention: Corporate Secretary.
The Trust is a common law entity under California law and is not
generally governed by a statutory framework. The California common law is not
well developed and very few shareholder rights are addressed. As a result, the
rights of the Shareholders are governed primarily by the Declaration of Trust
and the Trustees' Regulations. The comparison below describes the California
common law, if any, with respect to the rights discussed.
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<TABLE>
<CAPTION>
CALIFORNIA MARYLAND
<S> <C>
Shareholder Voting Rights
The Declaration of Trust does not provide for Under Title 8, cumulative voting is not
cumulative voting in the election of trustees addressed. The Maryland Declaration of Trust
(which permits holders of less than a majority of does not provide for cumulative voting. As a
the voting securities of a trust to cumulate their result, holders of a majority of the new Shares
votes and elect a trustee or trustees in certain generally would be entitled to elect all of the
situations). As a result, holders of a majority of trustees of SFT-Maryland.
the Shares generally are entitled to elect all of
the Trustees of the Trust.
The Declaration of Trust requires 66-2/3% of Title 8 requires, with certain exceptions, that the
the outstanding Shares voting as a single class holders of two-thirds of all shares entitled to
to approve any termination of the Trust. A vote on the matter must approve mergers,
merger is not considered to be a termination of consolidations, share exchanges, transfers of all
the Trust if the Trust is the surviving entity or or substantially all of the assets of the REIT and
the purpose of the merger is primarily to change dissolution unless the charter provides for a
the Trust's domicile. Two-thirds of the different number not less than a majority. The
outstanding Shares voting as a single class is Maryland Declaration of Trust requires 66-2/3%
also required to approve the sale, transfer or of the outstanding New Shares voting as a single
disposition of substantially all of the Trust's class to approve any termination of SFT-
assets. Maryland. A merger is not considered to be a
termination of SFT-Maryland if
SFT-Maryland is the surviving entity or
the purpose of the merger is primarily
to change SFT-Maryland's
domicile. Two-thirds of the outstanding
New Shares voting as a single class is
also required to approve the sale,
transfer or disposition of
substantially all of SFT-Maryland's assets.
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CALIFORNIA MARYLAND
Generally, voting rights exist under the Generally, voting rights exist under the
Declaration of Trust only in the election and Maryland Declaration of Trust only in the
removal of trustees, termination of the Advisory election and removal of trustees, termination of
Agreement, termination of the Trust, the Advisory Agreement, termination of the
amendments to the Declaration of Trust and Trust, amendments to the Maryland Declaration
certain sales of assets. Termination of the of Trust and certain sales of assets. Termination
Advisory Agreement, termination of the Trust, of the Advisory Agreement, termination of the
and certain asset sales require a two-thirds vote Trust and certain asset sales require a two-thirds
of the outstanding Shares voting as a single vote of the outstanding Shares voting as a single
class. The election and removal of trustees, class. The election and removal of trustees,
most amendments to the Declaration of Trust most amendments to the Maryland Declaration
and all other matters to be voted on, consented of Trust and all other matters to be voted on,
to or ratified by the Shareholders require a consented to or ratified by the Shareholders
majority vote of the outstanding Shares voting require a majority vote of the outstanding Shares
as a single class. Amendments to provisions of voting as a single class. Amendments to
the Declaration of Trust setting forth a provisions of the Declaration of Trust setting
supermajority voting requirement require the forth a supermajority voting requirement require
supermajority vote set forth in such provision to the supermajority vote set forth in such
approve such amendment. provision to approve such amendment.
10
<PAGE>
CALIFORNIA MARYLAND
Pre-emptive Rights
Under the Declaration of Trust, the Trustees are Under the Maryland Declaration of Trust, the
required to issue Class B Shares on a pro rata Trustees are required to issue New Class B
basis to all holders of Class B Shares based on Shares on a pro rata basis to all holders of New
the number of Class B Shares held by each Class B Shares based on the number of New
holder, so that the total number of outstanding Class B Shares held by each holder, so that the
Class B Shares equals one-half of the total total number of outstanding New Class B Shares
number of outstanding Class A Shares. equals one-half of the total number of
outstanding New Class A Shares. If New
Class B Shares have been converted into
Class A Shares, the proportion of New
Class A Shares to New Class B Shares will
be adjusted accordingly.
Conversion Rights
Under the Declaration of Trust, the holders of Under the Maryland Declaration of Trust, the
Class B Shares may convert the Class B Shares holders of New Class B Shares may convert the
into Class A Shares on the basis of one Class A New Class B Shares into New Class A Shares
Share for 49 Class B Shares. on the basis of one New Class A Share for 49
New Class B Shares.
Restrictions on Dividends and Other Distributions
Under the Declaration of Trust, the Trustees Title 8 does not address distributions to
have the right to declare and pay dividends from shareholders. The Maryland Declaration of
any source and at any time, but shall endeavor Trust allows for the payment of dividends in
to pay distributions from net cash, as defined cash, property or other assets, including
therein. Distributions of the proceeds of a securities of the Trust from any source at any
transaction not in the ordinary course of time. There are no restrictions upon the
business are subject to certain restrictions. payment of proceeds of any type of transaction.
The Trustees are encouraged to pay such
distributions and dividends as may be necessary
for the Trust to qualify as a REIT.
Allocations of Distributions
Under the Declaration of Trust, distributions Under the Maryland Declaration of Trust,
shall be distributed 99% to the Class A distributions shall be distributed 99% to the
Shareholders and 1% to the Class B New Class A Shareholders and 1% to the New
Shareholders. These percentages shall be Class B Shareholders. These percentages shall
adjusted upon the conversion of any Class B be adjusted upon the conversion of any New
Shares into Class A Shares. Class B Shares into New Class A Shares.
11
<PAGE>
CALIFORNIA MARYLAND
Dissenting Shareholder's Appraisal Rights
Neither the Declaration of Trust nor the Title 8 does not provide appraisal rights to
Trustees' Regulations provide for appraisal shareholders of a REIT if the REIT's shares are
rights. listed on a national securities exchange, such as
the AMEX, on the record date for determining
those shareholders of the REIT entitled to vote
on the merger. Neither the Maryland
Declaration of Trust nor the Maryland Bylaws
provide for appraisal rights.
Board of Trustees
Under the Declaration of Trust, a minimum of Under the Maryland Declaration of Trust, a
the greater of (i) 33-1/3% of the Trustees and minimum of the greater of (i) 33-1/3% of the
(ii) three members of the Executive Committee Trustees and (ii) three members of the Executive
and the Board of Trustees shall be persons not Committee and the Board of Trustees shall be
affiliated with Starwood Financial Advisors, persons not affiliated with the Advisor or
L.L.C. (the "Advisor") or Starwood Capital Starwood Capital.
Group, L.L.C. (together with its predecessors
"Starwood Capital").
Removal of Trustees
Pursuant to the Declaration of Trust, a trustee Under Title 8, the shareholders of a trust may
may be removed from office for cause by a vote remove any trustee, with or without cause, by
of Shareholders holding a majority of the the affirmative vote of a majority of all the votes
outstanding Class A and Class B Shares entitled entitled to be cast for the election of trustees,
to vote at an election of trustees. A trustee may unless the Maryland Declaration of Trust
also be removed with cause by all of the provides otherwise. Pursuant to the Maryland
remaining trustees. Declaration of Trust, a trustee may be removed
from office with or without cause by a vote of
shareholders holding a majority of the
outstanding New Shares entitled to vote at an
election of trustees voting as a single class. A
trustee may also be removed with cause by all of
the remaining trustees.
12
<PAGE>
CALIFORNIA MARYLAND
Vacancies on the Board of Trustees
The Declaration of Trust and Trustees' Title 8 does not address vacancies. The
Regulations provide that vacancies on the Board Maryland Declaration of Trust and Bylaws
of Trustees may be filled by a majority of the provide that a vacancy on the SFT-Maryland
remaining trustees or by a sole remaining trustee Board of Trustees may be filled by a majority of
or by a majority of the holders of Class A and the remaining trustees or by a sole remaining
Class B Shares voting as a single class. Each trustee or by a majority of the holders of New
trustee so elected shall hold office until his Class A and Class B Shares voting as a single
successor is elected at an annual or a special class. Each trustee so elected shall hold office
meeting of the Shareholders. until his successor is elected at an annual or a
special meeting of the Shareholders.
The Trustees' Regulations also provide that the The Bylaws also provide that the Shareholders
Shareholders may elect a trustee or trustees at may elect a trustee or trustees at any time to fill
any time to fill any vacancy or vacancies not any vacancy or vacancies not filled by the
filled by the trustees. Any such election by trustees. Any such election by written consent
written consent (other than to fill a vacancy (other than to fill a vacancy created by the
created by the removal of a trustee) shall require removal of a trustee) shall require the consent of
the consent of holders a majority of the holders a majority of the outstanding shares
outstanding shares entitled to vote. entitled to vote.
Committees of Board of Trustees
The Declaration of Trust provides that the Board The Maryland Declaration of Trust provides that
of Trustees may designate an executive the Board of Trustees may designate an
committee consisting of at least five members. executive committee consisting of at least five
The Trustees' Regulations provide that the members. The Maryland Bylaws provide that
Board of Trustees may designate other the Board of Trustees may appoint other
committees consisting of two or more trustees. committees composed of two or more trustees
Except as expressly limited by the Declaration and may delegate to such committees any of the
of Trust, such committees may have all the powers of the Board of Trustees, except as
authority and exercise such powers as the Board prohibited by law. Title 8 does not address the
of Trustees may determine. delegation to committees of any of the powers
of the Board of Trustees.
13
<PAGE>
CALIFORNIA MARYLAND
Special Meetings of Shareholders
The Trustees' Regulations provide that a special Title 8 does not address special meetings of
meeting of Shareholders may be called by the Shareholders. The Maryland Bylaws provide
Chairman of the Board or any two trustees, or that a special meeting of Shareholders may be
by the Secretary upon the written request of called by the Chairman of the Board or a
holders of not less than 20% of the Class A majority of the Board of Trustees, or by the
Shares or 20% of the Class B Shares entitled to Secretary upon the written request of holders of
vote at the meeting. not less than 20% of the Class A Shares or 20%
of the Class B Shares entitled to vote at the
meeting.
Actions by Written Consent of Shareholders
The Declaration of Trust and the Trustees' Title 8 does not address actions by written
Regulations provide that, subject to certain consent of Shareholders. The Maryland
notice requirements, any action which is Declaration of Trust provides that any action
required or permitted to be taken at a meeting of that may be taken at a shareholder meeting may
Shareholders, may be taken without a meeting if be taken without a meeting if a consent in
a consent in writing, setting forth the action so writing, setting forth the action so taken, is
taken, is signed by a sufficient proportion of signed by a sufficient proportion of New Class
Class A and Class B Shareholders as would be A and New Class B Shareholders as would be
required for a vote at a meeting. required for a vote at a meeting.
14
<PAGE>
CALIFORNIA MARYLAND
Amendments to Declarations of Trust and Bylaws
The Declaration of Trust may be amended by a Under Title 8, an amendment to a declaration of
majority vote of the Shares, with the Class A trust must be approved by the Board of Trustees
Shareholders and the Class B Shareholders and the holders of two-thirds of the shares
voting together as a single class. However, if entitled to vote on such matter. The Maryland
the provision to be amended sets forth a greater Declaration of Trust provides for amendments
than majority voting requirement, then the by the affirmative vote of the holders of a
percentage set forth in such provision is majority of the shares entitled to vote on the
required to amend the provision. The Trustees matter. However, if the provision to be
may also amend the Declaration of Trust amended sets forth a greater than majority
without the vote or consent of Shareholders if voting requirement, then the percentage set forth
they deem it necessary to (i) conform the in such provision is required to amend the
Declaration of Trust to the requirements of the provision. In addition, the Trustees, by a two-
REIT provisions of the Code or to other thirds vote, may amend the Maryland
applicable federal laws or regulations, Declaration of Trust without the vote or consent
(ii) clarify, supplement, correct, or otherwise of the Shareholders if they deem it necessary to
revise any provision of the Declaration of Trust conform it to the requirements of the REIT
or (iii) effect a change in the domicile of the provisions of the Code.
Trust or to change the form of the Trust to a
corporation through a merger, incorporation, Title 8 does not address the amendment of
sale of assets or similar transaction; provided bylaws. The Maryland Bylaws provide that the
that the Trustees have determined in the case of Maryland Board of Trustees has the exclusive
subclause (iii) that such amendment does not power to adopt, amend or repeal any provision
materially and adversely affect the of the Maryland Bylaws and to make new
Shareholders. However, no amendment may be bylaws.
made which would change any rights with
respect to any outstanding Shares of the Trust
by diminishing or eliminating any voting rights
pertaining thereto, except with the vote or
consent of the holders of two-thirds of the
outstanding class of Shares affected and entitled
to vote thereon. The Trustees' Regulations
provide that the Board shall have the exclusive
power to adopt, alter or repeal any provision of
the Trustees' Regulations and make new
Trustees' Regulations without the consent of the
Shareholders.
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<PAGE>
CALIFORNIA MARYLAND
Limit on Share Ownership
The Declaration of Trust prohibits the Title 8 does not address limits on share
ownership by any person of greater than 9.8% of ownership. The Maryland Declaration of Trust
the Class A Shares or 9.8% of the value of the prohibits the ownership by any person of greater
outstanding Shares, unless that person meets than 9.8% in number of the New Class A Shares
certain requirements or is an underwriter in a or 9.8% of the value of the outstanding Shares,
public offering. unless that person meets certain requirements or
is an underwriter in a public offering.
Certain Business Combinations
Neither the Declaration of Trust nor the Maryland corporate law, which is referenced by
Trustees' Regulations generally restrict business the Maryland Declaration of Trust and
combinations. applicable to SFT-Maryland, restricts certain
"business combinations" (including a merger,
consolidation, share exchange, or, in certain
circumstances, an asset transfer or issuance
or reclassification of equity securities) between a
Maryland REIT and an "Interested Stockholder"
or an affiliate thereof for a period of five years
following the date that the Stockholder became
an "Interested Stockholder." An "Interested
Stockholder" is one who (a) beneficially owns
10% or more of a REIT's voting power after the
date on which the REIT had 100 or more
beneficial owners or (b) is an affiliate or
associate of a REIT and was the beneficial
owner of 10% or more of that REIT's voting
power within the previous 2 years and after the
REIT had 100 or more beneficial owners. These
provisions of Maryland law do not apply,
however, to business combinations that are
approved or exempted by the Board of Trustees
of the REIT prior to the time that the "Interested
Stockholder" becomes an "Interested
Stockholder."
Pursuant to the Maryland Declaration of Trust,
business combinations with Starwood Capital
and/or its affiliates are exempted.
16
<PAGE>
CALIFORNIA MARYLAND
Control Share Acquisitions
The Declaration of Trust and Trustees' Maryland corporate law, which is referenced by
Regulations do not contain provisions governing the Maryland Declaration of Trust and
acquisitions of control shares. applicable to SFT-Maryland, eliminates the
voting rights of "control shares" in certain
circumstances. "Control Shares" are defined
as voting shares of stock which, if
aggregated with all other such shares of
stock previously acquired by the acquiror or
in respect of which the acquiror is able to
exercise or direct the exercise of voting
power (except solely by virtue of a
revocable proxy), would entitle the acquiror
to exercise voting power in electing
trustees within one of the following ranges
of voting power: (a) one-fifth or more but
less than one-third, (b) one-third or more
but less than a majority, or (c) a majority
or more of all voting power. Control shares
do not include shares the acquiring person
is then entitled to vote as a result of
having previously obtained shareholder
approval.
A REIT may exempt certain persons from the
control share acquisition statute by provision
in its charter or bylaws. SFT-Maryland has
included such a provision in the Maryland
Declaration of Trust, exempting Starwood
Capital and its affiliates from such restrictions.
17
<PAGE>
CALIFORNIA MARYLAND
Limitation of Trustees' and Officers' Liability
The Declaration of Trust provides that the Pursuant to Title 8 and the Maryland
trustees and officers of the Trust shall not be Declaration of Trust, a trustee of a REIT is not
personally liable to the Trust or Shareholders personally liable for the obligations of the REIT
except arising from the willful violation of the other than for acts that constitute, bad faith,
Declaration of Trust or Trustees Regulations willful misfeasance, gross negligence or
which violation is arising from the willful reckless disregard of duty. To the extent
violation of the provisions of the Declaration or permitted by Maryland law, the Declaration of
of the Trustees' Regulations which violation is Trust provides that no Trustee or officer of SFT-
materially against the interests of the Maryland shall be liable to SFT-Maryland or to
Shareholders and results in material harm to any Trustee for any act or omission of any other
such interests, or gross negligence in the Trustee, Shareholder, officer, or agent of SFT-
performance of duties. Further the Declaration Maryland, including the Advisor, or be held to
of Trust provides that the Trustees, officers, any personal liability whatsoever in tort,
employees, and agents of the Trust, shall not be contract, or otherwise in connection with the
liable to the Trust or the Shareholders, and the affairs of this Trust except only that arising from
Trust shall indemnify the Trustees, officers, his own willful violation of the provisions of
employees, and agents of the Trust, against any this Declaration or of the Bylaws which
claim or liability by or to any person other than violation is materially against the interests of the
the Trust, in respect of any act or any failure to Shareholders and results in material harm to
act so long as such act or failure to act was such interests, or gross negligence in the
performed in a manner determined in good faith performance of his duties limits of
to be within the scope of the Trustees' authority trustees and officers of SFT-Maryland or to any
and to be in the best interest of the Trust, and so shareholder of SFT-Maryland for money
long as he, she, or it was not guilty of damages, except (a) to the extent such officer or
negligence, misconduct, or a breach of his trustee actually received an improper benefit or
fiduciary obligations in such act or failure to act. profit in money, property or services or (b) to
the extent active and deliberate dishonesty that
was material to the cause of action is established
by a final judgment or adjustication as being
material to the cause of action.
Limitation of Shareholder Liability
No Shareholder shall be subject to any personal Pursuant to Title 8 and the Maryland
liability whatsoever to any person in connection Declaration of Trust, Shareholders of the Trust
with trust estate or the acts, obligations or may not be held liable for the obligations of
affairs of the Trust. SFT-Maryland.
18
<PAGE>
CALIFORNIA MARYLAND
Indemnification of Trustees and Officers
The Declaration of Trust indemnifies the Title 8 permits indemnification of Trustees
Trustees, officers, employees and agents of the unless it is established that (i) a Trustee's act or
Trust, for any act or failure determined in good omission was material and either committed in
faith to be within the scope of the Trustees' bad faith or the result of active and deliberate
authority and to be in the best interest of the dishonesty, (ii) the Trustee received an improper
Trust, and so long as he, she or it was not guilty personal benefit, or (iii) in the case of a criminal
of negligence, misconduct or a breach of proceeding, the Trustee had reason to believe
fiduciary obligations. that the act or omission was unlawful. Title 8
also permits indemnification against judgments,
The Trustees' Regulations provide that the penalties, fines and amounts paid in settlement
Trustees and officers of the Trust are of a proceeding by or in the right of a REIT;
indemnified and held harmless from all liability however, indemnification is prohibited if the
arising from or related to any pending or person seeking indemnification has been found
completed action to the maximum extent liable to the REIT in a proceeding brought by or
permitted by the Declaration of Trust and in the right of the corporation. The Maryland
California law. The Trustees' Regulations Declaration of Trust indemnifies Trustees and
further provide that such indemnification is not officers to the fullest extent permitted under
exclusive of any other rights the agents of the Maryland law.
REIT may have.
The Maryland Bylaws provide that the Trustees
and officers of the Trust are indemnified and
held harmless from all liability arising from or
related to any pending or completed action to
the maximum extent permitted by the Maryland
Declaration of Trust and Maryland law. The
Maryland Bylaws further provide that such
indemnification is not exclusive of any other
rights the agents of the corporation may have.
Indemnification of Shareholders
The Declaration of Trust indemnifies The Maryland Declaration of Trust indemnifies
Shareholders against all liabilities incurred by Shareholders against all liabilities incurred by
virtue of being a Shareholder. virtue of being a Shareholder.
19
<PAGE>
CALIFORNIA MARYLAND
Inspection of Books and Records
Under California law, upon written demand for Title 8 provides a right to inspect and copy the
any purpose reasonably related to the trust's books of account and stock ledger to
shareholder's interest as a Shareholder, any persons who have been shareholders for more
shareholder of a corporation may inspect and than six months and own at least 5% of any
copy the accounting books and records and class of a REIT's outstanding shares. In
minutes of shareholder, board and committee addition, any Shareholder of a REIT has the
proceedings. A Shareholder or Shareholders (a) right to inspect the bylaws, minutes of
who hold at least 5% of the outstanding voting shareholders meetings, annual statements of
Shares or (b) who hold at least 1% of those affairs and voting trust agreements and to
voting Shares and have filed a Schedule 14A request that the REIT provide a sworn statement
with the Securities and Exchange Commission showing all stock and securities issued and all
shall have an absolute right to inspect and copy consideration received by the REIT within the
the record of Shareholders. Although California preceding twelve months.
law does not address this issue in regard to
trusts, the Declaration of Trust extends the same
rights to the Trust's Shareholders as are
available to those of a corporation under
California law.
Interested Trustee Transactions
Pursuant to the Declaration of Trust, certain Title 8 does not address interested trustee
contracts or transactions in which one or more transactions. Pursuant to the Maryland
of the Trustees has an interest are not void or Declaration of Trust, certain contracts or
voidable solely because of such interest if the transactions in which one or more of the
contract or transaction (a) is approved by a Trustees has an interest are not void or voidable
majority of the disinterested trustees or by a solely because of such interest if the contract or
majority of votes cast by the disinterested transaction (a) is approved by a majority of the
shareholders, in either case after full disclosure disinterested trustees or by a majority of votes
of the material facts, or (b) is fair and reasonable cast by the disinterested shareholders, in either
to the Trust. case after full disclosure of the material facts, or
(b) is fair and reasonable to SFT-Maryland.
</TABLE>
Anti-Takeover Effects
The Reorganization Merger is not intended to be an anti-takeover device
and is not expected to have a significant effect on the ownership percentages of
the Trust's current Shareholders.
20
<PAGE>
Certain Federal Income Tax Consequences of the Reorganization Merger
The following summary of certain federal income tax consequences of the
Reorganization Merger is for general information only, and does not purport to
address all aspects of such exchange and shall not be considered as tax or
investment advice. The following summary discussion is based upon the Code,
applicable Treasury regulations thereunder, and interpretations of the Code and
such regulations by the courts and the Internal Revenue Service ("IRS"), all as
they are in effect and exist as of the date hereof. There can be no assurance
that future legislative, judicial and administrative changes or interpretations
will not adversely affect the accuracy of statements and conclusions set forth
herein. Any such changes or interpretations could be applied retroactively and,
accordingly, could cause the tax consequence to vary substantially from the
consequences described below. No ruling from the IRS with respect to the matters
discussed herein has been requested, and there is no assurance that the IRS
would agree with the conclusions set forth in this discussion.
This summary does not discuss the Federal income tax consequences of
the Reorganization Merger that may be relevant to particular Shareholders in
light of their personal circumstances or to certain types of Shareholders (such
as, banks, insurance companies, regulated investment, personal holding
companies, foreign entities, nonresident aliens individuals, broker-dealers,
tax-exempt entities and persons who do not hold the Shares as a capital asset)
who may be subject to special treatment under the Federal income tax laws. In
addition, this summary does not discuss the Federal income tax consequences of
the Reorganization Merger that may be relevant with respect to Shares acquired
as compensation, including Shares acquired upon the exercise of options. This
summary also does not address any tax consequences under state, local or foreign
laws.
SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF PARTICIPATION IN THE REORGANIZATION
MERGER, INCLUDING THE APPLICABILITY OF ANY STATE, LOCAL OR FOREIGN TAX LAWS,
CHANGES IN APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION.
The Reorganization Merger will constitute a "reorganization" within the
meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as amended
(the "Code"). Accordingly, no gain or loss will be recognized by the holders of
Class A Shares or Class B Shares as a result of the Reorganization Merger,
except to the extent that cash is received by such Shareholders with respect to
fractional shares of New Class A Shares, and no gain or loss will be recognized
by the Trust or SFT-Maryland. The aggregate tax basis for Federal income tax
purposes of New Class A Shares and New Class B Shares received by a Shareholder
(including any fractional shares deemed received) will be equal to the aggregate
tax basis of Class A Shares and Class B Shares exchanged by such Shareholder. If
a Shareholder acquired its Class A Shares or Class B Shares in different lots at
different prices, the basis of the New Class A Shares and New Class B Shares
received will be calculated separately with respect to each lot of Class A
Shares and Class B Shares exchanged for New Class A Shares and New Class B
Shares, provided the Shareholder
21
<PAGE>
takes adequate steps to identify New Class A Shares and New Class B Shares
received with respect to the different lots of Class A Shares and Class B Shares
which are exchanged.
Each Shareholder's holding period with respect to New Class A Shares or
New Class B Shares, as applicable, will include the period during which such
holder held Class A Shares or Class B Shares, as applicable, provided the Class
A Shares or Class B Shares, as applicable, were held by such holder as a capital
asset at the Effective Date.
Assuming that the payment in cash in lieu of fractional New Class A
Shares is solely for the purpose of avoiding the expense and inconvenience to
the Trust of issuing fractional shares and does not represent separately
bargained-for consideration, a Shareholder who receives a payment of cash with
respect to a fractional New Class A Share will be treated as if a fractional New
Class A Share was issued to such Shareholder and redeemed for cash in a
distribution in redemption of such fractional share. The Federal income tax
consequences of such deemed redemption will be governed by Section 302 of the
Code.
Upon the hypothetical redemption of such fractional New Class A Shares,
a Shareholder will realize capital gain or loss (assuming the Class A Shares
were held as a capital asset) in an amount equal to the difference between the
cash received and such Shareholder's tax basis in its fractional Share only if
the hypothetical redemption would qualify as a sale or exchange under one of the
tests of Section 302(b) of the Code. A redemption of such Shareholder's New
Class A Shares would qualify as a sale or exchange under Section 302(b) of the
Code if: (i) under Section 302(b)(1) of the Code, such redemption is "not
essentially equivalent to a dividend" with respect to such Shareholder; (ii)
under Section 302(b)(2) of the Code, (a) such Shareholder's percentage ownership
of New Class A Shares and New Class B Shares outstanding after the redemption is
less than 80% of its percentage ownership of Class A Shares and Class B Shares
outstanding before the redemption, and (b) its percentage ownership of the
voting stock of the SFT-Maryland outstanding after the Reorganization Merger is
less than 80% of its percentage ownership of the voting stock outstanding
immediately prior to the redemption; or (iii) under Section 302(b)(3) of the
Code, such Shareholder does not own any Shares of SFT-Maryland after the
redemption. The IRS has publicly ruled that a redemption of stock held by a
holder of a minimal interest in a publicly-held corporation would be considered
"not essentially equivalent to a dividend" for purposes of Section 302(b)(1) of
the Code if such Shareholder exercised no control over the affairs and such
Shareholder's percentage interest in the corporation were reduced by any amount
as a result of such redemption. Under judicial decisions and IRS published
rulings, the application of these tests takes into account all transactions
which are part of a single overall plan. Thus, a Shareholder's dispositions or
acquisitions of Class A Shares, New Class A Shares, Class B Shares or New Class
B Shares that occur contemporaneously with an exchange pursuant to the
Reorganization Merger and as part of a single plan with such exchange should be
taken into account in applying the Section 302(b) of the Code tests to that
Shareholder.
For purposes of the tests of Section 302(b) of the Code, it is
necessary to take into account not only the Class A Shares, New Class A Shares,
Class B Shares and New Class B Shares that a Shareholder actually owns, but also
the Class A Shares, New Class A Shares, Class
22
<PAGE>
B Shares and New Class B Shares that such Shareholder is deemed to
constructively own under Section 318 of the Code. Generally, under Section 318
of the Code, a Shareholder is deemed constructively to own stock actually owned,
and in some cases constructively owned, by certain related individuals and
entities (including corporations in which the Shareholder has a major interest,
partnership, trusts and estates) or which such Shareholder or such related
individuals or entities may acquire by exercise of an option, whether or not
presently exercisable.
If the exchange of Class A Shares for New Class A Shares does not
qualify as a sale or exchange under Section 302 of the Code as to a particular
Shareholder, the cash payment will constitute a distribution to such Shareholder
under Section 301 of the Code and will be taxable as ordinary income to such
Shareholder to the extent of the Trust's current and accumulated earnings and
profits.
Other Tax Consequences
The Trust and its Shareholders may be subject to state or local
taxation in various state or local jurisdictions, including those in which it or
they transact business or reside. The state and local tax treatment of the Trust
and its Shareholders may not conform to the federal income tax consequences
discussed above. Consequently, Shareholders should consult their own tax
advisors regarding the effect of state and local tax laws on their investment in
the Trust.
Accounting Treatment of Reorganization Merger
For financial accounting purposes, the Reorganization Merger will be
treated as a transfer of assets and liabilities between entities which are under
common control. Accordingly, the assets and liabilities transferred from the
Trust to SFT-Maryland will be reflected at their predecessor basis and no gain
or loss will be recognized.
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<PAGE>
DESCRIPTION OF SFT-MARYLAND SHARES
The following summary of the terms of the Class A Shares of
SFT-Maryland is qualified in its entirety by reference to the Title 8 and to the
Maryland Declaration of Trust and Bylaws, copies of which are exhibits hereto.
General
SFT-Maryland is authorized to issue 90,000,000 New Shares of which
60,000,000 have been designated New Class A Shares and 30,000,000 have been
designated New Class B Shares. The Board of Trustees is authorized to increase
or decrease the authorized aggregate number of New Shares and the number of
authorized shares in any class or series without shareholder approval. Upon
completion of the Reorganization Merger ________ New Class A Shares will be
issued and outstanding and ________ New Class B Shares will be issued and
outstanding.
New Class A Shares and New Class B Shares
All of the New Shares issued in exchange for Shares will be duly
authorized, fully paid and nonassessable. The New Class A Shares are entitled to
a 99% equity interest and a 67% voting interest in SFT-Maryland. The New Class B
Shares are entitled to a 1% equity interest and a 33% voting interest in
SFT-Maryland. Subject to the preferential rights of any other class or series of
beneficial interest and to the provisions of the Maryland Declaration of Trust
regarding the restrictions on transfer of shares, holders of New Class A and New
Class B Shares are entitled to receive dividends on such shares if, as and when
authorized and declared by the Board of Trustees out of assets legally available
therefor and to share ratably in the assets of SFT-Maryland legally available
for distribution to its shareholders in the event of its liquidation,
dissolution or winding up after payment of or adequate provision for all known
debts and liabilities of SFT-Maryland with 99% of such dividend or distribution
going to the holders of New Class A Shares and 1% going to the holders of New
Class B Shares.
Subject to the provisions of the Maryland Declaration of Trust
regarding the restrictions on transfer of shares, each outstanding New Share
entities the holder to one vote on all matters submitted to a vote of
shareholders, including the election of trustees. New Class A Shares generally
vote together with New Class B Shares as a single class. There is no cumulative
voting in the election of trustees, which means that the holders of a majority
of the outstanding New Shares, voting as a single class can elect all of the
trustees then standing for election and the holders of the remaining shares will
not be able to elect any trustees.
Except as set forth in the next two sentences, holders of New Shares
have no preference, conversion, exchange, sinking fund, redemption or appraisal
rights and have no preemptive rights to subscribe for any securities of
SFT-Maryland. The New Class B Shares are convertible into New Class A Shares at
the option of the holder at a rate of 49 New Class B Shares for one New Class A
Share. In addition, SFT-Maryland is required pursuant to the Maryland
Declaration of Trust to issue one New Class B Share for each two New Class A
Shares that are issued,
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subject to adjustment in the event New Class B Shares are exchanged for New
Class A Shares. The New Class B Shares are issued to the Class B Shareholders
for par on a pro rata basis.
Under Title 8, a Maryland REIT generally cannot amend its declaration
of trust or merge unless approved by the affirmative vote of shareholders
holding at least two thirds of the shares entitled to vote on the matter unless
a lesser percentage (but not less than a majority of all of the votes entitled
to be cast on the matter) is set forth in the REIT's declaration of trust. The
Maryland Declaration of Trust provides that the affirmative vote of a majority
of all votes entitled to be cast may approve amendments to the Maryland
Declaration of Trust except for amendments to provisions that set forth a
requirement of a greater percentage vote of the shareholders which may only be
amended by such greater percentage. The Maryland Declaration of Trust also
requires the vote of a majority of the New Shares for the election or removal of
trustees and the vote of two-thirds of the New Shares to approve the termination
of SFT-Maryland's advisory agreement, a termination of SFT-Maryland (subject to
certain exceptions) and a sale of all or substantially all of its assets.
Subject to certain exceptions, Title 8 requires that holders of two-thirds of
all shares entitled to vote on the matter must approve mergers, consolidations
and share exchanges.
Authority to Increase or Decrease Authorized Shares
The Maryland Declaration of Trust authorizes the Board of Trustees,
without shareholder consent, to increase or decrease the aggregate number of New
Shares or the number of shares of any class or series SFT-Maryland is authorized
to issue, to reclassify any unissued shares and to issue New Shares or other
shares of beneficial interest which may be issued in other classes or series of
classes of shares, including preferred shares and to establish the number of
shares in each class or series and to set the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemption for each such
class or series.
Prior to issuance of shares of each series, the Board of Trustees is
required by Title 8 and the Maryland Declaration of Trust to set, subject to the
provisions of the Maryland Declaration of Trust regarding the restrictions on
transfer of shares, the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each such series. Thus,
the Board of Trustees may authorize the issuance of additional series and shares
of beneficial interest, and the terms and conditions of such shares with rights
that could have the effect of delaying, deferring or preventing a transaction or
a change in control of SFT-Maryland that might involve a premium price for
holders of New Shares or otherwise be in their best interest.
Restrictions on Transfer
The Maryland Declaration of Trust includes certain restrictions on the
ownership and transfer of New Shares which are intended to assist SFT-Maryland
in complying with the REIT provisions of the Code. The Maryland Declaration of
Trust provides that, subject to certain
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specified exceptions, (i) no person or entity (except for certain qualified
pension plans) may own, or be deemed to own by virtue of the applicable
constructive ownership provisions of the Code, more than 9.8% in number of New
Class A Shares or 9.8% by value of the outstanding New Shares (the "Ownership
Limit"). The constructive ownership rules of the Code are complex, and may cause
New Shares owned actually or constructively by a group of related individuals
and/or entities to be owned constructively by one individual or entity. As a
result, the acquisition of less than 9.8% of the New Shares (or the acquisition
of an interest in an entity that owns, actually or constructively, New Shares)
by an individual or entity could, nevertheless cause that individual, or another
individual or entity, to own constructively in excess of 9.8% of the outstanding
value of New Shares and thus subject such New Shares to the Ownership Limit. The
Board of Trustees may, but in no event will be required to, waive the Ownership
Limit with respect to a particular Shareholder if it determines that such
ownership will not jeopardize SFT-Maryland's status as a REIT. As a condition to
such waiver, the Board of Trustees may require opinions of counsel satisfactory
to it and/or undertakings or representations from the applicant with respect to
preserving the REIT status of SFT-Maryland.
The Maryland Declaration of Trust also prohibits (a) a person from
actually or constructively owning New Shares that would result in SFT-Maryland
being "closely held" under Section 856(h) of the Code or otherwise cause
SFT-Maryland to fail to qualify as a REIT and (b) any person from transferring
New Shares if such transfer would result in New Shares being owned by fewer than
100 persons. Any person who acquires or attempts or intends to acquire New
Shares that will or may violate any of the foregoing restrictions on
transferability and ownership is required to give notice immediately to
SFT-Maryland and provide SFT-Maryland with such other information as
SFT-Maryland may request in order to determine the effect of such transfer on
SFT-Maryland's status as a REIT. The foregoing restrictions on transferability
and ownership will not apply if the Board determines that it is no longer in the
best interest of SFT-Maryland to attempt to qualify, or to continue to qualify,
as a REIT.
The Maryland Declaration of Trust provides that, if any purported
transfer of New Shares or any other event would otherwise result in any person
violating the Ownership Limit or the Maryland Declaration of Trust, then any
such purported transfer will be void ab initio and of no force or effect with
respect to the purported transferee (the "Prohibited Transferee") as to that
number of New Shares in excess of the Ownership Limit and the Prohibited
Transferee shall acquire no right or interest (or, in the case of any event
other than a purported transfer, the person or entity holding record title to
any such New Shares in excess of the Ownership Limit as the case may be (the
"Prohibited Owner") shall cease to own any right or interest) in such New
Shares. Any such New Shares described above will be transferred automatically,
by operation of law, to a trust (the "Charitable Trust"), the beneficiary of
which will be a qualified charitable organization selected by SFT-Maryland (the
"Beneficiary"). Such automatic transfer shall be deemed to be effective as of
the close of business on the business day prior to the date of such violative
transfer. Within sixty days after the later of (a) the date of the transfer
which resulted in the violation and (b) the date the Board of Trustees
determines in good faith that the transfer which resulted in the violation
occurred, the trustee of the Charitable Trust (who shall be designated by
SFT-Maryland and be unaffiliated with SFT-Maryland and any Prohibited
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Transferee or Prohibited Owner, the "Charitable Trustee") will be required to
sell such shares to a person or entity who could own such shares without
violating the Ownership Limit and distribute to the Prohibited Transferee an
amount equal to the lesser of the price paid by the Prohibited Transferee for
such New Shares or the sales proceeds received by the Charitable Trust for such
New Shares. In the case of any New Shares in excess of the Ownership Limit
resulting from an event other than a transfer, or from a transfer for no
consideration (such as a gift), the Charitable Trustee will be required to sell
such New Shares to a qualified person or entity and distribute to the Prohibited
Owner an amount equal to the lesser of the fair market value of such New Shares
as of the date of such event or the sales proceeds received by the Charitable
Trustee for such New Shares. In either case, any proceeds in excess of the
amount distributable to the Prohibited Transferee or Prohibited Owner, as
applicable, will be distributed to the Beneficiary. Prior to a sale of any New
Shares in excess of the Ownership Limit by the Charitable Trust, the Charitable
Trustee will be entitled to receive, in trust for the Beneficiary, all dividends
and other distributions paid by SFT-Maryland with respect to such New Shares,
and also will be entitled to exercise all voting rights with respect to such New
Shares and also will be entitled to exercise all voting rights with respect to
such New Shares. Subject to Maryland law, effective as of the date that such New
Shares have been transferred to the Charitable Trust, the Charitable Trustee
shall have the authority (at the Charitable Trustee's sole discretion) to vote
such Shares. Any vote taken by a Prohibited Owner prior to the discovery by
SFT-Maryland that such Shares were held in trust shall be rescinded ab initio.
Any dividend or other distribution paid to the Prohibited Transferee or
Prohibited Owner (prior to the discovery by SFT-Maryland that such New Shares
had been automatically transferred to the Charitable Trust as described above)
will be required to be repaid to the Charitable Trustee upon demand for
distribution to the Beneficiary. In the event that the transfer to SFT-Maryland
as described above is not automatically effective (for any reason) to prevent
violation of the Ownership Limit, then the Maryland Declaration of Trust
provides that the transfer of the New Shares will be void.
In addition, New Shares held in the Charitable Trust shall be deemed to
have been offered for sale to SFT-Maryland, or its designee, at a price per
Share equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the Charitable Trust (or, in the case of a devise
or gift), the market price at the time of such devise or gift, and (ii) the
market price on the date SFT-Maryland, or its designee, accepts such offer.
SFT-Maryland shall have the right to accept such offer until 90 days after the
later of (a) the date of the transfer which resulted in the violation and (b)
the date the Board of Trustees determines in good faith that the transfer which
resulted in the violation occurred, if SFT-Maryland did not receive the required
notice, but in no event later than the date that the Charitable Trustee has sold
the New Shares held in the Charitable Trust. Upon such sale to SFT-Maryland, the
interest of the Beneficiary in the shares sold shall terminate and the
Charitable Trustee shall distribute the net proceeds of the sale to the
Prohibited Transferee or Prohibited Owner, as the case may be.
All certificates representing New Shares will bear a legend referring
to the restrictions described above.
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Reinvestment and Share Purchase Plan
SFT-Maryland may adopt a Distribution Reinvestment and Share Purchase
Plan that would allow shareholders to automatically reinvest cash distributions
on their outstanding Class A Shares to purchase additional shares of Class A
Shares at a discounted price and without the payment of any brokerage commission
or service charge. Shareholders would also have the option of investing limited
additional amounts by making cash payments. No decision has been made yet by
SFT-Maryland whether or not to adopt such a plan and there can be no assurance
that such a plan will ever be adopted by SFT-Maryland.
CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE MARYLAND DECLARATION OF TRUST AND BYLAWS
The following summary of certain provisions of Maryland law and of the
Maryland Declaration of Trust and Bylaws does not purport to be complete and is
subject to and qualified in its entirety by reference to Maryland law and to the
Maryland Declaration of Trust and Bylaws, copies of which are exhibits hereto.
The Board of Trustees
The Maryland Declaration of Trust provides that the number of trustees
of the Trust shall be eight and that number may be increased or decreased by the
Board of Trustees or by the Shareholders; provided that the number of trustees
shall never be less than seven, nor more than 15. Any vacancy will be filled, at
any regular meeting or at any special meeting called for that purpose, by a
majority of the remaining trustees or by the affirmative vote of a majority of
the voting shares.
The Board of Trustees is divided into two approximately equal classes.
After an interim arrangement, trustees in each class will serve for two years
with only one of the two classes being elected each year. The Class I and Class
II Trustees were initially elected at the 1997 Annual Meeting of Shareholders of
the Trust for terms of one year and two years, respectively. Class I Trustees
elected at the 1997 Annual Meeting will hold office until the 1998 Annual
Meeting of Shareholders of the Trust and, if re-elected at such meeting will be
elected as Class I Trustees of SFT-Maryland to serve until the 2000 Annual
Meeting of Shareholders of SFT-Maryland; and Class II Trustees elected at the
1997 Annual Meeting of the Trust and the formation of SFT-Maryland will hold
office until the 1999 Annual Meeting of Shareholders of SFT-Maryland. At each
Annual Meeting of Shareholders of SFT-Maryland commencing with the 1999 Annual
Meeting of Shareholders, Trustees elected to succeed those in the class whose
terms then expire will be elected for two-year terms, so that the term of one
class of Trustees expires each year. Thus, Shareholders will elect approximately
one-half of the Trustees at each Annual Meeting of Shareholders and each Trustee
will serve until a successor is duly elected and qualified or until his earlier
death, resignation or removal.
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Removal of Trustees
The Maryland Declaration of Trust provides that a trustee may be
removed by the Trustees only for cause (as defined in the Maryland Declaration
of Trust) and with or without cause by the affirmative vote of at least a
majority of the Shares.
Business Combinations
Under Maryland law, certain "business combinations" (including a
merger, consolidation, share exchange or, in certain circumstances, an asset
transfer or issuance or reclassification of equity securities) between a
Maryland REIT and any person who beneficially owns ten percent or more of the
voting power of the REIT's shares or an affiliate of the REIT who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of ten percent or more of the voting power of the then-outstanding voting
shares of the REIT (an "Interested Stockholder") or an affiliate of such an
Interested Stockholder are prohibited for five years after the most recent date
on which the Interested Stockholder becomes an Interested Stockholder.
Thereafter, any such business combination must be recommended by the Board of
Trustees of such REIT and approved by the affirmative vote of at least (a) 80%
of the votes entitled to be cast by holders of outstanding voting shares of the
REIT and (b) two-thirds of the votes entitled to be cast by holders of shares of
the REIT other than shares held by the Interested Shareholder with whom (or with
whose affiliate) the business combination is to be effected, unless, among other
conditions, the REIT's shareholders receive a minimum price (as defined under
Maryland law) for their shares and the consideration is received in cash or in
the same form as previously paid by the Interested Shareholder for its shares.
These provisions of Maryland law do not apply, however, to business combinations
that are approved or exempted by the Board of Trustees of the REIT prior to the
time that the Interested Shareholder becomes an Interested Shareholder. Certain
affiliates of Starwood Capital will beneficially own more than ten percent of
SFT-Maryland's voting shares upon consummation of the Reorganization Merger and
would, therefore, be subject to the business combination provision of Maryland
law. However, pursuant to the statute, SFT-Maryland has exempted any business
combinations involving Starwood Capital and its affiliates and, consequently,
the five-year prohibition and the super-majority vote requirements will not
apply to business combinations between any of them and SFT-Maryland. As a
result, Starwood Capital and its affiliates may be able to enter into business
combinations with SFT-Maryland that may not be in the best interest of its
shareholders without compliance by SFT-Maryland with the super-majority vote
requirements and the other provisions of the statute.
Control Share Acquisitions
Maryland law provides that "control shares" of a Maryland REIT acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares owned by the acquiror, by officers or by trustees who are
employees of the REIT. "Control Shares" are voting shares which, if aggregated
with all other such shares previously acquired by the acquiror or in respect of
which
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the acquiror is able to exercise or direct the exercise of voting power (except
solely by virtue of a revocable proxy), would entitle the acquiror to exercise
voting power in electing trustees within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third, (ii) one-third or more but
less than a majority, or (iii) a majority or more of all voting power. Control
shares do not include shares the acquiring person is then entitled to vote as a
result of having previously obtained shareholder approval. A "control share
acquisition" means the acquisition of control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the Board of Trustees of the REIT to call a special
meeting of shareholders to be held within 50 days of demand to consider the
voting rights of the shares. If no request for a meeting is made, the REIT may
itself present the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then subject to certain conditions and limitations, the REIT may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of shareholders at
which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a shareholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote, all
other shareholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to shares
acquired in a merger, consolidation or share exchange if the REIT is a party to
the transaction or (b) to acquisitions approved or exempted by the charter or
bylaws of the REIT. The Bylaws contain a provision exempting Starwood Capital
and its affiliates from the control share acquisition statute.
Anti-Takeover Effects of Maryland Law and the Maryland Declaration of Trust and
Bylaws
The ability of the Board of Trustees to authorize and issue additional
shares of beneficial interest and to set the terms and preferences thereof, a
classified Board of Trustees, requiring approval of shareholders holding
two-thirds of the voting shares prior to certain asset transfers and prior to a
termination of SFT-Maryland's advisory agreement may be characterized as
"anti-takeover measures" and could have the effect of delaying, discouraging or
preventing a change in control of SFT-Maryland even if shareholders holding a
majority of the voting shares believed such change of control was in their best
interests.
In addition, the control share acquisition provisions of Title 8, and
the provisions of the Maryland Declaration of Trust on removal of trustees and
the advance notice provisions of the
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Maryland Bylaws described below could delay, defer or prevent a transaction or a
change in control of SFT-Maryland that might involve a premium price for holders
of New Shares or otherwise be in their best interest.
The Maryland Bylaws provide that (a) with respect to an annual meeting
of shareholders, nominations of persons for election to the Board of Trustees
and the proposal of business to be considered by shareholders may be made only
(i) pursuant to SFT-Maryland's notice of the meeting, (ii) by the Board of
Trustees or (iii) by a shareholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Maryland Bylaws
and (b) with respect to special meetings of shareholders, only the business
specified in SFT-Maryland's notice of meeting may be brought before the meeting
of shareholders and nominations of persons for election to the Board of Trustees
may be made only (i) pursuant to SFT-Maryland's notice of the meeting, (ii) by
the Board of Trustees or (iii) provided that the Board of Trustees has
determined that trustees shall be elected at such meeting, by a shareholder who
is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Maryland Bylaws.
Board Quorum
A majority of the total number of trustees constitutes a quorum for the
transaction of business under the Maryland Declaration of Trust.
Termination of SFT-Maryland
The termination of SFT-Maryland must be approved at a special
shareholder meeting by the affirmative vote of the holders of not less than 66
2/3% of all of the votes entitled to be cast on the matter. A merger of
SFT-Maryland with and into another entity is not a termination of SFT-Maryland
if SFT-Maryland is the surviving entity or if the primary purpose of the merger
is to change the domicile of SFT-Maryland. In addition, a change of SFT-Maryland
from a business trust to a corporation is not a termination.
Conflicts of Interest
The Maryland Declaration of Trust provides that no trustee will be
prohibited from voting or taking any action as a trustee because of any actual
or apparent conflict of interest between the trustee and the Trust.
Board of Trustees Recommendation
The Board of Trustees recommends that you vote FOR the Reorganization Merger.
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ELECTION OF TRUSTEES
Four Class I Trustees are to be elected at the Annual Meeting to hold
office until the 2000 Annual Meeting of Shareholders of SFT-Maryland and until
their successors are elected and qualified. These nominees, as well as the
Trustees of the Trust whose terms are not expiring at this Annual Meeting, will
continue as Trustees of SFT-Maryland after the Reorganization Merger.
Trustees and Nominees
The persons named as proxy holders in the accompanying proxy card have
advised the Trust that they will vote the Shares represented by the proxies they
hold in favor of the election of the four nominees named below as Trustees of
the Board, unless and except to the extent that authority to vote for one or
more nominees is withheld in the proxies. In no case will proxies be voted for a
greater number of persons than the number of nominees for election to the Board.
All of the nominees for Trustee are presently Trustees who have been nominated
for re-election. Their current terms of office will expire on the date of the
Annual Meeting and when their successors are elected and qualified. If a nominee
becomes unavailable to serve as a Trustee for any reason, the Shares represented
by any proxy will be voted for the person, if any, who may be designated by the
Board of Trustees to replace such nominee. However, the Board of Trustees has no
reason to believe that any nominee will be unavailable to serve as a Trustee if
elected.
Each of B Holdings, L.L.C. ("BLLC"), the sole holder of Class B Shares
and SAHI Partners, Starwood Mezzanine Investors, L.P. ("Mezzanine") and SOFI-IV
SMT Holdings, L.L.C. ("SOFI IV"), who own an aggregate of 312,035,972 Class A
Shares or 99% of the outstanding Class A Shares, have agreed to vote all Shares
held by each for the election of Ms. Josephs as a Trustee at the Annual Meeting.
Pursuant to a Shareholders Agreement (the "Shareholders Agreement") among the
Trust, BLLC, SAHI Partners, Mezzanine and SOFI IV during any period in which (x)
the Class B Shares remain controlled by Starwood Capital or by an entity under
common control with Starwood Capital and (y) the advisory agreement ("Advisory
Agreement") between the Trust and the Advisor has not been terminated by the
Advisor or terminated for cause by the Trust, the Trust shall use its best
efforts to cause five nominees designated by Starwood Capital or by the parties
who control Starwood Capital to be elected to the Board of Trustees and to cause
such persons to be included as the management slate of nominees to the Board of
Trustees. Further, during such period the Trust has agreed to use its best
efforts to cause such nominees or Trustees to be replaced from time to time,
with or without cause, with new persons designated by Starwood Capital or the
parties who control Starwood Capital at the request of Starwood Capital or
persons who control Starwood Capital. Finally, each of Messrs. Sugarman,
Dishner, Eilian and Kleeman has agreed in writing to resign as a Trustee at the
request of Starwood Capital or persons who control Starwood Capital. The
Shareholders Agreement will be assumed by SFT-Maryland in the Reorganization
Merger. No other arrangement or understanding exists between any nominee and any
other person or persons pursuant to which any nominee was or is to be selected
as a Trustee or nominee. None of the nominees has any family relationship
between them nor with any Trustee or executive officer of
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the Trust. However, Messrs. Dishner, Eilian, Kleeman, Silvey and Sugarman are
employed by an entity controlled by Mr. Sternlicht.
The following table sets forth the name, age and the position(s) with
the Trust and to be held with SFT-Maryland (if any) currently held by each
person nominated as a Trustee:
Name Age Title
---- --- -----
Jeffrey G. Dishner(1)................. 33 Trustee
Jonathan D. Eilian.................... 30 Trustee
Robin Josephs(1)(2)................... 38 Trustee
Merrick R. Kleeman.................... 34 Trustee
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Jeffrey G. Dishner was elected a Trustee of the Trust in March 1998 and
will become a Trustee of SFT-Maryland at the Effective Time. Mr. Dishner has
been a Senior Vice President of Starwood Capital since September 1994. From 1993
through September 1994, Mr. Dishner was employed by the commercial mortgage
finance group of J.P. Morgan & Co. Mr. Dishner obtained his M.B.A. during 1991
and 1992 and was employed by JMB Realty Corporation from 1987 through 1991. Mr.
Dishner received a B.A. degree from the Wharton School of Finance at the
University of Pennsylvania and an M.B.A. from the Amos Tuck School at Dartmouth
College.
Jonathan D. Eilian was elected a Trustee of the Trust in March 1997 and
will become a Trustee of SFT-Maryland at the Effective Time. Mr. Eilian has been
a Managing Director or executive officer of Starwood Capital since its formation
in September 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.
Robin Josephs was elected a Trustee of the Trust in March 1998 and will
become a Trustee of the Trust at the Effective Time. Ms. Josephs currently
advises real estate ventures. Ms. Josephs served as a Vice President at Goldman
Sachs from 1986 to 1996 in various capacities. Prior to working at Goldman, Ms.
Josephs served as an analyst for Booz Allen & Hamilton in New York from 1982 to
1984. Ms. Josephs received a B.S.E. degree from the Wharton School at the
University of Pennsylvania in 1982 and an M.B.A. from Columbia University in
1986.
Merrick R. Kleeman was elected a Trustee of the Trust in March 1998 and
will become a Trustee of SFT-Maryland at the Effective Time. Mr. Kleeman is a
Managing Director of Starwood Capital. Prior to joining Starwood Capital in
August 1992, Mr. Kleeman was
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employed by the investment banking division of Merrill Lynch and by Coastal
Management and Consultant, Inc., a real estate investment company. Mr. Kleeman
received a B.A. degree in biology from Dartmouth College and an M.B.A. from the
Harvard Business School where he was a Baker Scholar.
The following table sets forth the name, age and the position(s) with
the Trust and SFT-Maryland (if any) currently held by each Trustee with a term
expiring at the 1999 Annual Meeting of Shareholders of SFT-Maryland:
Name Age Title
---- --- -----
Barry S. Sternlicht................... 37 Chairman
Jay Sugarman.......................... 35 Chief Executive Officer,
President and
Trustee
William Matthes(2).................... 38 Trustee
Kneeland C. Youngblood(1)(2).......... 42 Trustee
- ------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Barry S. Sternlicht became a Trustee of the Trust in March 1994 and was
elected Chairman in September 1996. Mr. Sternlicht became Chairman and a Trustee
of SFT-Maryland at its formation in April 1998. Mr. Sternlicht was Chief
Executive Officer of the Trust from September 1996 to November 1997. Mr.
Sternlicht was Chairman of the Audit and Compensation Committee of the Trust
from March 1994 until December 1995. He is founder and General Manager of
Starwood Capital and co-founder of its predecessor entities in 1991 and has been
the President and Chief Executive Officer of Starwood Capital Group, L.P. since
its formation. In addition, Mr. Sternlicht is currently the Chief Executive
Officer and Chairman of the Board of Trustees of Starwood Hotels & Resorts,
Chairman of the Board of Directors of Starwood Hotels & Resorts Worldwide, Inc.,
a trustee of Equity Residential Properties Trust, a multi-family REIT and a
director of U.S. Franchise Systems. Mr. Sternlicht is on the Board of Governors
of NAREIT and 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 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.
Jay Sugarman became Chief Executive Officer of the Trust in November
1997, President and Trustee of the Trust in September 1996 and Chief Executive
Officer, President and Trustee of SFT-Maryland at its formation in April 1998.
Mr. Sugarman is Senior Managing Director of Starwood Capital and has been
President of Mezzanine since November 1994. From 1990 through 1993, Mr. Sugarman
managed a diversified, privately owned investment fund. Earlier in his career,
Mr. Sugarman worked at First Boston Corporation and Goldman, Sachs & Co. Mr.
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Sugarman is a director of Commercial Guaranty Assurance, a financial insurance
company and WCI Communities, Inc., a residential developer in South Florida. Mr.
Sugarman received a B.A. degree from Princeton University where he was nominated
for valedictorian and is a graduate of Harvard Business School, where he was a
Baker Scholar.
William M. Matthes was elected a Trustee in March 1998 and will become
a Trustee of SFT-Maryland at the Effective Time. Since April 1996, Mr. Matthes
has been a partner of Behrman Capital, a New York and San Francisco based
private equity investment fund with in excess of $600 million of equity capital
under management. From July 1994 to April 1996, Mr. Matthes was employed as
Senior Vice President and Chief Operating Officer of Holsted Marketing, Inc., a
credit card based direct marketing company. Mr. Matthes was a general partner of
Brentwood Associates, a private equity investment firm from 1986 to July 1994
and previously was employed as an analyst at Morgan Stanley & Co., Inc. Mr.
Matthes is a director of Condor Systems, Inc., Behrman TMNG, Inc., Holsted
Marketing, Inc. and Holsted, Inc.
Kneeland C. Youngblood was elected as a Trustee in March 1998 and will
become a Trustee of SFT-Maryland at the Effective Time. Mr. Youngblood is a
trustee of the United States Enrichment Corporation, an independently run
government-owned nuclear fuel corporation scheduled for privatization in 1998.
He is also a fiduciary trustee for the $65 billion Teacher Retirement System of
Texas ("TRS"), in which capacity he has responsibility for hiring investment
advisors, determining asset allocations and formulating investment/benefit
policies. As Chairman of the TRS Real Estate Committee, he has directed a major
restructuring of the TRS's portfolio, which has assets of $1.4 billion, and is
responsible for considering and approving significant transactions within the
portfolio. Mr. Youngblood is a trustee of AMR investments, a $15 billion
investment fund and a division of American Airlines. He is currently involved in
private investment and consulting and is a member of the Council on Foreign
Relations.
Information Regarding the Board of Trustees and its Committees
The Board of Trustees has delegated a portion of its authority to an
Audit Committee and a Compensation Committee. The Audit Committee makes
recommendations to the Board of Trustees concerning the selection of the Trust's
independent auditors, oversees the financial reporting process, develops and
approves plans for the annual duties of the Trustees, reviews fees charged by
the independent auditors, reviews the scope and results of the auditors' reports
and reviews and monitors the implementation of suggestions made by the
independent auditors. The Audit Committee is kept apprised by management of the
Trust's internal control procedures. Additionally, the Audit Committee reviews
and monitors non-audit services provided by the independent auditors. The
Compensation Committee oversees, reviews and approves the compensation of the
Trustees and officers of the Trust. The Compensation Committee also administers
the Trust's incentive plans. Ms. Josephs and Messrs. Dishner and Youngblood
currently serve on the Audit Committee with Mr. Youngblood serving as Chairman.
Ms. Josephs and Messrs. Matthes and Youngblood currently serve on the
Compensation Committee with Ms. Josephs serving as chairman.
35
<PAGE>
Board of Trustees and Committee Meetings.
During the fiscal year ending December 31, 1997, the Board of Trustees
held four meetings, at which all of the Trustees participated. During 1997,
there was one meeting of the Audit and Compensation Committee, which was one
committee until March 1998.
Executive Officers
The following information relates to the executive officer of the Trust
who is not a Trustee and is not nominated as a Trustee. The officers of the
Trust serve at the pleasure of the Board of Trustees and are customarily
appointed as an officer at the annual meeting of the Board of Trustees held
following each Annual Meeting of Shareholders.
Jerome C. Silvey was elected as Chief Financial Officer of the Trust in
September 1996 and of SFT-Maryland at its formation in April 1998. Mr. Silvey
has been a Senior Vice President and the Chief Financial Officer of Starwood
Capital since August 1993 after 13 years at Price Waterhouse LLP. Mr. Silvey has
overall responsibilities for Starwood Capital's administration, MIS and finance.
Mr. Silvey is a graduate of Colgate University and received his M.B.A. from
Rutgers Graduate School of Management in 1980. He is a certified public
accountant and a trustee of the Stamford Museum.
Executive Officers' Compensation
For the year ended December 31, 1997, neither Mr. Sugarman nor Mr.
Sternlicht received any compensation for services as a Chief Executive Officer
of the Trust. No other executive officer of the Trust received compensation from
the Trust during the year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
All Other
Year Salary Compensation(1)
---- ------ ---------------
Jay Sugarman 1997 $0 $0
Chief Executive Officer(2) 1996 0 0
1995 0 0
Barry S. Sternlicht, 1997 $0 $0
Chief Executive Officer(2) 1996 0 9,000
1995 0 12,000
_______________
(1) Represents Trustee fees.
(2) Mr. Sternlicht resigned as Chief Executive Officer in November 1997.
Mr. Sugarman was elected Chief Executive Officer of the Trust in
November 1997.
36
<PAGE>
Compensation Committee Report on Executive Compensation
The Compensation Committee's compensation policy is to set salaries at
levels the Compensation Committee believes will attract, retain and motivate
highly competent individuals. Additionally, the Compensation Committee generally
seeks to create a commonality of interest between the executives and the
Shareholders by linking the executive's total compensation to the performance of
the Trust. The Compensation Committee met once during 1997. Neither Mr. Sugarman
nor Mr. Sternlicht was compensated as Chief Executive Officer in 1997 as a
result of the lack of business conducted by the Trust in 1997. Mr. Sugarman is
not expected to receive any compensation from the Trust or SFT-Maryland in 1998.
The Compensation Committee currently intends for all compensation paid
to the Trust's executive officers to be tax deductible to the Trust pursuant to
Section 162(m) of the Code ("Section 162(m)"). Section 162(m) provides that
compensation paid to executive officers in excess of $1,000,000 cannot be
deducted by the Trust for federal income tax purposes unless, in general, such
compensation is performance based, is established by an independent committee of
trustees, is objective and the plan or agreement providing for such performance
based compensation has been approved in advance by the Shareholders. In the
future, however, if, in the judgment of the Compensation Committee, the benefits
to the Trust of a compensation program that does not satisfy the arbitrary and
inflexible conditions of Section 162(m) outweigh the costs to the Trust of
failure to satisfy these conditions, the Compensation Committee may adopt such a
program.
Robin Josephs (Chairman)
William Matthes
Kneeland C. Youngblood
Compensation Committee Interlocks and Insider Participation
The Compensation Committee oversees, reviews and approves the
compensation of the Trustees and officers of the Trust. Currently, Ms. Josephs
and Messrs. Matthes and Youngblood serve on the Compensation Committee, with Ms.
Josephs serving as Chairman. See "--Information Regarding Board of Trustees and
Its Committees."
Trustees' Compensation
Each Trustee who is not also an officer or employee of the Trust or of
Starwood Capital, currently receives a fee of $20,000 per year, which is paid
quarterly. Each unaffiliated Trustees also receives an additional fee of $1,000
for each meeting of the Board of Trustees which he or she attends in person,
$750 for each meeting of the Board of Trustees which he or she attends
37
<PAGE>
telephonically, and $500 for each committee meeting which he or she attends,
either personally or telephonically. Trustees are also reimbursed for any
expenses incurred in attending such meetings or incurred as a result of other
work performed for the Trust. The Trustees who are officers or employees of the
Trust or Starwood Capital do not receive any compensation from the Trust.
Generally, under the Trust's 1996 Share Incentive Plan (the "Incentive
Plan") each individual who is first elected or continuing as a Trustee as of the
close of an Annual Meeting of Shareholders and who is not also an officer or
employee of the Trust or an affiliate (a "Non-Employee Trustee") will receive an
option to purchase 10,000 Class A Shares (1,667 New Class A Shares upon
consummation of the Reorganization Merger). Each individual who is first elected
or appointed as a Non-Employee Trustee on a date other than the date of an
Annual Meeting of Shareholders, shall be granted an option to purchase 10,000
Class A Shares (1,667 New Class A Shares upon consummation of the Reorganization
Merger), reduced to reflect the portion of the period elapsed since the last
grant to Trustees. The exercise price of the shares subject to the option shall
be the fair market value of a Class A Share on the grant date. Such options
shall be fully vested and expire ten years after the grant date, without regard
to whether the Trustee ceases to be a member of the Board of Trustees prior to
such date.
The Trust and each of its Trustees and executive officers have entered
into indemnification agreements which will be assumed by SFT-Maryland. The
indemnification agreements provide that the Trust will indemnify the Trustees
and the executive officers to the fullest extent permitted by the law against
certain liabilities (including settlements) and expenses actually and reasonably
incurred by them in connection with any threatened or pending legal action,
proceeding or investigation to which any of them is, or is threatened to be,
made a party by reason of their status as a Trustee, officer or agent of the
Trust, or serving at the request of the Trust in any other capacity for or on
behalf of the Trust; provided that such Trustee or executive officer acted in a
manner determined in good faith to be within the scope of his authority and to
be in the best interest of the Trust and so long as the Trustee or executive
officer was not guilty of gross negligence, misconduct or a breach of his
fiduciary obligations in the act or failure to act. The Trust will not indemnify
the Trustees and executive officers to the extent prohibited by the Maryland
Declaration of Trust or Title 8. If the amendment to the Maryland Declaration of
Trust or Title 8 with respect to removal of limitations on indemnification are
approved, the indemnification agreements will be amended accordingly. The Trust
is not required to indemnify any Trustee or executive officer for liabilities
(i) for which he receives payment under an insurance policy, except for the
excess beyond payment under such insurance, or which could have been claimed
under an expired insurance policy, (ii) based upon or attributable to his
gaining in fact any personal profit or advantage to which he was not legally
entitled, (iii) resulting from an accounting of profits under Section 16(b) of
the Exchange Act or (iv) brought about or contributed to by his dishonesty,
willful misconduct or bad faith unless a judgment or other final adjudication
adverse to the Trustee or executive officer establishes that he was not guilty
of the claimed conduct and that the conduct was not material to the course of
action so adjudicated. In addition, the Trust has obtained trustee and officer
insurance for the Trustees and executive officers of the Trust.
38
<PAGE>
Certain Relationships and Related Transactions
On January 22, 1997, Mezzanine exercised its rights under a warrant to
acquire 5,000,000 Class A Shares for $1.00 a share and SAHI Inc. exercised its
rights under a warrant to acquire 2,500,000 Class B Shares for $.01 a share.
On March 18, 1998, the Trust (i) paid $25.5 million of cash and issued
155,148,000 Class A Shares to Mezzanine at a price of $2.50 per share in
exchange for the contribution by Mezzanine to the Trust of its entire interest
in a portfolio of mortgage and partnership loans secured by residential, hotel,
office and mixed use real estate and other assets, (ii) paid $324.3 million in
cash and issued 247,074,800 Class A Shares to SOFI IV at a price of $2.50 per
share in exchange for the contribution by SOFI IV to the Trust of its entire
interest in a portfolio of mortgage loans and leases secured by residential,
hotel, office and mixed use real estate and other assets, a portfolio of first
mortgage loans, $17.9 million of cash and the rights under certain letters of
intent, (iii) entered into the Advisory Agreement with the Advisor, (iv) granted
options to purchase 14,963,057 Class A Shares at $2.50 per share to the Advisor,
(v) issued 4,568,944 Class A Shares to Mezzanine in exchange for 4,568,944 units
in APMT Limited Partnership, (vi) entered into the Shareholders Agreement and
(vii) amended and restated an agreement granting registration rights to BLLC,
SAHI Partners, Mezzanine and SOFI IV.
Each of Messrs. Sternlicht, Sugarman, Dishner, Eilian, Kleeman and
Silvey has a direct or indirect economic interest in each of Mezzanine, SOFI IV,
the Advisor, BLLC and SAHI Partners and Messrs. Sternlicht and Eilian have
direct economic interests in SAHI, Inc. In the aggregate, Mezzanine, SOFI IV and
BLLC own over 99% of the voting interest and economic interest of the Trust.
In addition, on March 13, 1998, the Trust granted options to purchase
an aggregate of 30,000 Class A Shares to each of Ms. Josephs and Messrs.
Matthews and Youngblood at $4.9375 per share.
Performance Graph
The following graph compares the total cumulative shareholder return on
the Class A Shares from December 31, 1992 to December 31, 1997 to that of the
(a) Standard & Poor's 500 Index, and (b) NAREIT Mortgage REIT Total Return
Index, an index that included 20 companies with a market capitalization of $4.8
billion.
[GRAPH]
39
<PAGE>
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, December 31, December 31,
1992 1993 1994 1995 1996 1997
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Trust $100.00 $99.92 $56.21 $49.95 $174.86 $637.01
S&P's 500 100.00 109.99 109.99 153.13 188.29 251.13
Mortgage REITs 100.00 114.55 114.55 141.70 213.78 221.95
</TABLE>
Recommendation Regarding the Board Election Proposal
The Board of Trustees recommends that you vote FOR the four named
nominees to be elected as the Trustees of the Trust.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information as of _____, __1998 with
respect to any Class A Shares owned by the Trustees and individual or group of
Shareholders known to be the beneficial owner of more than five percent (5%) of
the issued and outstanding Class A Shares. There are no other Trustees, nominees
for Trustee or officers of the Trust who beneficially own either Class A Shares
or Class B Shares.
<TABLE>
<CAPTION>
Name of Beneficial Amount and Nature of
Title of Class Owner Beneficial Ownership(1) Percent of Class
- ----------------------- ------------------- ------------------------ ----------------
<S> <C> <C> <C>
Class A Shares Starwood Mezzanine 64,716,944 20.6%
Investors, L.P.(2)
Class A Shares Starwood Mezzanine 64,716,944(3) 20.6%
Holdings, L.P.(2)
Class A Shares Starwood Capital Group 64,716,944(4) 20.6%
I, L.P.(2).
Class A Shares BSS Capital Partners, 64,716,944(5) 20.6%
L.P.(2)
Class A Shares Sternlicht Holdings II, 64,716,944(6) 20.6%
Inc.(2)
Class A Shares Starwood Financial 14,963,057(7) 4.5%
Advisors, L.L.C.(2)
Class A Shares SOFI-IV SMT Holdings, 247,074,800 78.6%
L.L.C.(2)
Class A Shares Starwood Opportunity 247,074,800(8) 78.6%
Fund IV, L.P.(2)
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Name of Beneficial Amount and Nature of
Title of Class Owner Beneficial Ownership(1) Percent of Class
- ----------------------- ------------------- ------------------------ ----------------
<S> <C> <C> <C>
Class A Shares SOFI IV Management, 247,074,800(9) 78.6%
L.L.C.(2)
Class A Shares Starwood Capital Group, 265,398,110(10) 79.8%
L.L.C.(2)
Class A Shares B Holdings, L.L.C.(2) 3,360,252(11) 1.0%
Class A Shares SAHI Partners(2) 244,100
Class A Shares SAHI, Inc.(2) 244,100(12)
Class A Shares SWL Acquisition 244,100(13)
Partners, L.P. (12)
Class A Shares SWL Mortgage Investors, 244,100(14)
Inc. (12)
Class A Shares Barry S. Sternlicht(2) 330,359,154(15) 99.3%
Class A Shares Robin Josephs(2) 15,000(16)
Class A Shares William Matthes(2) 10,000(17)
Class A Shares Kneeland C. 10,000(17)
Youngblood(2)
Class B Shares B Holdings, L.L.C.(2) 164,652,401(18) 100%
Class B Shares Starwood Capital Group, 164,652,401(19) 100%
L.L.C.(2)
Class B Shares Barry S. Sternlicht(2) 164,652,401(20) 100%
Class A Shares All Executive Officers, 330,394,154(21) 99.3%
Trustees and nominees
for Trustee as a group (8
persons)
Class B Shares All Executive Officers, 164,652,401(22) 100%
Trustees and nominees
for Trustee as a group (8
persons)
</TABLE>
(1) Except as otherwise indicated and subject to applicable community
property laws and similar statutes, the person listed as beneficial
owner of shares has sole voting power and dispositive power with
respect to the shares.
(2) Three Pickwick Plaza, Suite 250, Greenwich, CT 06830.
(3) Starwood Mezzanine Holdings, L.P. ("Starwood Holdings") is a general
partner of Mezzanine and as such shares voting and dispositive power of
the shares owned by Mezzanine. Starwood
41
<PAGE>
Holdings disclaims beneficial ownership of such shares except to the
extent of its applicable pecuniary interest therein.
(4) Starwood Capital Group I, L.P. ("Starwood Capital LP") is (a) a general
partner of Mezzanine and (b) the general partner of Starwood Holdings,
which is the other general partner of Mezzanine, and as such shares
voting and dispositive power of the shares owned by Mezzanine. Starwood
Capital LP disclaims beneficial ownership of such shares except to the
extent of its applicable pecuniary interest therein.
(5) BSS Capital Partners, L.P. ("BSS") is the general partner of Starwood
Capital LP, which is (a) a general partner of Mezzanine and (b) the
general partner of Starwood Holdings, which is the other general
partner of Mezzanine; as such BSS shares voting and dispositive power
of the shares owned by Mezzanine. BSS disclaims beneficial ownership of
such shares except to the extent of its applicable pecuniary interest
therein.
(6) Sternlicht Holdings II, Inc. is the general partner of BSS, which is
the general partner of Starwood Capital LP, which is (a) a general
partner of Mezzanine and (b) the general partner of Starwood Holdings,
which is the other general partner of Mezzanine; as such Sternlicht
Holdings II, Inc. shares voting and dispositive power of the shares
owned by Mezzanine. Sternlicht Holdings II, Inc. disclaims beneficial
ownership of such shares except to the extent of its applicable
pecuniary interest therein.
(7) Represents 14,963,057 Class A Shares issuable upon exercise of
outstanding options.
(8) Starwood Opportunity Fund IV, L.P. ("SOFI LP") is the sole member and
manager of SOFI IV and as such shares voting and dispositive power of
the shares owned by SOFI IV. SOFI LP disclaims beneficial ownership of
such shares except to the extent of its applicable pecuniary interest
therein.
(9) SOFI IV Management, L.L.C. is the general partner of SOFI LP, which is
the sole member and manager of SOFI IV, and as such shares voting and
dispositive power of the shares owned by SOFI IV. SOFI IV Management,
L.L.C. disclaims beneficial ownership of such shares except to the
extent of its applicable pecuniary interest therein.
(10) Starwood Capital is (a) the general manager of the Advisor, (b) the
general manager of BLLC, and (c) the general manager of SOFI IV
Management, L.L.C., which is the general partner of SOFI LP, which is
the sole member and general manager of SOFI IV; as such Starwood
Capital shares voting and dispositive power of the 247,074,800 Class A
Shares owned by SOFI IV, the 3,360,252 Class A Shares beneficially
owned by BLLC and 14,963,057 Class A Shares issuable upon exercise of
options owned by the Advisor. Starwood Capital disclaims beneficial
ownership of such shares except to the extent of its applicable
pecuniary interest therein.
(11) Represents 3,207,569 Class A Shares issuable upon conversion of
157,170,872 Class B Shares and 152,684 Class A Shares issuable upon
conversion of 7,481,528 Class B Shares issuable upon the exercise of
options to purchase 14,963,057 Class A Shares.
42
<PAGE>
(12) SAHI, Inc. is a general partner of SAHI Partners and as such shares
voting and dispositive power of the shares owned by SAHI Partners.
SAHI, Inc. disclaims beneficial ownership of such shares except to the
extent of its applicable pecuniary interest therein.
(13) SWL Acquisition Partners, L.P. ("SWL Partners") is a general partner of
SAHI Partners and as such shares voting and dispositive power of the
shares owned by SAHI Partners. SWL Partners disclaims beneficial
ownership of such shares except to the extent of its applicable
pecuniary interest therein.
(14) SWL Mortgage Investors, Inc. ("SWL Investors") is the general partner
of SWL Partners, a general partner of SAHI Partners, and as such,
shares voting and dispositive power of the shares owned by SAHI
Partners. SWL Investors disclaims beneficial ownership of such shares
except to the extent of its pecuniary interest therein.
(15) Represents 64,716,944 Class A Shares beneficially owned by Sternlicht
Holdings II, Inc., of which Mr. Sternlicht is a 100% owner, 244,100
Class A Shares beneficially owned by SAHI, Inc., of which Mr.
Sternlicht is a controlling shareholder, and 265,398,110 Class A Shares
beneficially owned by Starwood Capital, of which Mr. Sternlicht is the
general manager. Mr. Sternlicht shares voting and dispositive power of
all of these shares. Mr. Sternlicht disclaims beneficial ownership of
such shares except to the extent of his applicable pecuniary interest
therein.
(16) Includes 10,000 Class A Shares issuable upon the exercise of
outstanding options and 5,000 Class A Shares owned by Ms. Josephs's
spouse.
(17) Includes 10,000 Class A Shares issuable upon the exercise of
outstanding options.
(18) Includes 7,481,528 Class B Shares issuable upon the exercise of options
to purchase 14,963,057 Class A Shares held by the Advisor.
(19) Starwood Capital is the general manager of BLLC, and as such, shares
voting and dispositive power of the shares owned by BLLC. Starwood
Capital disclaims beneficial ownership of such shares except to the
extent of its applicable pecuniary interest therein.
(20) Barry S. Sternlicht is the general manager of Starwood Capital, which
is the general manager of BLLC, and as such, shares voting and
dispositive power of the shares owned by BLLC. Mr. Sternlicht disclaims
beneficial ownership of such shares except to the extent of his
applicable pecuniary interest therein.
(21) Represents 330,359,154 Class B Shares beneficially owned by Barry S.
Sternlicht, 15,000 Class A Shares beneficially owned by Robin Josephs,
10,000 Class A Shares beneficially owned by William Matthes and 10,000
Class A Shares beneficially owned by Kneeland Youngblood.
(22) Represents 164,652,401 Class B Shares beneficially owned by Barry S.
Sternlicht.
43
<PAGE>
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Trustees has selected Price Waterhouse LLP as the Trust's
independent auditors for the fiscal year ending December 31, 1998, subject to
ratification by the Shareholders. The Trust expects a member of Price Waterhouse
LLP to attend the Annual Meeting to make a statement, if he or she desires, and
to respond to appropriate questions.
The Board of Trustees has selected Price Waterhouse LLP as the Trust's
independent auditors for the fiscal year ending December 31, 1997, subject to
ratification by the Shareholders. Deloitte & Touche LLP served as the Trust's
independent auditors for the fiscal year ended December 31, 1996. Deloitte &
Touche LLP was not selected by the Board of Trustees to continue to serve as
independent auditors to the Trust for the fiscal year ending December 31, 1997
and was dismissed on December 19, 1997. There have been no disagreements between
the Trust and Deloitte & Touche LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures
during the last fiscal year. The Trust expects a member of both Price Waterhouse
LLP and Deloitte & Touche LLP to attend the Annual Meeting to make a statement,
if he or she desires, and to respond to appropriate questions.
Neither of the reports of Deloitte & Touche LLP on the Trust's
financial statements for the last two years contained an adverse opinion or
disclaimer of opinion, or was qualified or modified as to uncertainty, audit
scope or accounting principles. The decision to change accountants was
recommended and approved by the Audit and Compensation Committee.
During the Trust's two most recent fiscal years and any subsequent
interim period preceding such dismissal there were no disagreements with
Deloitte & Touche LLP on any matter of accounting principles or practices,
financial statement disclosure, auditing scope or procedure, which disagreement,
if not resolved to the satisfaction of Deloitte & Touche LLP would have caused
it to make reference to the subject matter of the disagreement in connection
with its report.
Recommendation Regarding Ratification of the Appointment of Price Waterhouse LLP
The Board of Trustees recommends that you vote FOR ratification of this
appointment.
OTHER MATTERS
No Appraisal or Dissenter's Rights
Under California law, Shareholders are not entitled to any statutory
dissenter's rights to appraisal of their Class A Shares or Class B Shares in
connection with any of the proposals.
44
<PAGE>
Shareholder Proposals for 1999 Annual Meeting
Shareholder proposals intended to be presented at the 1998 Annual
Meeting must be sent in writing, by certified mail, return receipt requested, to
the Trust at its principal office, addressed to the Secretary of the Trust, and
must be received by the Trust no later than January 15, 1999, for inclusion in
the 1999 proxy materials.
Solicitation Procedures
Officers and regular employees of the Trust, without extra
compensation, may solicit the return of proxies by mail, telephone, telegram or
personal interview. Certain holders of record, such as brokers, custodians and
nominees, are being requested to distribute proxy materials to beneficial owners
and to obtain such beneficial owners' instructions concerning the voting of
proxies. All of the costs relating to this Proxy Statement will be paid by the
Trust.
Other Matters
The management of the Trust does not intend to bring any other matters
before the Annual Meeting and knows of no other matters that are likely to come
before the meeting. In the event any other matters properly come before the
Annual Meeting, the persons named in the accompanying proxy will vote the shares
represented by such proxy in accordance with their best judgment on such
matters.
The Trust urges you to submit your vote on the accompanying proxy card
by completing, signing, dating and returning it in the accompanying postage-paid
return envelope at your earliest convenience, whether or not you presently plan
to attend the meeting in person.
By Order of the Board of Trustees
Jerome C. Silvey
Secretary of the Trust
New York, New York
May ___, 1998
45
<PAGE>
PROXY
This proxy is solicited on behalf of
the Board of Trustees of
STARWOOD FINANCIAL TRUST
1114 Avenue of the Americas, 27th Floor
New York, New York 10036
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON _______ __, 1998. TO
VOTE AT THE ANNUAL MEETING IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD
OF TRUSTEES OF STARWOOD FINANCIAL TRUST, SIGN AND DATE THE REVERSE SIDE OF THIS
CARD WITHOUT CHECKING ANY BOX.
The undersigned holder of Class A Shares or Class B Shares of Starwood Financial
Trust (the "Trust") hereby appoints Jerome C. Silvey and Jay Sugarman, or either
of them, with full power of substitution in each, as proxies to cast all votes
which the undersigned shareholder is entitled to cast at the Annual Meeting of
Shareholders (the "Annual Meeting") to be held on ______ __, 1998, at 10:30 a.m.
Eastern Standard Time, at _______ and at any adjournments thereof, upon the
following matters. The undersigned shareholder hereby revokes any proxy or
proxies heretofore given. Capitalized terms not otherwise defined have the
meanings given in the Proxy Statement to which this Proxy relates.
1. A proposal to approve the Reorganization Merger.
[__] For [__] Against [__] Abstain
2. The election of four members to the Board of Trustees.
[_] FOR all nominees listed below (except as marked to the contrary below)
[_] WITHHOLD AUTHORITY to vote for all nominees listed below
Jeffery G. Dishner Robin Josephs
Jonathan D. Eilian Merrick R. Kleeman
To withhold authority for any nominee, strike a line through such nominee's
name. If a nominee becomes unavailable for election or unable to serve as a
trustee, the votes will be cast for a person that will be designated by the
Board of Trustees of the Trust.
3. A proposal to ratify the appointment of Price Waterhouse LLP as the
independent auditors of the Trust for the fiscal year ended December 31, 1998.
[__] For [__] Against [__] Abstain
4. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the Annual Meeting, or any adjournments
thereof and which the Trust did not know, a reasonable time before the Annual
Meeting, would be presented at the Annual Meeting or any adjournment thereof.
<PAGE>
This proxy, when properly executed, will be voted in the manner as directed
herein by the undersigned shareholder. UNLESS CONTRARY DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1 THROUGH 3 AND IN ACCORDANCE WITH THE
UNANIMOUS DETERMINATION OF THE BOARD OF TRUSTEES AS TO OTHER MATTERS. The
undersigned shareholder may revoke this proxy at any time before it is voted by
delivering to the Secretary of the Trust either a written revocation of the
proxy or a duly executed proxy bearing a later date, or by appearing at the
Annual Meeting and voting in person. The undersigned shareholder hereby
acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy
Statement.
PLEASE MARK, SIGN, DATE AND RETURN THIS CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. If you receive more than one proxy card, please sign and return ALL
cards in the enclosed envelope.
DATED:
-----------------------------------------
Signature
-----------------------------------------
Signature (if held jointly)
Please date and sign exactly as the name
appears hereon. When signing as executor,
administrator, trustee, guardian,
attorney-in-fact or other fiduciary, please
give title as such. When signing as
corporation, please sign in full corporate
name by President or other authorized
officer. If you sign for a partnership,
please sign in partnership name by an
authorized person.
<PAGE>
Exhibit A
FORM OF
AGREEMENT AND PLAN OF MERGER AND TRANSFER OF ASSETS
OF
STARWOOD FINANCIAL TRUST
(a business trust of the State of California)
WITH AND INTO
STARWOOD FINANCIAL TRUST
(a real estate investment trust of the State of Maryland)
DATED AS OF June , 1998
<PAGE>
THIS AGREEMENT AND PLAN OF MERGER AND TRANSFER OF ASSETS (this
"Agreement and Plan") is made by and among Starwood Financial Trust, a
California business trust ("SFT-California"), and Starwood Financial Trust, a
Maryland real estate investment trust ("SFT-Maryland"), and dated as of June
___, 1997.
W I T N E S S E T H
WHEREAS, each of SFT-California and SFT-Maryland desires that
SFT-California be merged pursuant to Section 8-501 of the Maryland Corporations
and Associations Code ("MCAC") with and into SFT-Maryland with all of the assets
and liabilities of SFT-California transferred to SFT-Maryland (the "Merger")
which shall be the surviving company;
WHEREAS, SFT-Maryland is a wholly-owned subsidiary of SFT-California;
NOW THEREFORE:
FIRST: As used in this Agreement and Plan, the term "Effective Time"
shall mean the date and time of the filing with the office of the Secretary of
State of the State of Maryland of the articles of merger with respect to the
Merger (a form of which is attached hereto as Exhibit "A").
SECOND: The principal place of business of SFT-Maryland and
SFT-California is located at 1114 Avenue of the Americas, New York, NY 10036.
THIRD: At the Effective Time, SFT-California shall be merged with and
into SFT-Maryland, with SFT-Maryland to be a real estate investment trust
organized under and governed by the laws of the State of Maryland, and the
separate legal existence of SFT-California shall thereupon cease and all of the
assets and liabilities of SFT-California shall be transferred to SFT-Maryland.
FOURTH: The Amended and Restated Declaration of Trust (the "Declaration
of Trust") and Bylaws of SFT-Maryland shall be the constituent documents of
SFT-Maryland and thereafter may be amended as provided in the Declaration of
Trust or by law. This Agreement and Plan shall effect no amendment or other
change whatsoever to the Declaration of Trust. The trustees and officers of
SFT-California as of the Effective Time shall be the trustees and officers of
SFT-Maryland, all of whom shall hold their positions until the election and
qualification of their respective successors or until their tenure is otherwise
terminated in accordance with the Declaration of Trust.
FIFTH: The Merger was duly (a) advised by the board of trustees of
SFT-Maryland, by the adoption on _____ __, 1998, of a resolution declaring that
the merger herein proposed was advisable substantially on the terms and
conditions set forth in this Agreement and Plan and directing that the proposed
Agreement and Plan be submitted for action thereon to the shareholders of
SFT-Maryland and (b) approved by the shareholders of SFT-Maryland by written
consent on June __, 1998.
SIXTH: This Agreement and Plan and the Merger to be effected hereby
were duly adopted, approved, certified, executed, acknowledged, advised and
authorized by SFT-California in the manner and by the vote required by
SFT-California's declaration of trust.
<PAGE>
SEVENTH: The total number of shares of beneficial interest of all
classes which SFT- California has authority to issue is unlimited.
EIGHTH: At the Effective Time, by reason of the Merger, all the issued
and outstanding shares of beneficial interest of SFT-California shall cease to
exist in consideration of the exchange of shares of beneficial interest of
SFT-Maryland (the "Share Exchange"). Under the Share Exchange, one Class A Share
of SFT-Maryland shall be paid to the shareholders of SFT-California for every
six Class A Shares of SFT-California, and one Class B Share of SFT-Maryland
shall be paid to the shareholders of SFT-California for every six Class B Shares
of SFT-California. All of the certificates representing shares of beneficial
interest of SFT-California shall be automatically and without further action by
any of the parties hereto canceled as of the Effective Time.
NINTH: The Merger shall have the effects set forth in the MCAC. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the assets, property, rights, privileges, powers and franchises of
SFT-California shall vest in SFT-Maryland and all debts, liabilities and duties
of SFT-California shall become the debts, liabilities and duties of
SFT-Maryland.
TENTH: Each of SFT-California and SFT-Maryland shall execute and
deliver such further instruments and do or cause to be done such further acts as
may be necessary to effectuate and confirm the Merger. The Board of Trustees and
the officers of SFT-California and SFT-Maryland, respectively, are hereby
authorized, empowered and directed to do any and all acts and things, and to
make, execute, deliver, file and record any and all instruments, papers and
documents which shall be or become necessary, proper or convenient to carry out
or put into effect any provision of this Agreement and Plan.
ELEVENTH: At any time before the Effective Time, this Agreement and
Plan may be terminated and the Merger may be abandoned for any reason whatsoever
by the Board of Trustees of either of SFT-California or SFT-Maryland,
notwithstanding the approval of this Agreement and Plan by the shareholders of
both or either of SFT-California and SFT-Maryland.
TWELFTH: The Boards of Trustees of SFT-California and SFT-Maryland may
amend this Agreement and Plan at any time prior to the filing of this Agreement
and Plan (or certificate in lieu thereof) with the Secretary of State of the
State of Maryland, provided that an amendment made subsequent to the adoption of
the Agreement and Plan by the shareholders of SFT-California and SFT-Maryland
shall not: (1) alter or change the amount or kind of shares, securities, cash,
property and/or rights to be received in exchange for or on conversion of all or
any of the shares of any class or series thereof of either SFT-California or
SFT-Maryland, (2) materially alter or change any term of the Declaration of
Trust of SFT-Maryland to be effected by the Merger, or (3) alter or change any
of the terms and conditions of this Agreement and Plan if such alteration or
change would adversely affect the holders of any class or series thereof of
either SFT-California or SFT-Maryland.
THIRTEENTH: This Agreement and Plan may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to
-2-
<PAGE>
be an original but all such counterparts shall together constitute one and the
same Agreement and Plan.
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement and
Plan as of the day and year first above written.
STARWOOD FINANCIAL TRUST (California)
By:__________________________________
Name:________________________________
Title:_______________________________
STARWOOD FINANCIAL TRUST (Maryland)
By:__________________________________
Name:________________________________
Title:_______________________________
-4-
<PAGE>
THE UNDERSIGNED, _____________________ of Starwood Financial Trust, a
California business trust, who executed on behalf of said business trust the
foregoing Agreement and Plan, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said business trust, the foregoing
Agreement and Plan to be the act of said business trust and further certifies
that, to the best of his knowledge, information and belief, the matters and
facts set forth therein with respect to the approval thereof are true in all
material respects, under penalties of perjury.
-----------------------------
THE UNDERSIGNED, ______________________ of Starwood Financial Trust, a
Maryland real estate investment trust, who executed on behalf of said real
estate investment trust the foregoing Agreement and Plan, of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said real estate investment trust, the foregoing Agreement and Plan to be the
act of said real estate investment trust and further certifies that, to the best
of his knowledge, information and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material respects,
under penalties of perjury.
-----------------------------
-5-
<PAGE>
EXHIBIT A
Articles of Merger
<PAGE>
ARTICLES OF MERGER
MERGING
STARWOOD FINANCIAL TRUST
(a business trust of the State of California)
INTO
STARWOOD FINANCIAL TRUST
( a Maryland real estate investment trust)
FIRST: Starwood Financial Trust, a business trust organized and
existing under the laws of the State of California ("SFT-California") and
Starwood Financial Trust, a Maryland real estate investment trust organized and
existing under the laws of the State of Maryland ("SFT-Maryland"), agree that
said SFT-California shall be merged into said SFT-Maryland. The terms and
conditions of the merger and the mode of carrying the same into effect are as
herein set forth in these articles of merger.
SECOND: SFT-Maryland shall survive the merger and shall continue under
the name Starwood Financial Trust.
THIRD: The parties to the articles of merger are SFT-Maryland, a real
estate investment trust organized and existing under the laws of the State of
Maryland, and SFT-California, a business trust organized on the 15th day of
April, 1988 under the laws of the State of California; the business trust is not
qualified to do business in the State of Maryland.
FOURTH: No amendments to the charter of the surviving entity are to be
effected as part of the merger.
<PAGE>
FIFTH: The total number of shares of stock of all classes which
SFT-California has authority to issue is unlimited.
The total number of shares of stock of all classes which SFT-Maryland
has authority to issue is sixty million Class A Shares of the par value of one
dollar ($1.00) and thirty million Class B Shares of the par value of one cent
($.01).
SIXTH: The manner and basis of converting or exchanging issued shares
of beneficial interest of the merged business trust into different shares of
beneficial interest or other consideration and the manner of dealing with any
issued shares of beneficial interest of the merged business trust to be so
converted or changed shall be as follows:
At the time the Agreement of Merger between the parties hereto
becomes effective, all issued and outstanding Class A Shares of
SFT-California shall forthwith be canceled and one Class A Share of
SFT-Maryland shall be issued in exchange for every six therefor.
At the time the Agreement of Merger between the parties hereto
becomes effective, all issued and outstanding Class B Shares of
SFT-California shall forthwith be canceled and one Class B Share of
SFT-Maryland shall be issued in exchange for every six therefor.
SEVENTH: The principal office of said SFT-Maryland, organized under the
laws of the State of Maryland, is located in New York, New York.
SFT-California, organized under the laws of the State of California,
does not have a principal office in Maryland.
SFT-California does not own property, the title to which could be
affected by the recording of an instrument among the Land Records.
-2-
<PAGE>
EIGHTH: The terms and conditions of the transaction set forth in these
articles of merger and in the Plan of Merger, which is attached hereto as
Exhibit "A" and incorporated herein by reference for all purposes as though
fully set forth herein, were advised, authorized, and approved by each party to
the articles of merger in the manner and by the vote required by its charter and
the laws of the place where it is organized.
NINTH: The merger was (a) duly advised by the Board of Trustees of
SFT-California, by adoption, on April 17, 1998, of a resolution, declaring that
the merger herein proposed was advisable substantially upon the terms and
conditions set forth in the articles of merger and directing that the proposed
articles of merger be submitted for action by the shareholders of said business
trust, and (b) duly approved by the shareholders of said business trust at a
meeting on June __, 1998. There were no issued and outstanding shares of stock
entitled to vote separately on the merger.
TENTH: The following other provisions are deemed by the merging
entities necessary to affect the merger. See Exhibit "A", Plan of Merger,
attached hereto and incorporated herein by reference for all purposes.
-3-
<PAGE>
IN WITNESS WHEREOF, SFT-California and SFT-Maryland, the parties to the
merger, have caused these articles of merger to be signed in their respective
names and on their behalf by their respective presidents or vice-presidents and
witnessed or attested by their respective secretaries or assistant secretaries
all as of the ___ day of June, 1998.
STARWOOD FINANCIAL TRUST
a California business trust
By:____________________________
Name:
Title:
Attest: (Witness)
By: ____________________________
Name:
Title: Secretary
STARWOOD FINANCIAL TRUST.
a Maryland Real Estate Investment Trust
By:____________________________
Name:
Title:
Attest: (Witness)
By: ____________________________
Name:
Title: Secretary
-4-
<PAGE>
THE UNDERSIGNED, _____________________ of Starwood Financial Trust, a
California business trust, who executed on behalf of said business trust the
foregoing Agreement and Plan of Merger, of which this certificate is made a
part, hereby acknowledges, in the name and on behalf of said business trust, the
foregoing Agreement and Plan of Merger to be the act of said business trust and
further certifies that, to the best of his knowledge, information and belief,
the matters and facts set forth therein with respect to the approval thereof are
true in all material respects, under penalties of perjury.
-------------------------
THE UNDERSIGNED, ______________________ of Starwood Financial Trust, a
Maryland real estate investment trust, who executed on behalf of said real
estate investment trust the foregoing Agreement and Plan of Merger, of which
this certificate is made a part, hereby acknowledges, in the name and on behalf
of said real estate investment trust, the foregoing Agreement and Plan of Merger
to be the act of said real estate investment trust and further certifies that,
to the best of his knowledge, information and belief, the matters and facts set
forth therein with respect to the approval thereof are true in all material
respects, under penalties of perjury.
-------------------------
-5-
<PAGE>
EXHIBIT A
Plan of Merger
--------------
-6-
<PAGE>
Exhibit B
FORM OF
STARWOOD FINANCIAL TRUST
AMENDED AND RESTATED DECLARATION OF TRUST
June __, 1998
<PAGE>
TABLE OF CONTENTS
Section Page
RECITALS...................................................................1
DECLARATION................................................................1
ARTICLE I
THE TRUST
1.1. Name........................................................1
1.2. Resident Agent..............................................2
1.3. Nature of the Trust.........................................2
1.4. Purpose of the Trust........................................2
1.5. Definitions.................................................3
ARTICLE II
THE TRUSTEE
2.1. Number, Terms of Office, Qualifications of Trustees.........6
2.2. Compensation and Other Remuneration.........................7
2.3. Resignation, Removal and Death of Trustees..................7
2.4. Vacancies...................................................7
2.5. Successor and Additional Trustees...........................8
2.6. Actions by Trustees and Executive Committee; Quorum.........8
ARTICLE III
TRUSTEES' POWERS
3.1. Power and Authority of Trustees.............................9
3.2. Specific Powers and Authorities.............................9
3.3. Trust Bylaws...............................................15
ARTICLE IV
ADVISOR
4.1. Employment of Advisor......................................15
4.2. Term.......................................................15
4.3. Independence of Trustees and Members of Executive
Committee..................................................16
4.4. Other Activities of Advisor................................16
4.5. Limitation on Operating Expenses...........................17
<PAGE>
Section Page
ARTICLE V
INVESTMENT POLICY
5.1. General Statement of Policy................................17
5.2. Other Permissible Investments..............................18
5.3. Prohibited Investments and Activities......................18
5.4. Obligor's Default..........................................18
ARTICLE VI
SHARES AND SHAREHOLDERS
6.1. Shares.....................................................19
6.2. Voting Rights..............................................19
6.3. Legal Ownership of Trust Estate............................21
6.4. Shares Deemed Personal Property............................21
6.5. Share Record; Issuance and Transferability of Shares.......21
6.6. Dividends or Distributions to Shareholders.................22
6.7. Transfer Agent, Dividend Disbursing Agent, and Registrar...23
6.8. Shareholders' Meeting......................................23
6.9. Proxies....................................................23
6.10 Reports to Shareholders....................................23
6.11. Fixing Record Dates........................................24
6.12. Notice to Shareholders.....................................24
6.13. Restriction on Transfer, Acquisition and Redemption
of Shares..................................................24
6.14. Conversion Rights..........................................24
6.15. Treasury Shares............................................25
6.16. Fractional Shares..........................................26
6.17. Divisions and Combinations of Shares.......................26
6.18. Nonliability and Indemnification of Shareholders...........26
6.19. Nonliability...............................................26
6.20. Declaration and Bylaws.....................................27
ARTICLE VII
LIMITATION OF LIABILITY AND INDEMNIFICATION
OF TRUSTEES AND OFFICERS
7.1. Limitation of Liability....................................27
7.2. Indemnification............................................27
7.3. Indemnification and Insurance..............................28
7.4. Rights of Trustees and Officers to Own Shares or Other
Property and to Engage in Other Business.................28
ii
<PAGE>
Section Page
7.5. Transactions Between the Trust and Certain Affiliates......30
7.6. Persons Dealing with Trustees..............................30
7.7. Administrative Powers of Trustees..........................30
7.8. Reliance...................................................31
7.9. Trust Only.................................................31
7.10. Express Exculpatory Clauses in Instruments.................31
7.11. Restrictions of Duties and Liabilities.....................31
7.12. Conflicts..................................................31
7.13. Severability...............................................31
7.14. No Impairment..............................................32
7.15. References.................................................32
ARTICLE VIII
DURATION AND TERMINATION OF TRUST;
AMENDMENTS
8.1. Termination of Trust.......................................32
8.2. Duration of Trust..........................................33
ARTICLE IX
MISCELLANEOUS
9.1. Construction...............................................33
9.2. Index and Headings for Reference Only; Gender..............33
9.3. Filing and Recording.......................................33
9.4. Applicable Law.............................................34
9.5. Certifications.............................................34
9.6. Bylaws.....................................................34
9.7. Successors in Interest.....................................34
9.8. Counterparts...............................................34
9.10. Severability..............................................35
ARTICLE X
AMENDMENTS
10.1. General...................................................35
10.2. Amendment by Trustees.....................................35
10.3. Qualification Under the REIT Provisions of the Code.......35
10.4. Requirements of Maryland Law..............................35
iii
<PAGE>
Section Page
ARTICLE XI
RESTRICTION ON TRANSFER, ACQUISITION
AND REDEMPTION OF SHARES
11.1. Definitions...............................................36
11.2. Ownership Limitation......................................38
11.3. Excess Shares.............................................39
11.4. Prevention of Transfer....................................40
11.5. Notice to Trust...........................................40
11.6. Information for Trust.....................................40
11.7. Other Action by Board.....................................40
11.8. Ambiguities...............................................41
11.9. Modification of Existing Holder Limits....................41
11.10. Increase or Decrease in Ownership Limit...................41
11.11. Limitations on Changes in Existing Holder
and Ownership Limits.....................................41
11.12. Waivers by Board.........................................42
11.13. Legend...................................................43
11.14. Severability.............................................43
11.15. Trust for Excess Shares..................................43
11.16. Distributions on Excess Shares...........................43
11.17. Voting of Excess Shares..................................44
11.18. Non-Transferability of Excess Shares.....................44
11.19. Call by Trust on Excess Shares...........................44
11.20. Underwritten Offerings...................................45
iv
<PAGE>
STARWOOD FINANCIAL TRUST
AMENDED AND RESTATED DECLARATION OF TRUST
Starwood Financial Trust, a Maryland real estate investment trust under
Title 8 of the Corporations and Associations Article of the Annotated Code of
Maryland, desires to amend and restate its Declaration of Trust as currently in
effect and as hereinafter amended. This Amended and Restated Declaration of
Trust of Starwood Financial Trust (this "Declaration"), originally made and
entered into as of April __, 1998, is amended and restated in New York, New York
as of May __, 1998.
The following provisions are all the provisions of the Declaration
currently in effect and as hereinafter amended.
RECITALS
I. The trustees named on Schedule A hereto (the "Trustees") desire to create a
real estate investment trust under the laws of the State of Maryland.
II. The Trustees desire that this Trust qualify as a real estate investment
trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of
1986, as now in effect or hereafter amended (the "Code"), and under Title 8 of
the Corporations and Associations Article of the Annotated Code of Maryland, as
amended ("Title 8").
III. The beneficial interest in this Trust shall be divided into transferable
shares ("Shares") of one or more classes evidenced by certificates. The holders
of Shares are referred to as "Shareholders."
DECLARATION
NOW, THEREFORE, the Trustees hereby declare that they assume the duties
of Trustees hereunder.
ARTICLE I
THE TRUST
1.1. Name. The name of the trust created by this Declaration is
"Starwood Financial Trust" (the "Trust"). So far as may be practicable, legal
and convenient and subject to the requirements of a license agreement between
the Trust and Starwood Capital Group, L.L.C., the affairs of the Trust shall be
conducted and transacted under that name, which name shall refer to the Trust
and not to the Trustees individually or personally or to the beneficiaries or
Shareholders, or to any officers, employees or agents of the Trust.
Under circumstances in which the Board of Trustees (the "Board")
determines that the use of the name "Starwood Financial Trust" is not
practicable, legal or convenient, they may as appropriate use their names with
suitable reference to their trustee status, or some other suitable
<PAGE>
designation, or they may adopt another name under which the Trust may hold
property or operate in any jurisdiction which name shall not, to the knowledge
of the Board, refer to beneficiaries or Shareholders. Legal title to all the
properties subject from time to time to this Declaration shall be transferred
to, vested in and held by the Trust in its own name, except that the Board shall
have the power to cause legal title to any property of this Trust to be held by
and/or in the name of one or more of the Trustees, or any other person as
nominee, on such terms, in such manner and with such powers as the Board may
determine, provided that the interest of the Trust therein is appropriately
protected.
The Trust shall have the authority to operate under an assumed name or
names in such state or states or any political subdivision thereof where it
would not be legal, practical or convenient to operate in the name of the Trust.
The Trust shall have the authority to file such assumed name certificates or
other instruments in such places as may be required by applicable law to operate
under such assumed name or names.
1.2. Resident Agent. The name and address of the resident agent of the
Trust in the State of Maryland is The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202. The Trust may have such other offices or
places of business within or without the State of Maryland as the Board may from
time to time determine.
1.3. Nature of the Trust. The Trust is a REIT within the meaning of
Title 8. The Trust is not intended to be, shall not be deemed to be and shall
not be treated as a general partnership, limited partnership, joint stock
company, or association, (but nothing herein shall preclude the Trust from being
taxable as an association under the REIT Provisions of the Code), or, except as
contemplated in Section 9.1, a corporation. Neither the Trustees nor the
Shareholders will for any purpose be, or be deemed to be treated in any way
whatsoever to be, liable or responsible hereunder as partners or joint
venturers. The Shareholders shall be beneficiaries of the Trust and their rights
shall be limited to those expressly conferred on them hereunder.
1.4. Purpose of the Trust. The Trust shall have all the powers granted
to REITs generally by Title 8 or any successor statute and shall have such other
and further powers as are not inconsistent with and are appropriate to promote
and attain the purposes of the Trust as set forth in this Declaration. The
primary purposes of the Trust are to acquire a diversified portfolio of debt
and/or debt like interests in real estate and/or real estate related assets,
including (i) originating mortgage loans and/or acquiring mortgage loans or
acquiring securities collateralized, in whole or in part, by such mortgage
loans, as well as making equity investments in real estate and real
estate-related assets, (ii) acquiring direct or indirect interests in short
term, medium and long-term real estate-related debt securities and mortgage
interests, which may include warrants, equity participations or similar rights
incidental to a debt investment by the Trust, (iii) making, holding and
disposing of purchase money loans with respect to assets sold by the Trust, and
(iv) acquiring positions in non-performing and sub-performing debt for the
purpose of either restructuring it as performing debt or if such efforts are
unsuccessful, of obtaining shortly thereafter primary management rights over or
equity interests in the underlying assets securing such debt (the "Diversified
Portfolio"). The Trust's authority with respect to the
2
<PAGE>
Diversified Portfolio includes the power to acquire, hold, own, develop,
redevelop, construct, improve, maintain, operate, manage, sell, lease, rent,
transfer, encumber, mortgage, convey, exchange and otherwise dispose of all or
part of the Diversified Portfolio and the Diversified Portfolio may be held by
the Trust directly or indirectly.
Without the amendment, termination or waiver of provisions of certain
non-competition agreements between Starwood Capital Group, L.P. and Starwood
Hotels & Resorts, a publicly traded hotel real estate investment trust the
shares of which are paired and trade with those of Starwood Hotels & Resorts
Worldwide, Inc., the Trust is prohibited from: (i) making investments in loans
collateralized by hotel assets where it is anticipated that the underlying
equity will be acquired by the debt holder within one (1) year from the
acquisition of such debt, (ii) acquiring equity interests in hotels (other than
acquisitions of warrants, equity participations or similar rights incidental to
a debt investment by the Trust or that are acquired as a result of the exercise
of remedies in respect of a loan in which the Trust has an interest) or (iii)
selling or contributing to or acquiring any interests in Starwood Hotels &
Resorts, including debt positions or equity interests obtained by the Trust
under, pursuant to or by reason of the holding of debt positions.
1.5. Definitions. The following terms shall, whenever used in this
Declaration, unless the context otherwise requires, have the meanings specified
in this Section 1.5. The singular shall refer to the plural, and the masculine
gender shall be deemed to refer to the feminine and neuter, and vice versa, as
the context requires.
(a) "Advisor" means the Person to whom, pursuant to the Advisory
Agreement, the Trustees delegate certain control and management of the Trust and
its assets as provided in Section 4.1.
(b) "Advisory Agreement" means the advisory agreement between the Trust
and the Advisor as described in Section 4.2.
(c) "Affiliate" means with respect to the Advisor, a Shareholder, or
Trustee (i) any Person directly or indirectly owning, controlling, or holding,
with power to vote, 5% or more of the outstanding voting securities of the
Advisor or such Shareholder, (ii) any Person 5% or more of whose outstanding
voting securities are directly or indirectly owned, controlled, or held, with
power to vote, by the Advisor, such Trustee, or such Shareholder, and (iii) any
officer, director, or partner of the Advisor or such Shareholder.
(d) "Bylaws" means the bylaws of the Trust, provided for in Section
3.3.
(e) "Class A Shareholders" means, at any particular time, those Persons
who are shown as the holders of record of all Class A Shares on the records of
the Trust at such time.
(f) "Class B Shareholders" means, at any particular time, those Persons
who are shown as the holders of record of all Class B Shares on the records of
the Trust at such time.
3
<PAGE>
(g) "Class A Shares" means the designated shares of beneficial interest
of the Trust as described in Section 6.1.
(h) "Class B Shares" means the designated shares of beneficial interest
of the Trust as described in Section 6.1.
(i) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, including successor statutes thereto.
(j) "Declaration" means this Amended and Restated Declaration of Trust
and all amendments and modifications thereof. References in this Declaration to
"herein" and "hereunder" shall be deemed to refer to this Declaration and shall
not be limited to the particular text, article, or section in which such words
appear.
(k) "Mortgages" means mortgages, deeds of trust, or other security
instruments on real property or rights or interests in real property or entities
owning or controlling real property.
(l) "Operating Expenses" means the aggregate annual expenses of the
Trust of every character regarded as operating expenses in accordance with
generally accepted accounting principles, as determined by independent
accountants selected by the Trustees, exclusive of: Organization and Offering
Expenses; interest and discounts and other costs of borrowed money; taxes on
income and real property and all other taxes and assessments applicable to the
Trust and its operations; legal, auditing, underwriting, brokerage, transfer
agent's, registrar's, and indenture trustee's fees and other such fees, whether
paid to Affiliates of the Advisor or independent Persons; fees and expenses paid
to independent contractors, independent advisors, mortgage bankers, brokers, and
services, real property managers, leasing agents, consultants, on-site managers,
real estate brokers, insurance agents and brokers, other brokers and agents, and
all personnel employed by the Trust or on its behalf (including all compensation
and reimbursements of expenses, payable to the Advisor by the Trust under any
Advisory Agreement with the Trust referred to in Article IV hereof and
compensation payable to Affiliates of the Advisor) employed by or on behalf of
the Trust; costs of insurance (including Trustee's liability insurance), whether
paid to Affiliates of the Advisor or independent Persons; expenses of organizing
and terminating the Trust; all expenses connected with distributions and
communications to holders of Securities of the Trust and the other bookkeeping
and clerical work necessary in maintaining relations with holder of Securities,
including the cost of printing and mailing checks, certificates for Securities,
proxy solicitation materials, and reports to such holders; all expenses
connected with the acquisition, disposition, and ownership of the Trust Estate,
and all other investments by the Trust, including the costs of appraisal, legal
services, brokerage and sales commissions, processing and foreclosure expenses,
expenses for the maintenance, repair, and improvements of Trust assets, property
management fees and expenses for day-to-day management of Trust assets, whether
paid to Affiliates of the Advisor or other Persons; realized losses (exceeding
provisions therefor) on dispositions; and all provisions for depletion,
depreciation, amortization, and losses.
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(m) "Organization and Offering Expenses" means those expenses incurred
in connection with the formation and registration of the Trust and in qualifying
and marketing the Shares or other Securities under applicable federal and state
law, and any other expenses actually incurred and directly related to the
qualification, registration, offer, and sale of the Shares or other Securities,
including such expenses as: (i) selling commissions; (ii) all marketing expenses
and payment made to broker-dealers as compensation or reimbursement for all
costs of reviewing the offerings, including due diligence investigations and
fees or expenses of their attorneys, accountants, and other experts; (iii)
registration fees, filing fees, and taxes; (iv) the costs of printing, amending,
supplementing, and distributing the registration statements and prospectuses;
(v) the costs of obtaining regulatory clearances of, printing, and distributing
sales materials used in connection with the offer and sale of the Shares or
other Securities; (vi) compensation of officers and employees of the Advisor and
its Affiliates while directly engaged in organizing and forming the Trust and in
qualifying, registering, and marketing the Shares or other Securities under
applicable federal and state law; (vii) reimbursements to any selling agent,
selected broker-dealers, the Advisor, and its Affiliates for special marketing
and incentive programs sponsored by those entities; (viii) the costs related to
investor and broker-dealer sales meetings; and (ix) accounting and legal fees
incurred in connection with any of the foregoing.
(n) "Person" means any individual, partnership, corporation,
association, trust, or other entity.
(o) "REIT Provisions of the Code" means Part II, Subchapter M of
Chapter 1 of Subtitle A of the Code, as now enacted or hereafter amended,
including successor statutes and regulations promulgated thereunder.
(p) "Securities" means common and preferred stock in a corporation,
shares of beneficial interest in a trust or other unincorporated association,
general partner interests in a general partnership, interests in a joint
venture, general or limited partnership interests in a limited partnership,
membership interests or non-member manager interests in a limited liability
company, notes, debentures, bonds, and other evidences of indebtedness,
including Mortgages, whether secured or unsecured, and includes any options,
warrants, and rights to subscribe to or convert into any of the foregoing.
(q) "Shareholders" means, at any particular time, the Class A
Shareholders, the Class B Shareholders, and all other holders of record of
outstanding Shares on the records of the Trust at such time.
(r) "Shares" means the Class A Shares, the Class B Shares, and all
other shares of beneficial interest of the Trust issued as provided herein.
(s) "Trust" means the trust created by this Declaration.
(t) "Trustees" means, as of any particular time, the Persons holding
such office under this Declaration at such time, whether they be the Trustees
named herein or
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additional or successor Trustees, but shall not include the officers,
representatives, or agents of the Trust or the Shareholders, although nothing
herein shall be deemed to preclude the Trustees from also serving as officers,
representatives, or agents of the Trust or from owning Shares.
(u) "Trust Estate" means, as of any particular time, any and all
property, real, personal, or otherwise, tangible or intangible, which is held,
transferred, conveyed, or paid to the Trust or the Trustees on behalf of the
Trust and all rents, income, profits, and gains therefrom.
(v) "Trust Loans" means the notes, debentures, bonds, and other
evidences of indebtedness or obligations acquired or entered into by the Trust
which are secured or collateralized by personal property or fee or leasehold
interests in real estate or other assets, including, but not limited to, first
mortgage loans, junior mortgage loans, construction loans, development loans,
equipment loans, loans secured by general or limited partnership interests,
capital stock, or any other assets or form of equity interest or guarantee of
the borrower, and any other type of loan or financial arrangement, such as
providing or arranging for letters of credit, providing guarantees of
obligations to third parties, or providing commitments for Trust Loans.
ARTICLE II
THE TRUSTEES
2.1. Number, Terms of Office, Qualifications of Trustees. The initial
number of Trustees shall be eight, but such number may be changed from time to
time by a vote of the majority of Trustees then in office or by Shareholders
voting in the manner set forth in Section 6.2(e), provided that the number of
Trustees so fixed shall not be less than seven nor more than 15. The initial
Trustees shall be the signatories hereto. Subject to the provisions of Section
2.3, each Trustee shall hold office until the expiration of his or her term and
until the election and qualification of his or her successor. The Trustees shall
be divided into two classes of approximate equal size, which classes are hereby
designated Class I and Class II. The term of office of the initial Class I
Trustees shall expire at the 1998 Annual Meeting of Shareholders; and the term
of office of the initial Class II Trustees shall expire at the 1999 Annual
Meeting of Shareholders. For the purposes hereof, the initial Class I and Class
II Trustees shall be those Trustees so designated and elected at the 1997 Annual
Meeting of Shareholders held in March 1998.
At each Annual Meeting of Shareholders after the 1997 Annual Meeting of
Shareholders, Trustees to replace those of the class whose terms expire at such
Annual Meeting of Shareholders shall be elected to hold office until the second
succeeding annual meeting and until their respective successors shall have been
duly elected and qualified.
Trustees may be re-elected indefinitely. A Trustee shall be an
individual at least 21 years of age who is not under legal disability. Such
individual shall qualify as a Trustee when he has either signed this Declaration
or agreed in writing to be bound by it. Unless otherwise required by law, no
Trustee shall be required to give bond, surety, or security in any jurisdiction
for the
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performance of any duties or obligations hereunder. The Trustees in their
capacity as trustees shall not be required to devote their entire time to the
business and affairs of the Trust, and it is understood that all or some of the
Trustees may be involved in, and/or shareholders, officers, directors,
representatives, agents, partners, or beneficiaries of, businesses and ventures
which may be in direct competition with the Trust.
2.2. Compensation and Other Remuneration. The Trustees shall be
entitled to receive such reasonable compensation for their services as Trustees
as they may determine from time to time. The Trustees, either directly or
indirectly, shall also be entitled to receive remuneration for services rendered
to the Trust in any other capacity. Such services may include, without
limitation, services as an officer of the Trust, legal, accounting, or other
professional services, or services as a broker, transfer agent, or underwriter,
whether performed by a Trustee or an Affiliate of a Trustee.
2.3. Resignation, Removal and Death of Trustees. A Trustee may resign
at any time by giving written notice in recordable form to the remaining
Trustees at the principal office of the Trust. Such resignation shall take
effect on the date such notice is given or at any later time specified in the
notice without need for prior accounting. A Trustee may be removed with or
without cause at a special meeting of the Shareholders voting in the manner set
forth in Section 6.2, or with cause by all remaining Trustees. "Cause" for
purposes of this Section 2.3 shall mean a Trustee's willful violations of this
Declaration or the Bylaws which violations are materially against the interests
of the Shareholders, or gross negligence in the performance of his or her
duties.
Upon the resignation or removal of any Trustee, or his or her otherwise
ceasing to be a Trustee, he or she shall execute and deliver such documents as
the remaining Trustees shall require for the conveyance of any Trust property
held in his or her name, shall account to the remaining Trustee or Trustees as
they require for all property which he or she holds as Trustee, and shall
thereupon be discharged as Trustee. Upon the incapacity or death of any Trustee,
his or her legal representative shall perform the acts set forth in the
preceding sentence, and the discharge mentioned therein shall run to such legal
representative and to the incapacitated Trustee or the estate of the deceased
Trustee as the case may be.
2.4. Vacancies. If any or all of the Trustees ceased to be Trustees
hereunder, whether by reason of resignation, removal, incapacity, death, or
otherwise, such event shall not terminate the Trust or affect its continuity.
Until vacancies are filled, the remaining Trustee or Trustees (even though less
than seven) may exercise the powers of the Trustees hereunder. Vacancies
(including vacancies created by increases in number) may be filled by the
remaining Trustee or by vote of a majority of the remaining Trustees or by the
Shareholders voting in the manner set forth in Section 6.2(a). Any Trustee so
elected by the remaining Trustees or the Shareholders shall hold office until
his successor is elected and qualified or until his or her earlier death,
resignation, retirement, disqualification or removal from office. Newly created
trusteeships or decrease in trusteeships shall be so apportioned among the
classes so as to make all classes as nearly equal in number as is practicable.
Any additional Trustee of any class elected to fill a
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vacancy resulting from any increase in such class shall hold office for a term
that shall coincide with the remaining term of that class, but in no case will a
decrease in the number of Trustees shorten the term of any incumbent Trustee. If
at any time there shall be no Trustees in office, successor Trustees shall be
elected by the Shareholders as provided in Section 6.2(a).
2.5. Successor and Additional Trustees. The right, title, and interest
of the Trustees in and to the Trust Estate shall also vest in successor and
additional Trustees upon their acceptance of the office, and they shall
thereupon have all the rights and obligations of Trustees hereunder. Such right,
title, and interest shall vest in the Trustees whether or not conveyancing
documents have been executed and delivered pursuant to Section 2.3 or otherwise.
2.6. Actions by Trustees and Executive Committee; Quorum. A quorum for
all meetings of the Trustees shall be a majority of the Trustees. Unless
specifically provided otherwise in this Declaration, any action of the Trustees
may be taken at a meeting by a vote of a majority of the Trustees. Any action
taken by Trustees in accordance with the provisions of this Article II shall be
conclusive and binding on the Trust, the Trustees and the Shareholders, as an
action of all the Trustees, collectively, and of the Trust. Any agreement, deed,
mortgage, lease, or other instrument or writing executed by one or more of the
Trustees or by any authorized Person shall be valid and binding upon the
Trustees and upon the Trust; provided that such action is pursuant to
authorization of a majority of the Trustees given either at a meeting or in
writing or as provided in the Bylaws.
The Trustees may appoint a committee (the "Executive Committee") with
authority to exercise the powers of the Trustees and consisting of five or more
of the Trustees. Unless specifically provided otherwise in this Declaration, any
action of the Executive Committee may be taken at a meeting by vote of a
majority of the members of the Committee. A quorum for all meetings of the
Executive Committee shall be a majority of the members thereof. With respect to
the actions of the Trustees and the Executive Committee, Trustees who are
Affiliates of the Advisor may be counted for all quorum purposes.
Unless otherwise specifically provided in this Declaration, any action
required or permitted to be taken at any meeting of the Trustees or of the
Executive Committee may be taken without a meeting if all of the Trustees or
members of the Executive Committee, as the case may be, consent thereto in
writing. Trustees or members of the Executive Committee may participate in a
meeting of the Trustees or the Executive Committee, as the case may be, by means
of conference telephone or similar communications equipment by which all
individuals participating in the meeting can hear each other, and participation
in such meeting pursuant to this paragraph shall constitute presence in person
at such meeting for all purposes of this Declaration.
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ARTICLE III
TRUSTEES' POWERS
3.1. Power and Authority of Trustees. The Trustees, subject only to the
specific limitations contained in this Declaration, shall have, without further
or other authorization, and free from any power or control on the part of the
Shareholders, full, absolute, and exclusive power, control, and authority (a)
over the Trust Estate and over the business and affairs of the Trust and (b) to
do all such acts and things as in their sole judgment and discretion are
necessary or incidental to, or desirable for the carrying out of, any of the
purposes of the Trust or conducting the business of the Trust. Notwithstanding
anything to the contrary in this Declaration, the Trustees shall have continuing
exclusive authority over the management of the Trust, the conduct of its affairs
and the management and disposition of Trust property, all in accordance with the
REIT Provisions of the Code. Any determination made in good faith by the
Trustees of the purposes of the Trust or the existence of any power or authority
hereunder shall be conclusive as to the Trust and its Shareholders. In
construing the provisions of this Declaration, presumption shall be in favor of
the grant of powers and authority to the Trustees. The enumeration of any
specific power or authority herein shall not be construed as limiting the
general powers or authority or any other specified power or authority conferred
herein upon the Trustees.
3.2. Specific Powers and Authorities. Subject only to the express
limitations contained in this Declaration and in addition to any powers and
authorities conferred by this Declaration or which the Trustees may have by
virtue of any present or future statute or rule or law, the Trustees without any
action or consent by the Shareholders shall have and may exercise at any time
and from time to time the following powers and authorities which may be
exercised by them in their sole judgment and discretion and in such manner and
upon such terms and conditions as they may from time to time deem appropriate:
(a) To retain, invest, and reinvest the capital or other funds of the
Trust in Trust Loans and real or personal property investments of any kind, and
to purchase, invest in, or otherwise acquire for cash or other property or
through the issuance of Shares or other Securities, Trust Loans and fee,
leasehold, or other participating interests in property, real, personal, or
mixed, tangible or intangible, including notes, bonds, or other obligations, all
for such consideration as they deem appropriate and without regard to whether
any such property is authorized by law for the investment of trust funds. In
connection with any such investment, purchase, or acquisition, the Trustees
shall have the power to acquire a share of rents, lease payments, or other gross
income from, or a share of the profits from, or a share in the equity or
ownership of the security for such Trust Loans; to invest in Trust Loans secured
by the pledge or transfer of Mortgages, other assets, and/or contractual
obligations; to develop, operate, pool, unitize, grant production payments out
of or lease or otherwise dispose of mineral, oil and gas properties, and rights.
(b) To possess and exercise all the rights, powers, and privileges
appertaining to the ownership of the Trust Estate and to increase the capital of
the Trust at any time by the
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issuance of additional Shares or other Securities, in all cases for such
consideration and upon such terms as they deem appropriate.
(c) To sell, rent, lease, hire, exchange, release, partition, assign,
mortgage, pledge, hypothecate, grant security interests in, encumber, negotiate,
convey, transfer, or otherwise dispose of any and all of the Trust Estate by
deeds, trust deeds, assignments, bills of sale, transfers, leases, Mortgages,
financing statements, security agreements, and other instruments for any of such
purposes executed and delivered for and on behalf of the Trust or the Trustees
by one or more of the Trustees or by a duly authorized officer, employee, agent,
or any nominee of the Trust.
(d) To amend the Declaration, without Shareholders' consent, to
increase or decrease the aggregate number of Shares or the number of Shares of
any class or series, that the Trust has authority to issue. To issue Shares or
other Securities which may be subordinated to any indebtedness of the Trust and
may be convertible into Shares, including Preferred Shares in series, by
amending this Declaration, which amendment shall not require the vote of
Shareholders to the extent such amendment establishes a class or series of
Shares or Securities and/or the terms and preferences thereof, to establish from
time to time the number of Shares to be included in each such series, and to fix
the designation, powers, preferences and rights of the Shares of each such
series and the qualifications, limitations or restrictions thereof, all without
vote of or other action by the Shareholders to such Persons for such cash,
property, or other consideration (including securities issued or created by, or
interests in any Person) at such time or times and on such terms as the Trustees
may deem advisable and to list any of the Securities issued by the Trust on any
securities exchange and to purchase or otherwise acquire, hold, cancel, reissue,
sell, and transfer any of the Securities. The authority of the Board with
respect to any new Shares or Securities shall include, but not be limited to,
determination of the following:
(i) The number of Shares or Securities constituting that
series and the distinctive designation of that series;
(ii) The rate of dividend, and whether (and if so, on what
terms and conditions) dividends shall be cumulative (and if so, whether
unpaid dividends shall compound or accrue interest) or shall be payable
in preference or in any other relation to the dividends payable on any
other class or classes of Shares or any other series of Shares or
Securities;
(iii) Whether that series shall have voting rights in addition
to the voting rights provided by law and, if so, the terms and extent
of such voting rights;
(iv) Whether the Shares or Securities must or may be redeemed
and, if so, the terms and conditions of such redemption (including,
without limitation, the dates upon or after which they must or may be
redeemed and the price or prices at which they must or may be redeemed,
which price or prices may be different in different circumstances or at
different redemption dates);
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(v) Whether the Shares shall be issued with the privilege of
conversion or exchange and, if so, the terms and conditions of such
conversion or exchange (including without limitation the price or
prices or the rate or rates of conversion or exchange or any terms for
adjustment thereof);
(vi) The amounts, if any, payable upon the Shares in the event
of voluntary liquidation, dissolution or winding up of the Trust in
preference of Shares of any other class or series and whether the
Shares shall be entitled to participate generally in distributions
under such circumstances;
(vii) The amounts, if any, payable under the Shares thereof in
the event of involuntary liquidation, dissolution or winding up of the
Trust in preference of shares of any other class or series and whether
the Shares shall be entitled to participate generally in distributions
under such circumstances;
(viii) Sinking fund provisions, if any, for the redemption or
purchase of the Shares (the term "sinking fund" being understood to
include any similar fund, however designated); and
(ix) Any other relative rights, preferences, limitations and
powers of that series.
(e) To enter into leases, contracts, obligations, easement agreements,
party wall agreements, boundary line agreements, loan commitments of every kind,
nature, and description, guarantees, financing arrangements and participations,
and other agreements, any one of which may be for a term extending beyond the
term of office of the Trustees and beyond the possible termination of the Trust
or for a lesser term.
(f) To borrow money and give negotiable or non-negotiable instruments
therefor; to guarantee, indemnify, or act as surety with respect to payment or
performance of obligations of third parties; to enter into other obligations on
behalf of the Trust and to assign, convey, transfer, mortgage, subordinate,
pledge, grant security interests in, encumber, or hypothecate the Trust Estate
to secure any of the foregoing.
(g) To lend money, whether secured or unsecured, pursuant to Trust
Loans or otherwise.
(h) To create reserve funds for any purpose.
(i) To incur and pay out of the Trust Estate any charges or expenses,
and disburse any funds of the Trust, which charges, expenses, or disbursements
are, in the opinion of the Trustees, necessary or incidental to or desirable for
the carrying out of any of the purposes of the Trust or conducting the business
of the Trust, including, without limitation, all Organization and Offering
Expenses, Operating Expenses, payments, reimbursements, and compensation to
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the Trustees, the Advisor, and their Affiliates, taxes and other governmental
levies, charges, and assessments, of whatever kind or nature, imposed upon or
against the Trustees in connection with the Trust or the Trust Estate or upon or
against the Trust Estate or any part thereof, and for any of the purposes
herein.
(j) To deposit funds of the Trust in banks, trust companies, savings
and loan associations, and other depositories, whether or not such deposits will
draw interest, the same to be subject to withdrawal on such terms, in such
manner, and by such Person or Persons (including any one or more Trustees,
officers, agents, representatives, or the Advisor) as the Trustees may
determine.
(k) To posses and exercise all the rights, powers, and privileges
appertaining to the ownership of all or any Mortgages or Securities, issued or
created by, or interests in, any Person, forming part of the Trust Estate, to
the extent that an individual might, and, without limiting the generality of the
foregoing, to vote or give any consent, request, or notice, or waive any notice,
either in person or by proxy or power of attorney, with or without power of
substitution, to one or more Persons, which proxies and powers of attorney may
be for meetings or action generally or for any particular meeting or action and
may include the exercise of discretionary powers.
(l) To cause to be organized or assist in organizing any Person under
the laws of any jurisdiction to acquire the Trust Estate or any part or parts
thereof or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, rent, lease, hire, convey, negotiate,
assign, exchange, or transfer the Trust Estate or any part or parts thereof to
or with any such Person in exchange for the Securities thereof or otherwise, and
to lend money to, subscribe for the Securities of, and enter into any contracts
with, any such Person the Securities or any other interest of which the Trust
holds or is about to acquire.
(m) To enter into joint ventures, general or limited partnerships, and
any other lawful combinations or associations.
(n) To elect one of themselves as Chairman of the Board and to elect,
appoint, engage, or employ other officers for the Trust (including a Secretary,
Treasurer, and such Vice Presidents and other officers as the Trustees may
determine), who may be removed or discharged at the discretion of the Trustees,
such officers to have such powers and duties, and to serve such terms, as may be
prescribed by the Trustees or by the Bylaws; to engage or employ any Persons
(including, subject to the provisions of Sections 7.4 and 7.5, any Trustee,
officer, or employee of the Trust or any Affiliate of any of such Trustee,
officer, or employee of the Trust) as agents, representatives, or employees
(including, without limitation, real estate advisors, investment advisors,
transfer agents, registrars, underwriters, accountants, attorneys at law, real
estate agents, managers, appraisers, brokers, architects, engineers,
construction managers, general contractors, or otherwise) in one or more
capacities, and to pay compensation from the Trust for services in as many
capacities as such Persons may be so engaged or employed; and, except as
prohibited by law, to delegate any of the powers and duties of the Trustees to
any one or more
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Trustees, agents, representatives, officers, employees, independent contractors,
the Advisor, or other Persons.
(o) To determine whether monies, Securities, or other assets received
by the Trust shall be charged or credited to income or capital or allocated
between income and capital, including the power to amortize or fail to amortize
any part or all of any premium or discount, to treat any part or all of the
profit resulting from the maturity or sale of any asset whether purchased at a
premium or at a discount, as income or capital, or apportion the same between
income and capital, to apportion the sales price of any asset between income and
capital, and to determine in what manner any expenses or disbursements are to be
borne as between income and capital, whether or not in the absence of the power
and authority conferred by this subsection such moneys, Securities, or other
assets would be regarded as income or as capital or such expense or disbursement
would be charged to income or to capital; to treat any dividend or other
distribution on any investment as income or capital or apportion the same
between income and capital; to provide or fail to provide reserves for
depreciation, amortization, or obsolescence in respect of all or any part of the
Trust Estate subject to depreciation, depletion, amortization, or obsolescence
in such amounts and by such methods as they shall determine; and to determine
the method or form in which the accounts and records of the Trust shall be kept
and to change from time to time such method or form.
(p) To determine from time to time, the value of all or any part of the
Trust Estate and of any services, Securities, Trust Loans, property, or other
consideration to be furnished to or acquired by the Trust, and from time to time
to revalue all or any part of the Trust Estate in accordance with such
appraisals or other information as are, in the Trustees' sole judgment,
necessary and/or satisfactory.
(q) To collect, sue for, and receive all sums of money coming due to
the Trust, and to engage in, intervene in, prosecute, join, defend, compound,
compromise, abandon, or adjust, by arbitration or otherwise, any actions, suits,
proceedings, disputes, claims, controversies, demands, or other litigation
relating to the Trust, the Trust Estate, or the Trust's affairs, to enter into
agreements therefor, whether or not any suit is commenced or claim accrued or
asserted and, in advance of any controversy, to enter into agreements regarding
arbitration, adjudication, or settlement thereof.
(r) To renew, modify, release, compromise, extend, consolidate, or
cancel, in whole or in part, any obligation to or of the Trust.
(s) To purchase and pay for out of the Trust Estate insurance contracts
and policies insuring the Trust Estate against any and all risks and insuring
the Trust and/or any or all of the Trustees, the Shareholders, or officers
against any and all claims and liabilities of every nature asserted by any
Person arising by reason of any action alleged to have been taken or omitted by
the Trust or by the Trustees, Shareholders, or officers, regardless of whether
such insurance contracts and policies are provided by Persons affiliated with
the Advisor or the Trustees.
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(t) To cause legal title to any of the Trust Estate to be held by
and/or in the name of the Trustees, and/or, except as prohibited by law, in the
name of the Trust or one or more of the Trustees or any other Person, on such
terms, in such manner, and with such powers in such Person as the Trustees may
determine, and with or without disclosure that the Trust or Trustees are
interested therein.
(u) To adopt a fiscal year for the Trust, and from time to time change
such fiscal year.
(v) To adopt and use a seal (but, the use of a seal shall not be
required for the execution of instruments or obligations of the Trust).
(w) To help ensure that (i) the objectives of the Trust (including the
objectives of providing Shareholders with a pass-through investment vehicle, as
well as minimizing unrelated business taxable income for tax-exempt
Shareholders) will not be defeated by future legislation or other action, (ii)
the Trust will not be deemed to hold assets of an employee benefit plan ("Plan
Assets") for purposes of the Employee Retirement Income Security Act of 1974
("ERISA"), and (iii) the transactions contemplated hereunder will not constitute
prohibited transactions under ERISA or the Code. In order to accomplish the
foregoing, the Trustees and the Advisor have the right (upon notice to all
Shareholders but without the need to obtain the consent of any Shareholder) to
take any actions including (1) restructuring the Trust's activities and, if
deemed necessary by the Trustees and the Advisor, converting the Trust to
another type of entity (including a partnership), (2) restructuring the Trust's
activities to the extent necessary to comply with any exemption in Plan Asset
legislation or the Plan Asset regulations adopted by the Department of Labor
from time to time, including establishing a fixed percentage of Shares permitted
to be held by employee benefit plans or other tax-exempt entities, or
discontinuing sales of Securities to such investors after a given date as
necessary to obtain a prohibited transaction exemption from the Department of
Labor to comply with any exemption in the Plan Asset legislation or Plan Asset
regulations, and/or (3) terminating any offering, or compelling a dissolution
and termination of the Trust.
(x) After obtaining approval of the Shareholders as required hereby or
by Maryland law, to participate in any reorganization, readjustment,
consolidation, merger, dissolution, sale or purchase of assets, lease or similar
proceedings of any corporation, partnership or other organization in which the
Trust shall have an interest and in connection therewith to delegate
discretionary powers to any reorganization, protective or similar committee and
to pay assessments and other expenses in connection therewith.
(y) To solicit proxies of the Shareholders.
(z) After obtaining approval of the Shareholders as required hereby or
by Maryland law, to merge the Trust with or into any other trust or corporation
in accordance with the laws of the State of Maryland.
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(aa) To do all other such acts and things as are incident to the
foregoing and to exercise all powers which are necessary or useful to carry on
the business of the Trust, to promote any of the purposes for which the Trust is
formed, and to carry out the provisions of this Declaration.
3.3. Trust Bylaws. The Trustees may make, adopt, amend, or repeal
bylaws (the "Bylaws") containing provisions relating to the business of the
Trust, the conduct of its affairs, its rights or powers, and the rights or
powers of its Shareholders, Trustees, or officers not inconsistent with law or
with this Declaration.
ARTICLE IV
ADVISOR
4.1. Employment of Advisor. The Trustees are responsible for the
general policies of the Trust and for such general supervision of the business
of the Trust conducted by all officers, agents, employees, advisors, managers,
or independent contractors of the Trust as may be necessary to insure that such
business conforms to the provisions of this Declaration. However, the Trustees
are not and shall not be required personally to conduct the business of the
Trust and, consistent with their ultimate responsibility as stated above, the
Trustees shall have the power to appoint, employ, or contract with any Person
(including one or more of themselves, or any Affiliate of any of them) as the
Trustees may deem necessary or proper for the transaction of the business of the
Trust. The Trustees may therefore employ or contract with such Person (herein
referred to as the "Advisor"), and the Trustees may grant or delegate such
authority to the Advisor as the Trustees may in their sole discretion deem
necessary or desirable, without regard to whether such authority is normally
granted or delegated by Trustees.
The Trustees shall have the power to determine the terms and
compensation of the Advisor or any other Person whom they may employ or with
whom they may contract. The Trustees may exercise broad or other discretion in
allowing the Advisor to administer and regulate the operations of the Trust, to
act as agent for the Trust, to execute documents on behalf of the Trustees, and
to make executive decisions which conform to general policies and general
principles previously established by the Trustees.
4.2. Term. The Trustees entered into a contract with the Advisor
("Advisory Agreement") as of March 18, 1998 which provides for an initial term
of three years and for the automatic annual extension thereafter. The Advisory
Agreement may be terminated, without penalty upon no less than 60 days' written
notice of the Advisor or by vote of a majority of the Trustees upon a
Termination Event (as defined in the Advisory Agreement) or by Shareholders
voting as set forth in Section 6.2.
4.3. Independence of Trustees and Members of Executive Committee. A
minimum of the greater of (i) 331/3% of the total number of Trustees and (ii)
three (3) members of the Executive Committee and the Board shall be Persons who
are not Affiliates of the Advisor or
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Starwood Capital Group, L.L.C.; provided, however, that if at any time the
number of Trustees or members of the Executive Committee who are not Affiliates
of such Person becomes less than the minimum number set forth above, whether
because of the death, resignation, removal, or change in affiliation of one or
more Trustees or members of the Executive Committee or otherwise, then such
requirement shall not be applicable for a period of 90 days of such event
occurring, during which period the continuing Trustees or Trustee then in office
shall appoint, pursuant to Section 2.4, a sufficient number of other individuals
as Trustees or as members of the Executive Committee so that again a minimum of
the greater of (i) 331/3% of the total number of Trustees and (ii) three (3)
members of the Board of Trustees and the Executive Committee then in office are
not Affiliates of such Person. The Trustees shall at all times endeavor to
comply with the requirement of this Section 4.3 as to independence, but failure
so to comply with such requirement shall not affect the validity or
effectiveness of any action of the Trustees or of the Executive Committee.
4.4. Other Activities of Advisor. The Advisor shall not be required to
administer the Trust as its sole and exclusive function and may have other
business interests and may engage in other activities in addition to those
relating to the Trust which may be in direct competition with the Trust,
including acting as a real estate or loan broker, acting as a general partner or
manager, and rendering of advice or services of any kind to any other Person
(including, but not limited to, Affiliates of the Advisor). The Trustees may
request the Advisor and/or its Affiliates to engage in certain other activities
relating to the Trust's investments, including property management, contracting
for the construction of improvements, and the placement or brokerage of real
property, equity investments in real property, Mortgages, or other financing
arrangements; and the Advisor and/or its Affiliates may act as broker or provide
services requested by sellers, mortgagors, prospective sellers, or prospective
mortgagors to the Trust and may receive brokerage commissions and other
compensation from such sellers, mortgagors, prospective sellers, and prospective
mortgagors in addition to compensation paid to the Advisor by the Trust.
The Advisor shall be required to use its best efforts to present a
continuing and suitable investment program to the Trust which is consistent with
the investment policies and objectives of the Trust, but neither the Advisor nor
any Affiliate of the Advisor shall be obligated to present any particular
investment opportunity to the Trust even if such opportunity is of a character
which, if presented to the Trust, could be taken by the Trust, and subject to
the foregoing, each of them shall have the right to take for its own account or
to recommend to others any such particular investment opportunity. The Advisor
shall act on a basis which is fair and reasonable to the Trust and the
Shareholders in selecting from among the various investment opportunities that
come to the Advisor those investment opportunities which it presents to and
approves on behalf of the Trust. So long as there is an Advisor or other Person
performing similar functions, the Trustees shall have no responsibility to
originate investment opportunities for the Trust.
4.5. Limitation on Operating Expenses. The Operating Expenses of the
Trust for any full fiscal year shall not (except as set forth herein) exceed an
amount equal to the greater of (a) 2% of the average net assets of the Trust
Estate for such year or (b) 25% of the Trust's net income for such year,
determined in accordance with generally accepted accounting principles,
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before deducting any regular and incentive advisory fees, administrative fees
and expenses, and depreciation, depletion, and amortization. The Trustees shall
limit such expenses to amounts that do not exceed such limitations unless a
majority of the Trustees who are not Affiliates of the Advisor determine that
based upon such factors as they deem sufficient, a higher level of expenses is
justified. Each contract made with the Advisor under this Article IV shall
specifically provide that in the event such Trustees determine that such excess
expenses are not justified, the Advisor shall refund to the Trust promptly after
the end of any such year the amount, if any, by which the Operating Expenses so
exceed said amount; provided, that to the extent that the Operating Expenses for
any subsequent fiscal year are less than the greater of clauses (a) or (b)
above, the Trust shall reimburse the Advisor the amount(s) it previously
refunded to the Trust pursuant to this Section 4.5.
ARTICLE V
INVESTMENT POLICY
5.1. General Statement of Policy. While the Trustees are authorized,
pursuant to Article III, to invest the Trust Estate in a wide variety of
investments, it is the present intention of the Trust that it shall be the
principal investment objective and policy of the Trust for the Trustees to
invest the Trust Estate in the Diversified Portfolio.
Investments of the Trust may be made in various combinations and may
involve participations with other Persons, including Affiliates of the Advisor
and/or Trustees. Such investments may incorporate a variety of real property
equity and financing techniques, including, without limitation, partnerships,
joint ventures, purchase and leasebacks, land purchase-leases, net lease
financings, purchase and installment salebacks, and Mortgages.
The general purpose of the Trust is to seek real estate investment
trust income as defined in the REIT Provisions of the Code consistent with the
investment objective and policy of the Trust as set forth above. The Trustees
intend to make investments in such a manner as to comply with the requirements
of the REIT Provisions of the Code with respect to the composition of the
Trust's investments and the derivation of its income; provided, however, that no
Trustee, director, officer, employee, or agent of the Trust or the Advisor shall
be liable to any Person, including any Shareholder, for any act or omission
resulting in the loss of tax benefits, or in the incurrence of tax detriments,
under the Code or for the Trust not being treated for tax purposes as a "real
estate investment trust" under the REIT Provisions of the Code. Subject to
Section 5.3 hereof and subject to such restrictions as may be necessary to
qualify the Trust as a "real estate investment trust" as defined in the REIT
Provisions of the Code, the Trustees may alter the above-declared investment
policy in light of changes in economic circumstances and other relevant factors,
and the methods of implementing the Trust's investment policies may change, in
the discretion of the Trustees as economic and other conditions change.
5.2. Other Permissible Investments. To the extent that the Trust has
assets not invested in accordance with Section 5.1, the Trustees may employ such
assets by investing them in:
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(a) Obligations of, or guaranteed or insured by, the United
States Government or any agency or political subdivision thereof;
(b) Obligations of, or guarantees by, any state, territory, or
possession of the United States of America or any agency or political
subdivision thereof;
(c) Evidences of deposits in, or obligations of, banking
institutions, state and federal savings and loan associations, and
savings institutions;
(d) Real and personal property and interests therein; and
(e) Other Securities, liquid short-term investments, and
property.
5.3. Prohibited Investments and Activities. The Trustees shall not
engage in any of the following investment practices or activities:
(a) Invest in commodities, foreign currencies, or bullion
except in connection with investments in other property; and
(b) Purchase any property from or sell any property to the
Advisor, nor shall the Trust lend any funds to the Advisor.
5.4. Obligor's Default. Notwithstanding any provision in any Article of
this Declaration, when an obligor to the Trust is in default under the terms of
any obligation (including a Trust Loan) to the Trust, the Trustees or the
Advisor shall have the power to pursue any remedies permitted by law which in
their sole judgment are in the interest of the Trust, and the Trustees or the
Advisor shall have the power to receive and hold any investment and to enter
into any commitment or obligation on behalf of the Trust in connection with or
in pursuit of such remedies which, in the judgment of the Trustees or the
Advisor, is necessary or desirable for the purpose of acquiring property,
disposing of property acquired in the pursuit of such remedies or the
preservation of its investment.
ARTICLE VI
SHARES AND SHAREHOLDERS
6.1. Shares. The units into which the beneficial interest in the Trust
will be divided shall be designated as Shares, which Shares shall initially be
of two classes, Class A Shares and Class B Shares. The Class A Shares shall have
a par value of $1.00 per Share, and the Class B Shares shall have a par value of
$.01 per Share. The certificates evidencing the Shares shall be in such form and
signed (manually or by facsimile) on behalf of the Trust in such manner as the
Trustees may from time to time prescribe or as may be prescribed in the Bylaws
in accordance with the laws of the State of Maryland. The certificates shall be
negotiable and title thereto and to the Shares represented thereby shall be
transferred by assignment and delivery thereof to the same
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extent and in all respects as a share certificate of a Maryland corporation. The
total number of Shares that the Trust has authority to issue is 90,000,000 of
which 60,000,000 shall be designated Class A Shares and 30,000,000 shall be
designated Class B Shares. As set forth in Section 3.2(d) the Trustees may amend
the Declaration, without Shareholder consent, to increase or decrease the
aggregate number of Shares or number of Shares of any class or series, that the
Trust has authority to issue. The Shares may be issued for such consideration as
the Trustees shall determine or without consideration by way of share dividend
or share split in the discretion of the Trustees. Shares reacquired by the Trust
shall no longer be deemed outstanding and shall have no voting or other rights
unless and until reissued. Shares acquired by the Trust may be canceled and
restored to the status of authorized and unissued Shares by action of the
Trustees. All Shares shall be fully paid and non-assessable by or on behalf of
the Trust upon receipt of full consideration for which they have been issued or
without additional consideration if issued by way of share dividend or share
split. The Shares shall not entitle the holder to preference, pre-emptive,
appraisal, conversion, or exchange rights of any kind, except as provided in
Section 6.14.
The Trustees are hereby required to issue for par a sufficient number
of Class B Shares such that the total number of outstanding Class B Shares shall
at all times equal 50% the total number of outstanding Class A Shares to all
holders of Class B Shares on a pro rata basis based on the number of Class B
Shares held by such holder on the date of issuance of the Class A Shares
requiring the issuance of the Class B Shares to the extent that (a) additional
Class A Shares are issued by the Trust (provided that if and to the extent such
issuance is subject to the approval of the American Stock Exchange, Inc. or such
other exchange or market on which the Class A Shares or other securities of the
Trust are traded, then such approval shall be obtained), and (b) the Class A
Shares are subject to any stock dividend, stock split, or other recapitalization
affecting the number of Class A Shares outstanding. The additional Class B
Shares shall be issued within 60 days of the issuance of the Class A Shares and
the purchase price may be paid in cash or by delivery of a promissory note. To
the extent that the Class B Shareholders convert their Class B Shares into Class
A Shares as provided in Section 6.14 the percentage of outstanding Class B
Shares required to be maintained by this Section 6.1 shall be reduced by
multiplying such 50% by a fraction, the numerator of which is the aggregate
number of Class B Shares outstanding as of the date of determination and the
denominator of which is one-half of the total number of Class A Shares issued
and outstanding on such date.
6.2. Voting Rights. The Shareholders shall be entitled to vote only
upon the following matters:
(a) Election of Trustees. Trustees shall be elected in
accordance with Section 2.1 at the annual meeting of the Shareholders
to be held at such time and place as the Bylaws shall prescribe. In any
election of Trustees, the Class A Shareholders and the Class B
Shareholders shall vote together as a single class with each Class A
Share and Class B Share held of record entitled to one vote in person
or by proxy.
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Any vacancy in the office of Trustees may be filled by a vote
of the Class A Shareholders and the Class B Shareholders voting
together as a single class with each Share held of record entitled to
one vote in person or by proxy, or, in the absence of any such
Shareholder vote, such vacancy may be filled by the vote of the
remaining Trustees. If the number of Trustees is increased in
accordance with this Declaration, the Bylaws, or otherwise, any vacancy
so created may be filled by the existing Trustees.
(b) Removal of Trustees. A Trustee may be removed with or
without cause by majority vote or written consent of the Shareholders
with the Class A Shareholders and the Class B Shareholders voting
together as a single class with each Share held of record entitled to
one vote in person or by proxy. Any vacancy created by the removal of a
Trustee shall be filled as provided in Section 6.2(a).
(c) Termination of Advisory Agreement. The Advisory Agreement
may be terminated to the extent provided in Section 4.2 upon approval
by vote or written consent of Shareholders holding two-thirds of the
Class A Shares and the Class B Shares voting together as a single class
with each Share held of record entitled to one vote in person or by
proxy.
(d) Termination of the Trust. The Trust may be terminated at a
meeting of the Shareholders, specially called for such purpose, upon a
vote by the Shareholders holding 66- 2/3% of the Class A Shares and the
Class B Shares voting together as a single class with each Share of
record entitled to one vote in person or by proxy. A merger of the
Trust with and into another entity is not a termination of the Trust if
the Trust is the surviving entity or if the purpose of the merger is
primarily to change the domicile of the Trust. Further, a change of the
Trust's form from a business trust to a corporation is not a
termination of the Trust.
(e) Amendments to the Declaration. Except as set forth in the
next sentence or Section 3.2(d) or 10.2, this Declaration can be
amended upon approval of a majority vote of the Shareholders with the
Class A Shareholders and the Class B Shareholders voting together as a
single class with each Share held of record entitled to cast one vote
in person or by proxy. Notwithstanding anything in this Declaration to
the contrary, wherever any provision of this Declaration sets forth a
specific percentage of the Shares outstanding and entitled to vote
which is required for approval or ratification of any action upon which
the vote of the Shareholders is required or may be obtained, such
provision can only be amended with the approval of Shareholders holding
the specific percentage of Shares outstanding and entitled to vote
which is set forth in such provision.
(f) Sales of Assets. The Trust may sell, transfer or otherwise
dispose of all or substantially all of its assets, upon a vote by the
Shareholders holding two-thirds of the Class A Shares and the Class B
Shares voting together as a single class with each Share of record
entitled to one vote in person or by proxy.
(g) Other Matters. All other matters to be voted on, consented
to, or ratified by the Shareholders shall be passed, consented to, or
ratified by a majority vote of the
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Shareholders with the Class A Shareholders and the Class B Shareholders
voting together as a single class with each Share held of record
entitled to cast one vote in person or by proxy.
Notwithstanding anything in this Article VI to the contrary, at all
times that there are no Class A Shares outstanding, the Class B Shareholders
shall have exclusive voting power on all matters upon which Shareholders are
entitled to vote pursuant to this Declaration. Wherever any provision of this
Declaration sets forth a specific percentage of the Shares outstanding and
entitled to vote which is required for approval or ratification of any action
upon which the vote of the Shareholders is required or may be obtained, such
provision shall mean such specified percentage of the votes entitled to be cast
by holders of all Shares then outstanding and entitled to vote on such action.
6.3. Legal Ownership of Trust Estate. The legal ownership of the Trust
Estate and the right to conduct the business of the Trust are vested exclusively
in the Trustees, and the Shareholders shall have no interest therein other than
beneficial interest in the Trust conferred by their Shares issued hereunder, and
they shall have no right to compel any partition, division, dividend, or
distribution of the Trust or any of the Trust Estate.
6.4. Shares Deemed Personal Property. The Shares shall be personal
property and shall confer upon the holders thereof only the interest and rights
specifically set forth in this Declaration. The death, insolvency, or incapacity
of a Shareholder shall not dissolve or terminate the Trust or affect its
continuity nor give his legal representative any rights whatsoever, whether
against or in respect of other Shareholders, the Trustees, or the Trust Estate
or otherwise, except the sole right to demand and, subject to the provisions of
this Declaration, the Bylaws, and any requirements of law, to receive a new
certificate for Shares registered in the name of such legal representative, in
exchange for, and upon delivery pursuant to Section 6.5 of, the certificate held
by such Shareholder.
6.5. Share Record; Issuance and Transferability of Shares. Records
shall be kept by or on behalf of and under the direction of the Trustees, which
shall contain the names and addresses of the Shareholders, the number of Shares
held by them respectively, and the numbers of the certificates representing the
Shares, and in which there shall be recorded all transfers of Shares.
Certificates shall be issued, listed, and transferred in accordance with the
Bylaws. The Persons in whose names certificates are registered on the records of
the Trust shall be deemed the absolute owners of the Shares represented thereby
for all purposes of this Trust; but nothing herein shall be deemed to preclude
the Trustees or officers, or their agents or representatives, from inquiring as
to the actual ownership of Shares. Until a transfer is duly effected on the
records of the Trust, the Trustees shall not be affected by any notice of such
transfer, either actual or constructive. The receipt by the Person in whose name
any Shares are registered on the records of the Trust or of the duly authorized
agent of such Person, or if such Shares are so registered in the names of more
than one Person, the receipt of any one of such Persons, or of the duly
authorized agent of any of such Persons, shall be a sufficient discharge for all
dividends or distributions payable or deliverable in respect of such Shares and
from all liability to see to the application thereof.
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Subject to the provisions of Section 6.13, Shares shall be transferable
on the records of the Trust only by the record holder thereof or by his agent
thereunto duly authorized in writing upon delivery to the Trustees or a transfer
agent of the certificate or certificates therefor, properly endorsed or
accompanied by duly executed instruments of transfer and accompanied by all
necessary documentary stamps, together with such evidence of the genuineness of
each such endorsement, execution, or authorization and of other matters as may
reasonably be required by the Trustees or such transfer agent. Upon such
delivery, the transfer shall be recorded in the records of the Trust and a new
certificate for the Shares so transferred shall be issued to the transferee and
in case of transfer of only a part of the Shares represented by an certificate,
a new certificate for the balance shall be issued to the transferor. Any Person
becoming entitled to any Shares in consequences of the death of a Shareholder or
otherwise by operation of law shall be recorded as the holder of such Shares and
shall receive a new certificate therefor, but only upon delivery to the Trustees
or a transfer agent of instruments and other evidence required by the Trustees
or the transfer agent to demonstrate such entitlement, the existing certificate
for such Shares, and such necessary releases from applicable governmental
authorities. In case of the loss, mutilation, or destruction of any certificate
for Shares, the Trustees may issue or cause to be issued a replacement
certificate on such terms and subject to such rules and regulations as the
Trustees may from time to time prescribe. Nothing in this Declaration shall
impose upon the Trustees or a transfer agent a duty, or limit their rights, to
inquire into adverse claims.
6.6. Dividends or Distributions to Shareholders. The Trustees may from
time to time declare and pay to Shareholders such dividends or distributions in
cash, property or other assets of the Trust or in securities of the Trust or
other form, out of current or accumulated income, capital, capital gains,
principal, surplus, proceeds from the increase or refinancing of Trust
obligations, or from the disposition of portions of the Trust Estate or from any
other source as the Trustees in their discretion shall determine. The Trustees
may declare dividends or distributions as far in advance as they shall determine
in their discretion, including the advance declaration of dividends or
distributions with respect to more than one month or other period. Shareholders
shall have no right to any dividend or distribution unless and until the record
date therefor as declared by the Trustees. The Trustees shall endeavor to
authorize and pay such dividends and distributions as shall be necessary for the
Trust to qualify as a REIT under the Code (so long as such qualification, in the
opinion of the Trustees, is in the best interests of the Shareholders). All
dividends and distributions shall be distributed 99% to the Class A Shareholders
and 1% to the Class B Shareholders. To the extent that Class B Shareholders
convert their Class B Shares into Class A Shares as provided in Section 6.14,
the percentage of dividends and distributions to be distributed to the Class B
Shareholders, as well as the other distributions provided for in this Section
6.6, shall be reduced by multiplying such 1% by a fraction, the numerator of
which is the aggregate number of Class B Shares outstanding as of the record
date for any such distribution and the denominator of which is one-half of the
aggregate number of Class A Shares issued and outstanding on such date.
6.7. Transfer Agent, Dividend Disbursing Agent, and Registrar. The
Trustees shall have power to employ one or more transfer agents, dividend
disbursing agents, and registrars and to authorize them on behalf of the Trust
to keep records, to hold and disburse any dividends and
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distributions, and to have and to perform in respect of all original issues and
transfers of Shares, dividends and distributions, and reports and communications
to Shareholders, the powers and duties usually had and performed by transfer
agents, dividend disbursing agents, and registrars of a Maryland corporation.
6.8. Shareholders' Meeting. There shall be an annual meeting of the
Shareholders at such time and place, either within or without the State of
Maryland, as the Bylaws shall prescribe at which the Trustees shall be elected
and any other proper business may be conducted. The annual meeting of
Shareholders shall be held after delivery to the Shareholders of the annual
report (set forth in Section 6.10) and within six months after the end of each
fiscal year. Special meetings of Shareholders may be called by the Chairman of
the Board, or at least two of the other Trustees and shall be called upon the
written request of Shareholders holding not less than 20% of the outstanding
Class A Shares or 20% of the outstanding Class B Shares, entitled to vote in the
manner provided in the Bylaws. If there shall be no Trustees, the officers of
the Trust shall promptly call a special meeting of the Shareholders for the
election of successor Trustees. Notice of any special meeting shall state the
purposes of the meeting. A majority of the outstanding Class A Shares and a
majority of the outstanding Class B Shares entitled to vote at any meeting
represented in person or by proxy shall constitute a quorum at any such meeting.
Whenever Shareholders are required or permitted to take any action, such action
may be taken without a meeting on written consent setting forth the action so
taken, signed by a sufficient proportion of the Class A Shareholders and Class B
Shareholders as would be required for a vote at meeting as provided in Section
6.2; provided that solicitation of such consents complies with Rule 706 of the
American Stock Exchange, Inc. as such Rule or its successor is then in effect.
The vote or consent of Shareholders shall not be required for the pledging,
hypothecating, granting security interests in, mortgaging, or encumbering of all
or any of the Trust Estate.
6.9. Proxies. Whenever the vote or consent of Shareholders is required
or permitted under this Declaration, such vote or consent may be given either
directly by the Shareholders or by a proxy in the form prescribed in the Bylaws.
The Trustees may solicit such proxies from the Shareholders or any of them in
any matter requiring or permitting the Shareholders' vote or consent.
6.10. Reports to Shareholders. The Trust shall prepare an annual report
to the extent and in the manner required by applicable law.
6.11. Fixing Record Dates. The Bylaws may provide for fixing or, in the
absence of such provision, the Trustees may fix, in advance, a date as the
record date for determining the Shareholders entitled to notice of or to vote at
any meeting of the Shareholders or to express consent to any proposal without a
meeting, or for the purpose of determining Shareholders entitled to receive
payment of any dividend or distribution (whether before or after termination of
the Trust) or any annual report or other communication from the Trustees, or for
any other purpose. The record date so fixed shall be not less than ten days nor
more than 90 days prior to the date of the meeting or event for the purpose of
which it is fixed.
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6.12. Notice to Shareholders. Any notice of meeting or other notice,
communication, or report to any Shareholder shall be deemed duly delivered to
such Shareholder when such notice, communication, or report is deposited, with
postage thereon prepaid, in the United States mail, addressed to such
Shareholder at his address as it appears on the records of the Trust or is
delivered in person to such Shareholder.
6.13. Restriction on Transfer, Acquisition and Redemption of Shares.
Article XI contains restrictions on transfer, acquisition and redemptions of
Shares. Any issuance, redemption or transfer which would operate to disqualify
the Trust as a REIT for federal income tax purposes shall be null and void ab
initio as provided in Article XI.
6.14. Conversion Rights. Subject to the terms and conditions of this
Section 6.14, each Class B Shareholder shall at its option be entitled to
convert the Class B Shares then issued and outstanding and held by such
Shareholder into fully paid and non-assessable Class A Shares on the basis of
one Class A Share for 49 Class B Shares. After conversion of the Class B Shares
into Class A Shares, the rights of the remaining Class B Shareholders with
respect to dividends and distributions shall be adjusted as provided in Section
6.6.
In order to exercise such conversion rights, the Class B Shareholder
shall surrender the certificate or certificates for such Class B Shares at the
office of said transfer agent (or other place as provided by the Trustees),
which certificate or certificates, if the Trustees shall so request, shall be
duly endorsed to the Trust or in blank or accompanied by proper instruments of
transfer to the Trust (such endorsements or instruments of transfer to be in
form satisfactory to the Trust), and shall give written notice to the Trust at
said office that it elects so to convert said Class B Shares in accordance with
the terms of this Section 6.14, and shall state in writing therein the name or
names in which it wishes the certificate or certificates for Class A Shares to
be registered. Every such notice of election to convert shall constitute a
binding contract between the holder of such Class B Shares and the Trust,
whereby the Class B Shareholder shall be deemed to subscribe for the amount of
Class A Shares which he shall be entitled to receive upon such conversion, and,
in satisfaction of such subscription, to deposit the Class B Shares to be
converted and to release the Trust for all liability thereunder, and thereby the
Trust shall be deemed to agree that the surrender of the certificate or
certificates therefor and the extinguishment of liability thereon shall
constitute full payment of such subscription for Class A Shares to be issued
upon such conversion.
The Trust will, as soon as practicable after such deposit of a
certificate or certificates for Class B Shares accompanied by the written notice
and the statement above prescribed, issue and deliver at the office of said
transfer agent (or other place as provided above) to the Person for whose
account such Class B Shares were so surrendered, or to his nominee or nominees,
a certificate or certificates for the number of Class A Shares to which he shall
be entitled as aforesaid. Subject to the provisions of this Section 6.14, such
conversion shall be deemed to have been made as of the date of such surrender of
the Class B Shares to be converted; and the Person or Persons entitled to
receive the Class A Shares issuable upon conversion of such Class B Shares shall
be treated for all purposes as the record holder or holders of such Class A
Shares
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on such date. Upon conversion of Class B Shares, the Class B Shares so converted
shall be canceled and retired by the Trust.
The issuance of certificates for Class A Shares upon conversion of
Class B Shares shall be made without charge for any stamp or other similar tax
in respect of such issuance; provided, however, that if any such certificate is
to be issued in a name other than that of the holder of the Class B Shares
converted, the Person or Persons requesting the issuance thereof shall pay to
the Trust the amount of any tax which may be payable in respect of any transfer
involved in such issuance or shall establish to the satisfaction of the Trust
that such tax has been paid or that no such tax is due.
The Trust will at all times reserve and keep available, solely for the
purpose of issuance upon conversion of the outstanding shares of Class B Shares,
such number of Class A Shares as shall be issuable upon the conversion of all
such outstanding Class B Shares; provided that nothing contained herein shall be
construed to preclude the Trust from satisfying its obligations in respect of
the conversion of the outstanding Class B Shares by delivery of Class A Shares
which are held in the treasury of the Trust. The Trust covenants that if any
Class A Shares, required to be reserved for purposes of conversion hereunder,
require registration with or approval of any governmental authority under any
federal or state law before such Class A Shares may be issued upon conversion,
the Trust will use its best efforts at its expense to cause such Class A Shares
to be duly registered or approved, as the case may be. The Trust will also at
its expense endeavor to list the Class A Shares required to be delivered upon
conversion prior to such delivery upon each national securities exchange, if
any, upon which the outstanding Class A Shares are listed at the time of such
delivery. The Trust covenants that all Class A Shares which shall be issued upon
conversion of the Class B Shares, will, upon issue, be fully paid and
non-assessable and not entitled to any preemptive rights.
6.15. Treasury Shares. The Trust may repurchase or otherwise acquire
its own Shares at such price or prices as may be determined by the Trustees, and
for this purpose the Trust may create and maintain such reserves as are deemed
necessary and proper. Shares issued hereunder and repurchased or otherwise
acquired for the account of the Trust shall not, so long as they belong to the
Trust, either receive dividends or distributions (except that they shall be
entitled to receive dividends or distributions payable in Shares of the Trust)
or be voted at any meeting of the Shareholders. Such Shares may, in the
discretion of the Trustees, be held in the treasury and be disposed of by the
Board at such time or times, to such party or parties and for such consideration
as the Trustees may deem appropriate or may be returned to the status of
authorized but unissued Shares in the Trust.
6.16. Fractional Shares. The Trust may, without the consent or approval
of any Shareholder, issue fractional Shares, eliminate a fraction of a Share by
rounding up or down to a full Share, arrange for the disposition of a fraction
of a Share by the person entitled to it, or pay cash for the fair value of a
fraction of a Share.
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6.17. Divisions and Combinations of Shares. Subject to an express
provision to the contrary in the terms of any class or series of beneficial
interest hereafter authorized, the Board shall have the power to divide or
combine the outstanding shares of any class or series of beneficial interest,
without a vote of Shareholders to the extent permitted by Maryland law provided
that, all other classes or series of beneficial interest are also similarly
divided or combined.
6.18. Nonliability and Indemnification of Shareholders. To the maximum
extent permitted by Maryland law, Shareholders shall not be personally or
individually liable in any manner whatsoever for any debt, act, omission or
obligation incurred by the Trust or the Trustees and shall be under no
obligation to the Trust or its creditors with respect to such Shareholder's
Shares other than the obligation to pay to the Trust the full amount of the
consideration for which the Shares were issued or to be issued. The Shareholders
shall not be liable to assessment and the Board shall have no power to bind the
Shareholders personally. To the maximum extent permitted by Maryland law, the
Trust shall indemnify and hold each Shareholder harmless from and against all
claims and liabilities, whether they proceed to judgment or are settled or
otherwise brought to a conclusion, to which such Shareholder may become subject
by reason of his or her being or having been a Shareholder, and shall reimburse
such Shareholder for all legal and other expenses reasonably incurred by him or
her in connection with any such claim or liability. The rights accruing to a
Shareholder under this Section 6.18 shall not exclude any other right to which
such Shareholder may be lawfully entitled, nor shall anything contained herein
restrict the right of the Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein; provided,
however, that the Trust shall have no liability to reimburse Shareholders for
taxes assessed against them by reason of their ownership of Shares, nor for any
losses suffered by reason of changes in the market value of securities of the
Trust. No amendment to this Declaration increasing or enlarging the liability of
the Shareholders shall be made without the unanimous vote or written consent of
all of the Shareholders.
6.19. Nonliability. The Board shall use every reasonable means to
assure that all persons having dealings with the Trust shall be informed that
the private property of the Shareholders and the Trustees shall not be subject
to claims against and obligations of the Trust to any extent whatever. The
Trustees shall use best efforts to be inserted in every written agreement,
undertaking or obligation made or issued on behalf of the Trust, an appropriate
provision to the effect that the Shareholders and the Trustees shall not be
personally liable thereunder, and that all parties concerned shall look solely
to the Trust property for the satisfaction of any claim thereunder, and
appropriate reference shall be made to this Declaration. The omission of such a
provision from any such agreement, undertaking or obligation, or the failure to
use any other means of giving such notice, shall not, however, render the
Shareholders or the Trustees personally liable.
6.20. Declaration and Bylaws. All Shareholders are subject to the
provisions of the Declaration and the Bylaws of the Trust.
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ARTICLE VII
LIMITATION OF LIABILITY AND INDEMNIFICATION
OF TRUSTEES AND OFFICERS
7.1. Limitation of Liability. To the maximum extent that Maryland law
in effect from time to time permits limitation of the liability of trustees and
officers of a REIT, no trustee or officer of the Trust shall be liable to the
Trust or to any Trustee or to any Shareholder for money damages. Neither the
amendment nor the repeal of this Section 7.1, nor the adoption or amendment of
any other provision of this Declaration inconsistent with this Section 7.1,
shall apply to or affect in any respect the applicability of the preceding
sentence with respect to any act or failure to act which occurred prior to such
amendment, repeal or adoption. In the addition to any Maryland statute limiting
the liability of trustees or officers of a Maryland REIT no Trustee or officer
of the Trust shall be liable to the Trust or to any Trustee for any act or
omission of any other Trustee, Shareholder, officer, or agent of the Trust,
including the Advisor, or be held to any personal liability whatsoever in tort,
contract, or otherwise in connection with the affairs of this Trust except only
that arising from his own willful violation of the provisions of this
Declaration or of the Bylaws which violation is materially against the interests
of the Shareholders and results in material harm to such interests, or gross
negligence in the performance of his duties.
7.2. Indemnification. The Trust shall have the power to obligate itself
to indemnify each trustee, officer, employee and agent of the Trust, including
the Advisor and its Affiliates, to the fullest extent permitted by Maryland law,
as amended from time to time, in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she was a trustee, officer,
employee or agent of the Trust or is or was serving at the request of the Trust
as a director, trustee, officer, partner, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust, other enterprise or
employee benefit plan, from all claims and liabilities to which such person may
become subject by reason of service in that capacity and to pay or reimburse
reasonable expenses, as such expenses are incurred, of each officer, employee or
agent in connection with any such proceedings.
The indemnification authorized by this Section 7.2 shall include
payment of (i) reasonable attorneys' fees or other expenses incurred in settling
any such claim or liability or incurred in any finally adjudicated legal
proceeding and (ii) expenses incurred by the removal of any liens affecting any
property of the Person to be indemnified. Indemnification shall be made from
assets of the Trust, and no Shareholder shall be personally liable to any Person
to be indemnified. This Section 7.2 shall inure to the benefit of the Trustees
and their Affiliates.
For the purposes of this Article VII only, the term "Affiliates" shall
mean any Person performing services on behalf of the Trust who: (i) directly or
indirectly controls, is controlled by, or is under common control with the
Trustees; or (ii) owns or controls 10% or more of the outstanding voting
securities of the Trustees; or (iii) is an officer, director, partner, or
trustee of
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the Trustees; or (iv) is any company for which the Trustees act as an officer,
director, partner, or trustee.
7.3. Indemnification and Insurance. Notwithstanding any other
provisions of this Declaration, the Trust, for the purpose of providing
indemnification for its Trustees, officers, employees and agents of the Trust,
including the Advisor and its Affiliates shall have the authority, without
specific Shareholder approval, to enter into insurance or other arrangements to
indemnify all Trustees, officers, employees and agents of the Trust, including
the Advisor and its Affiliates of the Trust against any and all liabilities and
expenses incurred by them by reason of their being Trustees, officers, employees
and agents of the Trust, including the Advisor and its Affiliates of the Trust,
whether or not the Trust would otherwise have the power under this Declaration
or under Maryland law to indemnify such persons against such liability. Any such
insurance or other arrangement may be procured, maintained or established within
the Trust or with any insurer or other person deemed appropriate by the Board
regardless of whether all or part of the stock or other securities thereof are
owned in whole or in part by the Trust. In the absence of fraud, the judgment of
the Board as to the terms and conditions of insurance or other arrangement and
the identity of the insurer or other person participating in any arrangement
shall be conclusive, and such insurance or other arrangement shall not be
subject to voidability, nor subject the Trustees approving such insurance or
other arrangement to liability on any ground, regardless of whether Trustees
participating and approving such insurance or other arrangement shall be
beneficiaries thereof.
7.4. Rights of Trustees and Officers to Own Shares or Other Property
and to Engage in Other Business.
(a) Any Trustee, officer, agent, or employee of the Trust and the
Advisor may acquire, own, hold, and dispose of Securities of the Trust, for his
individual account, and may exercise all rights of a holder of such Securities
to the same extent and in the same manner as if he were not a Trustee, officer,
employee, agent, or the Advisor; have personal business interests and engage in
personal business activities, which interests and activities may include the
acquisition, syndication, holding, management, operation, or disposition, for
his own account or for the account of others, of interests in Mortgages, real
property, or other assets, even if the same compete directly with the actual
business being conducted by the Trust; subject to the provisions of Article IV,
be interested as trustee, officer, director, stockholder, partner, member,
advisor, or employee, or otherwise have a direct or indirect interest in a
Person who may be engaged to render advice or services to the Trust (as the
Advisor or otherwise) and receive compensation from such Person and any
Affiliate of such Person as well as compensation as Trustee, officer, agent, or
employee of the Trust; and, in a capacity of trustee, officer, director,
stockholder, partner, member, advisor, or employee of any Person, have business
interests and engage in business activities in addition to those relating to the
Trust, which interests and activities may include the acquisition, syndication,
holding, management, operation, or disposition, for his own account or for the
account of others, of interests in Mortgages, real property, or other assets, or
interests in Persons engaged in the mortgage or real estate business, which
interests or activities may be in direct competition with the Trust; and each
Trustee,
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officer, employee, and agent of the Trust shall be free of any obligation to
present to the Trust any investment opportunity which comes to him in any
capacity other than solely as Trustee, officer, employee, or agent of the Trust,
even if such opportunity is of a character which, if presented to the Trust,
could be taken by the Trust; and none of the foregoing interests or activities
(singly, or in combination) shall be deemed to conflict with or be inconsistent
with his powers, duties, and responsibilities as Trustee, officer, agent or
employee of the Trust.
(b) Nothing in this Declaration shall be deemed to;
(i) Prohibit a Trustee, officer, employee, or agent of the Trust from
acquiring or owning any amount or percentage of any class of outstanding
Securities of any publicly-owned Person whose shares are listed or traded on a
national securities exchange or in the over-the-counter market;
(ii) Prohibit a Trustee, officer, employee, or agent of the Trust who
is also engaged in rendering legal, accounting, financial advisory, or other
services from rendering such services to any Person or from acting as trustee,
director, member, advisor, officer, or representative of any such Person to whom
he renders or has rendered such services;
(iii) Require a Trustee, officer, employee, or agent of the Trust to
dispose of a personal business interest acquired, or to discontinue personal
business activities begun, whether acquired or begun before or when he was a
Trustee, officer, employee, or agent, regardless of whether such interests or
activities compete with the business of the Trust; or
(iv) Prohibit a Trustee, officer, employee, or agent of the Trust from
having personal business interests or engaging in personal business activities
regardless of whether;
(A) The Trustees (by vote or consent sufficient for such
purpose including the vote of the interested Trustee(s)) have decided
that such interests or activities should or should not be acquired or
engaged in by the Trust; or
(B) The Trust could have acquired such interests or engaged in
such activities without endangering the qualification of the Trust as a
real estate investment trust under the REIT Provisions of the Code or
without violating any provision of this Declaration or applicable law,
even though any such Person, interests, or activities are or could be
in competition, in any way, with the Trust, or any such Person is in
the same or similar business as the Trust.
7.5. Transactions Between the Trust and Certain Affiliates. Except as
prohibited by this Declaration and in the absence of fraud, a contract, act, or
other transaction between the Trust and any other Person, or in which the Trust
is interested, shall be valid even though (i) one or more of the Trustees,
officers of the Trust, or the Advisor are Affiliates of such other Person, or
(ii) one or more of the Trustees, officers, or the Advisor, individually or
jointly with others, is a
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party or are parties to or directly or indirectly interested in, or connected
with, such contract, act, or transaction. Neither any such Trustee, officer, nor
the Advisor shall be under any disability from or have any liability as a result
of entering into any such contract, act, or transaction, provided that (a) such
interest or connection is disclosed or known to the Trustees and the Trustees
authorized such contract, act, or other transaction by vote sufficient for such
purpose including the vote of the interested Trustee(s), or (b) such interest or
connection is disclosed or known to the Shareholders, and such contract, act, or
transaction is approved or subsequently ratified by the Shareholders, or (c)
such contract, act, or transaction is fair and reasonable as to the Trust at the
time it is authorized by the Trustees or by the Shareholders. Notwithstanding
any other provision of this Declaration, Affiliates of the Advisor may receive
compensation from, and/or a share of the proceeds received by, borrowers in
connection with Trust Loans.
7.6. Persons Dealing with Trustees. No corporation, person, transfer
agent or other party shall be required to examine or investigate the trusts,
terms or conditions contained in this Declaration or otherwise applicable to the
Trust; and no such corporation, person, transfer agent or other party dealing
with the Trustees or with the Trust or Trust property and assets shall have any
obligation with respect to the application of any money or property paid or
delivered to any Trustee, or nominee, agent or representative of the Trust or
the Trustees. A certificate executed by or on behalf of the Trustees or by any
other duly authorized representative of the Trust, delivered to any person or
party dealing with the Trust or Trust property and assets, or, if relating to
real property, recorded in the deed records for the county or district in which
such real property lies, certifying as to the identity and authority of the
Trustees, agents or representatives of the Trust for the time being, or as to
any action of the Trustees or of the Trust, or of the Shareholders, or as to any
other fact affecting or relating to the Trust or this Declaration, may be
treated as conclusive evidence thereof by all persons dealing with the Trust. No
provision of this Declaration shall diminish or affect the obligation of the
Trustees and every other representative or agent of the Trust to deal fairly and
act in good faith with respect to the Trust and the Shareholders insofar as the
relationship and accounting among the parties to the Trust is concerned; but no
third party dealing with the Trust or with any Trustee, agent or representative
of the Trust shall be obliged or required to inquire into, investigate or be
responsible for the discharge and performance of such fiduciary obligation.
7.7. Administrative Powers of Trustees. The Trustees shall have power
to pay the expenses of organization and administration of the Trust, including
all legal and other expenses in connection with the preparation and carrying out
of the plan for the formation of the Trust, the acquisition of properties
thereunder and the issuance of Shares thereunder; and to employ such officers,
experts, counsel, managers, salesmen, agents, workmen, clerks and other persons
as they think best.
7.8. Reliance. The Trustees and officers may consult with counsel
(which may be a firm in which one or more of the Trustees or officers is or are
members) and the advice or opinion of such counsel shall be full and complete
personal protection to all of the Trustees and officers in respect of any action
taken or suffered by them in good faith and in reliance on or in accordance with
such advice or opinion. In discharging their duties, Trustees and officers, when
acting in
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good faith, may rely upon financial statements of the Trust represented to them
to be correct by the Managing Trustee or the Chairman of the Board, if any, or
the officer of the Trust having charge of its books of account, or stated in a
written report by an independent public accountant fairly to present the
financial position of the Trust. The Trustees may rely, and shall be personally
protected in acting, upon any instrument or other document believed by them to
be genuine.
7.9. Trust Only. It is the intention of the Trustees to create only the
relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
7.10. Restrictions of Duties and Liabilities. To the extent that the
nature of this Trust (that is, a REIT) will permit, the duties and liabilities
of Trustees and officers shall in no event be greater than the duties and
liabilities of trustees and officers of a Maryland corporation. The Trustees and
officers shall in no event have any greater duties or liabilities than those
imposed by applicable laws as shall be in effect from time to time.
7.11. Conflicts. In the event that any provision or portion of a
provision of this Article VII is determined to be in conflict with any
applicable statute, such provision or portion thereof shall be inapplicable to
the extent of such conflict.
7.12. Severability. In the event that any provision or portion of a
provision of this Article VII is determined to be invalid, void, illegal or
unenforceable, the remainder of the provisions of this Article VII shall
continue to be valid and enforceable and shall in no way be affected, impaired
or invalidated.
7.13. No Impairment. Nothing in this Article VII shall be construed to
diminish, limit or impair any rights or defenses afforded to officers or
Trustees by common law, statute, other provisions of this Declaration, the
Bylaws or otherwise, and the provisions of this Article VII shall be deemed to
be cumulative thereto.
7.14. References. References in this Article VII to Trustees or
officers shall be deemed to refer to any person who is or was a Trustee or
officer of the Trust and any person who, while a Trustee or officer of the
Trust, is or was serving at the request of the Trust as a director, officer,
partner, venturer, proprietor, trustee, employee, agent or similar functionary
of another corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise.
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ARTICLE VIII
DURATION AND TERMINATION OF TRUST;
AMENDMENTS
8.1. Termination of Trust. The Trust may be terminated at any time as
provided in Section 6.2(d).
(a) Upon termination of the Trust:
(i) The Trust shall carry on no business except for the
purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust shall have been wound up,
including the power to fulfill or discharge the contracts of the Trust,
collect its assets, sell, convey, assign, exchange, transfer, or
otherwise dispose of all or any part of the remaining Trust Estate to
one or more Persons at a public or private sale for consideration which
may consist in whole or in part of cash, securities, or other property
of any kind, discharge or pay its liabilities, and do all other acts
appropriate to liquidate its business.
(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities, and
refunding agreements, as they deem necessary for their protection, the
Trustees may distribute the remaining Trust Estate, in cash or in kind
or partly each, among the Shareholders according to their respective
rights and the Advisor pursuant to the Advisory Agreement.
(b) Upon termination of the Trust and distribution to the Shareholders
as herein provided, a majority of the Trustees shall execute and keep among the
records of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the right, title and interest of all
Shareholders shall cease and be canceled and discharged.
8.2. Duration of Trust. Subject to possible earlier termination in
accordance with the provisions of this Article VIII, the duration of the Trust
shall be perpetual or, in any jurisdiction in which such duration is not
permitted, then the Trust shall terminate on the latest date permitted by the
law of such jurisdiction.
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ARTICLE IX
MISCELLANEOUS
9.1. Construction. This Declaration shall be construed in such a manner
as to give effect to the intent and purposes of the Trust and this Declaration.
If any provisions hereof appear to be in conflict, more specific provisions
shall control over general provisions. This Declaration shall govern all of the
relationships among the Trustees and Shareholders; and each provision hereof
shall be effective for all purposes and to all persons dealing with the Trust to
the fullest extent possible under applicable law in each jurisdiction in which
the Trust shall engage in business. In defining or interpreting the powers and
duties of the Trust and the Trustees and officers, reference may be made by the
Board or officers, to the extent appropriate and not inconsistent with the Code
or Title 8, to Titles 1 through 3 of the Corporations and Associations Article
of the Annotated Code of Maryland. In furtherance and not in limitation of the
foregoing, in accordance with the provisions of Title 3, Subtitles 6 and 7, of
the Corporations and Associations Article of the Annotated Code of Maryland, the
Trust shall be included within the definition of "corporation" for purposes of
such provision, provided that Subtitle 6 shall not apply to a business
combination with Starwood Capital Group L.L.C. and/or its Affiliates and
Subtitle 7 shall not apply to the voting rights of Shares acquired by Starwood
Capital Group, L.L.C. and/or its Affiliates. For purposes of this Section 9.1,
an affiliate of Starwood Capital Group, L.L.C. shall mean any corporation,
proprietorship, partnership or business entity which, directly or indirectly,
owns or controls, is under common ownership or control with, or is owned or
controlled by Starwood Capital Group, L.L.C.
9.2. Index and Headings for Reference Only; Gender. The table of
contents and headings preceding the text, Articles and Sections hereof have been
inserted solely for convenience and reference, and shall not be construed to
affect the meaning, construction or effect of this Declaration. Whenever the
context so requires, references to the masculine gender shall include the female
and neuter genders and vice versa, and singular references shall include the
plural form.
9.3. Filing and Recording. This Declaration and any amendment hereto
shall be filed for record with the State Department of Assessments and Taxation
of Maryland and may also be filed or recorded in such other places as the Board
deems appropriate, but failure to file for record this Declaration or any
amendment hereto in any office other than in the State of Maryland shall not
affect or impair the validity or effectiveness of this Declaration or any
amendment hereto. An amended Declaration shall, upon filing, be conclusive
evidence of all amendments contained therein and may thereafter be referred to
in lieu of the original Declaration and the various amendments thereto.
9.4. Applicable Law. This Declaration has been executed with reference
to and its construction and interpretation shall be governed by the laws of
Maryland, and the rights of all parties and the construction and effect of every
provision hereof shall be subject to and construed according to the laws of
Maryland.
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9.5. Certifications. Any certificates signed by a person who, according
to the records of the State Department of Assessments and Taxation of Maryland
appears to be a Trustee hereunder, shall be conclusive evidence as to the
matters so certified in favor of any person dealing with the Trust or the
Trustees or any one or more of them, and the successors or assigns of such
persons, which certificate may certify to any matter relating to the affairs of
the Trust, including but not limited to any of the following: A vacancy on the
Board; the number and identity of Trustees; this Declaration and any Amendments
thereto, or any restated Declaration and any Amendments thereto, or that there
are no Amendments to this Declaration or any restated Declaration; a copy of the
Bylaws of the Trust or any Amendment thereto; the due authorization of the
execution of any instrument or writing; the vote at any meeting of the Board or
a committee thereof or Shareholders; the fact that the number of Trustees
present at any meeting or executing any written instrument satisfies the
requirements of this Declaration; a copy of any Bylaw adopted by the
Shareholders or the identity of any officer elected by the Board; or the
existence or nonexistence of any fact or facts which in any manner relate to the
affairs of the Trust. If this Declaration or any restated Declaration is filed
or recorded in any recording office other than the State Department of
Assessments and Taxation of Maryland, anyone dealing with real estate so located
in such jurisdiction that requires that instruments affecting the same should be
filed or recorded in such recording office may rely conclusively on any
certificate of the kind described above which is signed by a person who
according to the records of such recording office appears to be a Trustee
hereunder. In addition, the Secretary or any Assistant Secretary of the Trust or
any other officer of the Trust designated by the Bylaws or by action of the
Board may sign any certificate of the kind described in this Section 9.5, and
such certificate shall be conclusive evidence as to the matters so certified in
favor of any person dealing with the Trust, and the successors and assigns of
such person.
9.6. Bylaws. The Bylaws of the Trust may be altered, amended or
repealed, and new Bylaws may be adopted, at any meeting of the Board by a
majority vote of the Trustees.
9.7. Successors in Interest. This Declaration and the Bylaws shall be
binding upon and inure to the benefit of the undersigned Trustees and their
successors, assigns, heirs, distributees, and legal representatives, and every
Shareholder and his successors, assigns, heirs, distributees, and legal
representatives.
9.8. Counterparts. This Declaration may be simultaneously executed in
several counterparts, each of which when so executed shall be deemed to be an
original, and such counterparts together shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
9.9. Inspections of Records. Trust records shall be available for
inspection by Shareholders at the same time and in the same manner and to the
extent that comparable records of a Maryland corporation would be available for
inspection by stockholders under the laws of the State of Maryland. Except as
specifically provided for in this Declaration, Shareholders shall have no
greater right than stockholders of a Maryland corporation to require financial
or other information from the Trust, Trustees, or officers.
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9.10. Severability. If any provisions of this Declaration shall be held
invalid or unenforceable, such invalidity or unenforceability shall attach only
to such provisions and shall not in any manner affect or render invalid or
unenforceable any other provision of this Declaration, and this Declaration
shall be carried out as if any such invalid or unenforceable provision were not
contained herein.
ARTICLE X
AMENDMENTS
10.1. General. The Trust reserves the right from time to time to make
any amendment to this Declaration, now or hereafter authorized by law, including
any amendment altering the terms or contract rights, as expressly set forth in
this Declaration, of any outstanding Shares.
10.2. Amendment by Trustees. This Declaration may be amended by
Shareholders voting as provided in Section 6.2 or by the Trustees as provided in
Section 3.2. The Trustees, by a two-thirds vote, may also amend this Declaration
without the vote or consent of Shareholders if they deem it necessary to conform
this Declaration to the requirements of the REIT Provisions of the Code, but the
Trustees shall not be liable for failing so to do.
10.3. Qualification Under the REIT Provisions of the Code. It is
intended that the Trust shall qualify as a "real estate investment trust" under
the REIT Provisions of the Code during such period as the Trustees shall deem it
advisable to so qualify the Trust.
10.4. Requirements of Maryland Law. Notwithstanding anything contained
in this Declaration to the contrary, this Declaration may not be amended except
as provided in Title 8.
ARTICLE XI
RESTRICTION ON TRANSFER, ACQUISITION
AND REDEMPTION OF SHARES
11.1. Definitions. For purposes of this Article XI, the following terms
shall have the following meanings:
(a) "Beneficial Ownership" shall mean ownership of Shares by a Person
who would be treated as an owner of such Shares either directly or
constructively through the application of Section 544 of the Code, as modified
by Section 856(h) of the Code. The terms "Beneficial Owner," "Beneficially
Owns," "Beneficially Own" and "Beneficially Owned" shall have correlative
meanings.
(b) "Charitable Beneficiary" shall mean an organization or
organizations described in Sections 170(b)(1)(A) and 170(c) of the Code and
identified by the Board as the beneficiary or beneficiaries of the Excess Share
Trust.
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(c) "Debt" shall mean indebtedness of the Trust.
(d) "Excess Shares" shall have the meaning given to it in paragraph (a)
of Section 11.3.
(e) "Excess Share Trust" shall mean the trust created pursuant to
Section 11.15.
(f) "Excess Share Trustee" shall mean a person, who shall be
unaffiliated with the Trust, any Purported Beneficial Transferee and any
Purported Record Transferee, identified by the Board as the trustee of the
Excess Share Trust.
(g) "Existing Holder" shall mean (i) any Person who is, or would be
upon the exchange of Debt or any security of the Trust, the Beneficial Owner of
Shares in excess of the Ownership Limit both upon and immediately after May __,
1998 (the "Restriction Commencement Date"), so long as, but only so long as,
such Person Beneficially Owns or would, upon exchange of Debt or any security of
the Trust, Beneficially Own Shares in excess of the Ownership Limit and (ii) any
Person to whom an Existing Holder Transfers, subject to the limitations provided
in this Article XI, Beneficial Ownership of Shares causing such transferee to
Beneficially Own Shares in excess of the Ownership Limit.
(h) "Existing Holder Limit" (i) for any Existing Holder who is an
Existing Holder by virtue of clause (i) of the definition thereof, shall mean,
initially, the percentage of the outstanding Class A or Class B Shares
Beneficially Owned (with such percentage for each class determined separately)
or which would be Beneficially Owned upon the exchange of Debt or any security
of the Trust, by such Existing Holder upon and immediately after the Restriction
Commencement Date, and, after any adjustment pursuant to Section 11.9, shall
mean such percentage of the outstanding Shares as so adjusted, and (ii) for any
Existing Holder who becomes an Existing Holder by virtue of clause (ii) of the
definition thereof, shall mean, initially, the percentage of the outstanding
Class A or Class B Shares Beneficially Owned (with such percentage for each
class determined separately) by such Existing Holder at the time that such
Existing Holder becomes an Existing Holder, but in no event shall such
percentage be greater than the lesser of (i) the Existing Holder Limit for the
Existing Holder who Transferred Beneficial Ownership of such Shares or, in the
case of more than one transferor, in no event shall such percentage be greater
than the smallest Existing Holder Limit of any transferring Existing Holder, or
(ii) the Ownership Limit if the Existing Holder is a person other than a trust
qualified under Section 401(a) of the Code and exempt from tax under Section
501(a) of the Code, and, after any adjustment pursuant to Section 11.9, shall
mean such percentage of the outstanding Shares as so adjusted. From the
Restriction Commencement Date until the Restriction Termination Date, the Trust
shall maintain and, upon request, make available to each Existing Holder, a
schedule which sets forth the then current Existing Holder Limit for each
Existing Holder.
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(i) "Market Price" shall mean the last reported sales price reported on
the American Stock Exchange for a particular class of Shares on the trading day
immediately preceding the relevant date, or if not then traded on the American
Stock Exchange, the last reported sales price for such class of Shares on the
trading day immediately preceding the relevant date as reported on any exchange
or quotation system over or through which such class of Shares may be traded, or
if not then traded over or through any exchange or quotation system, then the
market price of such class of Shares on the relevant date as determined in good
faith by the Board.
(j) "Ownership Limit" shall initially mean 9.8%, in number of Class A
Shares, or value of the aggregate outstanding Shares of the Trust, and after any
adjustment as set forth in Section 11.10, shall mean such percentage in number
of Class A Shares, or value of the aggregate outstanding Shares, as so adjusted.
Such number and/or value shall be determined by the Board in good faith, which
determination shall be conclusive for all purposes hereof. For purposes of this
Article XI, the value of the Class B shares shall be determined by the Board in
good faith at least quarterly at the beginning of each calendar quarter and such
determination shall be conclusive for all purposes hereof until the earlier of
(i) the beginning of the next calendar quarter or (ii) the next determination of
the value of Class B shares by the Board.
(k) "Person" shall mean an individual, corporation, partnership,
estate, trust (including a trust qualified under Section 401(a) or 501(c)(17) of
the Code), portion of a trust permanently set aside for or to be used
exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity.
(l) "Purported Beneficial Transferee" shall mean, with respect to any
purported Transfer which results in Excess Shares, as defined below in Section
11.3, the beneficial holder of the Shares, if such Transfer had been valid under
Section 11.2.
(m) "Purported Record Transferee" shall mean, with respect to any
purported Transfer which results in Excess Shares, as defined below in Section
11.3, the record holder of the Shares, if such Transfer had been valid under
Section 11.2.
(n) "Restriction Termination Date" shall mean the first day after the
Restriction Commencement Date on which the Board determines that it is no longer
in the best interests of the Trust to attempt to, or continue to, qualify as a
real estate investment trust.
(o) "Transfer" shall mean any sale, transfer, gift, assignment, devise
or other disposition of Shares (including (a) the granting of any option or
entering into any agreement for the sale, transfer or other disposition of
Shares, (b) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Shares, but excluding
the exchange of Debt or any security of the Trust for Shares and (c) any
transfer or other disposition of any interest in Shares as a result of a change
in the marital status of the holder thereof), whether voluntary or involuntary,
whether of record, constructively or beneficially and
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whether by operation of law or otherwise. The terms "Transfers" and
"Transferred" shall have correlative meanings.
11.2. Ownership Limitation.
(a) Except as provided in Sections 11.12 and 11.20, and subject to
paragraph (f) of this Section 11.2, from the Restriction Commencement Date until
the Restriction Termination Date, no Person (other than an Existing Holder)
shall Beneficially Own Shares in excess of the Ownership Limit and no Existing
Holder shall Beneficially Own Shares in excess of the Existing Holder Limit for
such Existing Holder.
(b) Except as provided in Sections 11.12 and 11.20, and subject to
paragraph (f) of this Section 11.2, from the Restriction Commencement Date until
the Restriction Termination Date, any Transfer that, if effective, would result
in any Person (other than an Existing Holder) Beneficially Owning Shares in
excess of the Ownership Limit shall be void ab initio as to the Transfer of the
Shares which would be otherwise Beneficially Owned by such Person in excess of
the Ownership Limit; and the intended transferee shall acquire no rights in such
Shares.
(c) Except as provided in Sections 11.9 and 11.12, and subject to
paragraph (f) of this Section 11.2, from the Restriction Commencement Date until
the Restriction Termination Date, any Transfer that, if effective, would result
in any Existing Holder Beneficially Owning Shares in excess of the applicable
Existing Holder Limit shall be void ab initio as to the Transfer of the Shares
which would be otherwise Beneficially Owned by such Existing Holder in excess of
the applicable Existing Holder Limit; and such Existing Holder shall acquire no
rights in such Shares.
(d) Subject to paragraph (f) of this Section 11.2, from the Restriction
Commencement Date until the Restriction Termination Date, any Transfer that, if
effective, would result in the Shares being beneficially owned (as provided in
Section 856(a) of the Code) by less than 100 Persons (determined without
reference to any rules of attribution) shall be void ab initio as to the
Transfer of Shares which would be otherwise beneficially owned (as provided in
Section 856(a) of the Code) by the transferee; and the intended transferee shall
acquire no rights in such Shares.
(e) Subject to paragraph (f) of this Section 11.2, from the Restriction
Commencement Date until the Restriction Termination Date, any Transfer that, if
effective, would result in the Trust being "closely held" within the meaning of
Section 856(h) of the Code shall be void ab initio as to the Transfer of the
Shares which would cause the Trust to be "closely held" within the meaning of
Section 856(h) of the Code; and the intended transferee shall acquire no rights
in such Shares.
(f) Nothing contained in this Article XI shall preclude the settlement
of any transaction entered into through the facilities of the American Stock
Exchange. The fact that the
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<PAGE>
settlement of any transaction is permitted shall not negate the effect of any
other provision of this Article XI and any transferee in such a transaction
shall be subject to all of the provisions and limitations set forth in this
Article XI.
11.3. Excess Shares.
(a) If, notwithstanding the other provisions contained in this Article
XI, at any time from the Restriction Commencement Date until the Restriction
Termination Date, there is a purported Transfer or other change in the capital
structure of the Trust such that any Person would Beneficially Own Shares in
excess of the applicable Ownership Limit or Existing Holder Limit (as
applicable), then, except as otherwise provided in Sections 11.9 and 11.12, and
subject to paragraph (f) of Section 11.2, the Shares Beneficially Owned in
excess of such Ownership Limit or Existing Holder Limit (rounded up to the
nearest whole Share) shall constitute "Excess Shares" and be treated as provided
in this Article XI. Such designation and treatment shall be effective as of the
close of business on the business day prior to the date of the purported
Transfer or change in capital structure.
(b) If, notwithstanding the other provisions contained in this Article
XI, at any time after the Restriction Commencement Date until the Restriction
Termination Date, there is a purported Transfer or other change in the capital
structure of the Trust which, if effective, would cause the Trust to become
"closely held" within the meaning of Section 856(h) of the Code, then the Shares
being Transferred which would cause the Trust to be "closely held" within the
meaning of Section 856(h) of the Code (rounded up to the nearest whole Share)
shall constitute "Excess Shares" and be treated as provided in this Article XI.
Such designation and treatment shall be effective as of the close of business on
the business day prior to the date of the purported Transfer or change in
capital structure (except for a change resulting from the exchange of Units for
Shares).
11.4. Prevention of Transfer. If the Board or its designee shall at any
time determine in good faith that a Transfer has taken place in violation of
Section 11.2 or that a Person intends to acquire or has attempted to acquire
beneficial ownership (determined without reference to any rules of attribution)
or Beneficial Ownership of any Shares in violation of Section 11.2, the Board or
its designee shall take such action as it deems advisable to refuse to give
effect to or to prevent such transfer, including, but not limited to, refusing
to give effect to such Transfer on the books of the Trust or instituting
proceedings to enjoin such Transfer; provided, however, that any Transfers or
attempted Transfers in violation of paragraph (b), (c), (d) or (e) of Section
11.2 shall automatically result in the designation and treatment described in
Section 11.3, irrespective of any action (or non-action) by the Board.
11.5. Notice to Trust. Any Person who acquires or attempts to acquire
Shares in violation of Section 11.2, or any Person who is a transferee such that
Excess Shares result under Section 11.3, shall immediately give written notice
or, in the event of a proposed or attempted Transfer, shall give at least 15
days prior written notice to the Trust of such event and shall
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<PAGE>
provide to the Trust such other information as the Trust may request in order to
determine the effect, if any, of such Transfer or attempted Transfer on the
Trust's status as a REIT.
11.6. Information for Trust. From the Restriction Commencement Date and
until the Restriction Termination Date:
(a) every Beneficial Owner of more than 5% (or such other percentage,
between 1/2 of 1% and 5%, as provided under the REIT Provisions of the Code) of
the number or value of outstanding Shares of the Trust shall upon the Trust's
written request, within 30 days after January 1 of each year, give written
notice to the Trust stating the name and address of such Beneficial Owner, the
number of Shares Beneficially Owned, and a description of how such Shares are
held. Each such Beneficial Owner shall provide to the Trust such additional
information as the Trust may reasonably request in order to determine the
effect, if any, of such Beneficial Ownership on the Trust's status as a REIT.
(b) each Person who is a Beneficial Owner of Shares and each Person
(including the Shareholder of record) who is holding Shares for a Beneficial
Owner shall provide to the Trust in writing such information with respect to
direct, indirect and constructive ownership of Shares as the Board deems
reasonably necessary to comply with the provisions of the Code applicable to a
REIT, to determine the Trust's status as a REIT, to comply with the requirements
of any taxing authority or governmental agency or to determine any such
compliance.
11.7. Other Action by Board. Subject to paragraph (f) of Section 11.2,
nothing contained in this Article XI shall limit the authority of the Board to
take such other action as it deems necessary or advisable to protect the Trust
and the interests of its Shareholders by preservation of the Trust's status as a
REIT; provided, however, that no provision of this Section 11.7 shall preclude
the settlement of any transaction entered into through the facilities of the
American Stock Exchange.
11.8. Ambiguities. In the case of an ambiguity in the application of
any of the provisions of this Article XI, including any definition contained in
Section 11.1, the Board shall have the power to determine the application of the
provisions of this Article XI with respect to any situation based on the facts
known to it and the Board' determination shall be conclusive for all purposes of
this Declaration..
11.9. Modification of Existing Holder Limits. The Existing Holder
Limits may be modified as follows:
(a) Subject to the limitations provided in Section 11.11, the Board may
grant options which result in Beneficial Ownership of Shares by an Existing
Holder pursuant to an option plan approved by the Board and/or the Shareholders.
Any such grant shall increase the Existing Holder Limit for the affected
Existing Holder to the maximum extent possible under
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Section 11.11 to permit the Beneficial Ownership of the Shares issuable upon the
exercise of such option.
(b) Subject to the limitations provided in Section 11.11, an Existing
Holder may elect to participate in a dividend reinvestment plan approved by the
Board which results in Beneficial Ownership of Shares by such participating
Existing Holder. Any such participation shall increase the Existing Holder Limit
for the affected Existing Holder to the maximum extent possible under Section
11.11 to permit Beneficial Ownership of the Shares acquired as a result of such
participation.
(c) The Board shall reduce the Existing Holder Limit for any Existing
Holder after any Transfer permitted in this Article XI by such Existing Holder
by the percentage of the outstanding Shares so Transferred or after the lapse
(without exercise) of an option described in paragraph (a) of this Section 11.9
by the percentage of the Shares that the option, if exercised, would have
represented, but in either case no Existing Holder Limit shall be reduced to a
percentage which is less than the Ownership Limit.
11.10. Increase or Decrease in Ownership Limit. Subject to the
limitations provided in Section 11.11 and Section 5.1, the Board may from time
to time increase or decrease the Ownership Limit; provided, however, that any
decrease may only be made prospectively as to subsequent holders (other than a
decrease as a result of a retroactive change in existing law that would require
a decrease to retain REIT status, in which case such decrease shall be effective
immediately).
11.11. Limitations on Changes in Existing Holder and Ownership Limits.
(a) Neither the Ownership Limit nor any Existing Holder Limit may be
increased (nor may any additional Existing Holder Limit be created) if, after
giving effect to such increase (or creation), five Beneficial Owners of Shares
(including all of the then Existing Holders) could Beneficially Own, in the
aggregate, more than 49.9% in number or value of the outstanding Shares.
(b) Prior to the modification of any Existing Holder Limit or Ownership
Limit pursuant to Section 11.9 or 11.10, the Board may require such opinions of
counsel, affidavits, undertakings or agreements as it may deem necessary or
advisable in order to determine or ensure the Trust's status as a REIT.
(c) No Existing Holder Limit shall be reduced to a percentage which is
less than the Ownership Limit.
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11.12. Waivers by Board.
(a) The Board, upon receipt of a ruling from the Internal Revenue
Service or an opinion of counsel or other evidence satisfactory to the Board and
upon at least 15 days written notice from a transferee prior to the proposed
Transfer which, if consummated, would result in the intended transferee owning
Shares in excess of the Ownership Limit or the Existing Holder Limit, as the
case may be, and upon such other conditions as the Board may direct, may waive
the Ownership Limit or the Existing Holder Limit, as the case may be, with
respect to such transferee.
(b) In addition to waivers permitted under paragraph (a) above, the
Board shall waive the Ownership Limit with respect to a Person if: (i) such
Person submits to the Board information satisfactory to the Board, in its
reasonable discretion, demonstrating that such Person is not an individual for
purposes of Section 542(a)(2) of the Code (determined taking into account
Section 856(h)(3)(A) of the Code); (ii) such Person submits to the Board
information satisfactory to the Board, in its reasonable discretion,
demonstrating that no Person who is an individual for purposes of Section
542(a)(2) of the Code (determined taking into account Section 856(h)(3)(A) of
the Code) would be considered to Beneficially Own Shares in excess of the
Ownership Limit by reason of the ownership of Shares in excess of the Ownership
Limit by the Person receiving the waiver granted under this paragraph (b); (iii)
such Person submits to the Board information satisfactory to the Board, in its
reasonable discretion, demonstrating that the ownership of Shares in excess of
the Ownership Limit by the Person receiving the waiver granted under this
paragraph (b) will not result in the Trust failing to qualify as a REIT; and
(iv) such Person provides to the Board such representations and undertakings, if
any, as the Board may, in its reasonable discretion, require to ensure that the
conditions in clauses (i), (ii) and (iii) above are satisfied and will continue
to be satisfied throughout the period during which such Person owns Shares in
excess of the Ownership Limit pursuant to any waiver granted under this
paragraph (b), and such Person agrees that any violation of such representations
and undertakings or any attempted violation thereof will result in the
application of the remedies set forth in Section 11.3 with respect to Shares
held in excess of the Ownership Limit by such Person (determined without regard
to the waiver granted such Person under this paragraph (b)).
11.13. Legend. Each certificate for Shares shall bear substantially the
following legend:
The securities represented by this certificate are subject to
restrictions on transfer for the purpose of the Trust's maintenance of
its status as a REIT under the Internal Revenue Code of 1986, as
amended. Except as otherwise provided pursuant to the Declaration of
the Trust, no Person may Beneficially Own Shares in excess of 9.8% (or
such greater percentage as may be determined by the Board of the Trust)
of the number or value of the outstanding Shares of the Trust (unless
such Person is an Existing Holder). Any Person who attempts or proposes
to Beneficially Own Shares in excess of the above limitations must
notify the Trust in writing at least 15 days prior to such proposed or
attempted Transfer. All
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capitalized terms in this legend have the meanings defined in the
Declaration of the Trust, a copy of which, including the restrictions
on transfer, will be sent without charge to each Shareholder who so
requests. If the restrictions on transfer are violated, the securities
represented hereby shall be designated and treated as Excess Shares
which shall be held in trust by the Excess Share Trustee for the
benefit of the Charitable Beneficiary.
11.14. Severability. If any provision of this Article XI or any
application of any such provision is determined to be void, invalid or
unenforceable by any court having jurisdiction over the issue, the validity and
enforceability of the remaining provisions shall be affected only to the extent
necessary to comply with the determination of such court.
11.15. Trust for Excess Shares. Upon any purported Transfer that
results in Excess Shares pursuant to Section 11.3, such Excess Shares shall be
deemed to have been transferred to the Excess Share Trustee, as trustee of the
Excess Share Trust for the exclusive benefit of the Charitable Beneficiary.
Excess Shares so held in trust shall be issued and outstanding Shares of the
Trust. The Purported Beneficial Transferee shall have no rights in such Excess
Shares except as provided in Section 11.18.
11.16. Distributions on Excess Shares. Any distributions (whether as
dividends, distributions upon liquidation, dissolution or winding up or
otherwise) on Excess Shares shall be paid to the Excess Share Trust for the
benefit of the Charitable Beneficiary. Upon liquidation, dissolution or winding
up, the Purported Record Transferee shall receive the lesser of (a) the amount
of any distribution made upon liquidation, dissolution or winding up or (b) the
price paid by the Purported Record Transferee for the Shares, or if the
Purported Record Transferee did not give value for the Shares, the Market Price
of the Shares on the day of the event causing the Shares to be held in trust.
Any such dividend paid or distribution paid to the Purported Record Transferee
in excess of the amount provided in the preceding sentence prior to the
discovery by the Trust that the Shares with respect to which the dividend or
distribution was made had been exchanged for Excess Shares shall be repaid to
the Excess Share Trust for the benefit of the Charitable Beneficiary.
11.17. Voting of Excess Shares. The Excess Share Trustee shall be
entitled to vote the Excess Shares for the benefit of the Charitable Beneficiary
on any matter. Any vote taken by a Purported Record Transferee prior to the
discovery by the Trust that the Excess Shares were held in trust shall be
rescinded ab initio. The owner of the Excess Shares shall be deemed to have
given an irrevocable proxy to the Excess Share Trustee to vote the Excess Shares
for the benefit of the Charitable Beneficiary.
11.18. Non-Transferability of Excess Shares. Excess Shares shall be
transferable only as provided in this Section 11.18. At the direction of the
Trust, the Excess Share Trustee shall transfer the Shares held in the Excess
Share Trust to a person whose ownership of the Shares will not violate the
Ownership Limit or Existing Holder Limit. Such transfer shall be made
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within 60 days after the latest of (x) the date of the Transfer which resulted
in such Excess Shares and (y) the date the Board determines in good faith that a
Transfer resulting in Excess Shares has occurred, if the Trust does not receive
a notice of such Transfer pursuant to Section 11.5. If such a transfer is made,
the interest of the Charitable Beneficiary shall terminate and proceeds of the
sale shall be payable to the Purported Record Transferee and to the Charitable
Beneficiary. The Purported Record Transferee shall receive the lesser of (a) the
price paid by the Purported Record Transferee for the Shares or, if the
Purported Record Transferee did not give value for the Shares, the Market Price
of the Shares on the day of the event causing the Shares to be held in trust,
and (b) the price received by the Excess Share Trust from the sale or other
disposition of the Shares. Any proceeds in excess of the amount payable to the
Purported Record Transferee shall be paid to the Charitable Beneficiary. Prior
to any transfer of any Excess Shares by the Excess Share Trustee, the Trust must
have waived in writing its purchase rights under Section 11.19. It is expressly
understood that the Purported Record Transferee may enforce the provisions of
this Section 11.18 against the Charitable Beneficiary.
If any of the foregoing restrictions on transfer of Excess Shares is
determined to be void, invalid or unenforceable by any court of competent
jurisdiction, then the Purported Record Transferee may be deemed, at the option
of the Trust, to have acted as an agent of the Trust in acquiring such Excess
Shares and to hold such Excess Shares on behalf of the Trust.
11.19. Call by Trust on Excess Shares. Excess Shares shall be deemed to
have been offered for sale to the Trust, or its designee, at a price per Share
equal to the lesser of (a) the price per Share in the transaction that created
such Excess Shares (or, in the case of a devise, gift or other transaction in
which no value was given for such Excess Shares, the Market Price at the time of
such devise, gift or other transaction) and (b) the Market Price of the common
Shares and/or preferred Shares to which such Excess Shares relates on the date
the Trust, or its designee, accepts such offer (the "Redemption Price"). The
Trust shall have the right to accept such offer for a period of 90 days after
the later of (x) the date of the Transfer which resulted in such Excess Shares
and (y) the date the Board determines in good faith that a Transfer resulting in
Excess Shares has occurred, if the Trust does not receive a notice of such
Transfer pursuant to Section 11.5 but in no event later than a permitted
Transfer pursuant to and in compliance with the terms of Section 11.18. Unless
the Board determines that it is in the interests of the Trust to make earlier
payments of all of the amount determined as the Redemption Price per Share in
accordance with the preceding sentence, the Redemption Price may be payable at
the option of the Board at any time up to but not later than one year after the
date the Trust accepts the offer to purchase the Excess Shares. In no event
shall the Trust have an obligation to pay interest to the Purported Record
Transferee.
11.20. Underwritten Offerings. The Ownership Limit shall not apply to
the acquisition of Shares or rights, options or warrants for, or securities
convertible into, Shares by an underwriter in a public offering, provided that
the underwriter makes a timely distribution of such Shares or rights, options or
warrants for, or securities convertible into, Shares.
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IN WITNESS WHEREOF, the undersigned have executed this Amended and
Restated Declaration of Trust as of the date first hereinabove set forth.
_________________________________
Jeffrey G. Dishner
_________________________________
Jonathan D. Eilian
_________________________________
Robin Josephs
_________________________________
Merrick R. Kleeman
_________________________________
William Matthes
_________________________________
Barry S. Sternlicht
_________________________________
Jay Sugarman
_________________________________
Kneeland C. Youngblood
<PAGE>
SCHEDULE A
TRUSTEES
--------
Name Class Address
- ---- ----- -------
Jeffrey G. Disher I Starwood Capital Group,
L.L.C.
Three Pickwick Plaza, Suite
250
Greenwich, CT 06830
Jonathan D. Eilian I Starwood Capital Group,
L.L.C.
Three Pickwick Plaza, Suite
250
Greenwich, CT 06830
Merrick R. Kleeman I Starwood Capital Group,
L.L.C.
Three Pickwick Plaza, Suite
250
Greenwich, CT 06830
Robin Josephs I
Barry S. Sternlicht II Starwood Capital Group,
L.L.C.
Three Pickwick Plaza, Suite
250
Greenwich, CT 06830
Jay Sugarman II Starwood Financial Trust
1114 Avenue of the Americas
27th Floor
New York, NY 10036
William Matthes II
Kneeland Youngblood II
<PAGE>
STARWOOD FINANCIAL TRUST
BY-LAWS
June ____, 1998
<PAGE>
STARWOOD FINANCIAL TRUST
BYLAWS
ARTICLE I
OFFICES
1.1 Principal Office. The principal office of Starwood Financial Trust
(the "Trust") shall be located at such place or places as the Board of Trustees
(the "Board") of the Trust may designate.
1.2 Additional Offices. The Trust may have additional offices at such
places as the Board may from time to time determine or the business of the Trust
may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 Place. All meetings of shareholders shall be held at the principal
office of the Trust or at such other place within the United States as shall be
stated in the notice of the meeting.
2.2 Annual Meeting. An annual meeting of shareholders for the election
of Trustees and the transaction of any business within the powers of the Trust
shall be held within a reasonable period (not less than 30 days) following
delivery of the annual report described in Section 6.10 of the Amended and
Restated Declaration of Trust (the "Declaration of Trust") , on such date and at
such time as the Board may prescribe beginning in 1998, but in any event such
meeting shall be held within six months after the end of each full fiscal year.
2.3 Special Meetings. Special meetings of shareholders may be called by
the Chairman of the Board or at least two other Trustees. Special meetings of
shareholders shall also be called by the Secretary upon the written request of
shareholders holding in the aggregate not less than twenty percent of the
outstanding Class A Shares of the Trust, $1.00 par value per share ("Class A
Shares") or Class B Shares of the Trust, $.01 par value per share ("Class B
Shares") entitled to vote at such meeting. Such request shall state the purpose
of such meeting and the matters proposed to be acted on at such meeting. The
Secretary shall inform such shareholders of the reasonably estimated cost of
preparing and mailing notice of the meeting and, upon payment to the Trust of
such costs, the Secretary shall give notice to each shareholder entitled to
notice of the meeting. Unless requested by shareholders entitled to cast a
majority of all the votes entitled to be cast at such meeting, a special meeting
need not be called to consider any matter which is substantially the same as a
matter voted on at any meeting of shareholders held during the preceding 12
months.
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2.4 Notice. Not less than ten nor more than 60 days before each meeting
of shareholders, the Secretary shall give to each shareholder of record entitled
to vote at such meeting and to each shareholder not entitled to vote who is
entitled to notice of such meeting written or printed notice stating the place,
date and time of the meeting and, in the case of a special meeting or as
otherwise may be required by statute, the purpose or purposes for which the
meeting is called, either personally or by mail. If mailed, such notice shall be
deemed to be given when deposited in the United States mail addressed to the
shareholder at his or her post office address as it appears on the records of
the Trust, with postage thereon prepaid.
2.5 Scope of Notice. Subject to Section 2.11(a), any business of the
Trust may be transacted at an annual meeting of shareholders without being
specifically designated in the notice, except such business as is required by
statute to be stated in such notice. No business shall be transacted at a
special meeting of shareholders except as specifically designated in the notice
as provided in Section 2.11(b).
2.6 Quorum. At any meeting of shareholders, the presence in person or
by proxy of persons entitled to vote a majority of the Class A Shares and a
majority of the Class B Shares at such meeting shall constitute a quorum; but
this Section 2.6 shall not affect any requirement under any statute or the
Declaration of Trust for the vote necessary for the adoption of any measure. If,
however, such quorum shall not be present at any meeting of shareholders, the
shareholders entitled to vote at such meeting, present in person or by proxy,
shall have power to adjourn the meeting from time to time to a date not more
than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.
2.7 Voting. A majority of all the votes cast at a meeting of
shareholders duly called and at which a quorum is present shall be sufficient to
elect a Trustee. Each share entitled to vote may be voted for as many
individuals as there are Trustees to be elected and for whose election the share
is entitled to be voted. There shall be no right of cumulative voting. A
majority of the votes cast at a meeting of shareholders duly called and at which
a quorum is present shall be sufficient to approve any other matter which may
properly come before the meeting, unless more than a majority of the votes cast
is required by statute or by the Declaration of Trust. Unless otherwise provided
in the Declaration of Trust, each outstanding share, regardless of class, shall
be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders.
2.8 Proxies. A shareholder may vote the shares owned of record by him
or her, either in person or by proxy executed in writing by the shareholder or
by his or her duly authorized attorney in fact. Such proxy shall be filed with
the Secretary before or at the time of the meeting. No proxy shall be valid
after 11 months from the date of its execution, unless otherwise provided in the
proxy. No revocation of a proxy, whether by voluntary action, death, incapacity
of the shareholder granting such proxy, or otherwise shall be effective until
written notice thereof has been received by the Trust or one of the Trustees. At
a meeting of shareholders all questions concerning the qualification of voters,
the validity of proxies, and the
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acceptance or rejection of votes, shall be decided by the Secretary of the
meeting unless inspectors of election are appointed pursuant to Section 2.11, in
which event such inspectors shall pass upon all questions and shall have all
other duties specified in such Section.
2.9 Voting of Shares by Certain Holders. Shares registered in the name
of a corporation, partnership, trust or other entity, if entitled to be voted,
may be voted by the president or a vice president, a general partner or trustee
thereof, as the case may be, or a proxy appointed by any of the foregoing
individuals, unless some other person who has been appointed to vote such shares
pursuant to a bylaw or a resolution of the board of directors of such
corporation or governing body of such other entity presents a certified copy of
such bylaw or resolution, in which case such person may vote such shares. Any
trustee or other fiduciary may vote shares registered in his or her name as such
fiduciary, either in person or by proxy.
Shares of the Trust directly or indirectly owned by it shall not be
voted at any meeting and shall not be counted in determining the total number of
outstanding shares entitled to be voted at any given time, unless they are held
by it in a fiduciary capacity, in which case they may be voted and shall be
counted in determining the total number of outstanding shares at any given time.
The Board may adopt by resolution a procedure by which a shareholder
may certify in writing to the Trust that any shares registered in the name of
the shareholder are held for the account of a specified person other than the
shareholder. The resolution shall set forth the class of shareholders who may
make the certification, the purpose for which the certification may be made, the
form of certification and the information to be contained in it; if the
certification is with respect to a record date or closing of the share transfer
books, the time after the record date or closing of the share transfer books
within which the certification must be received by the Trust; and any other
provisions with respect to the procedure which the Board considers necessary or
desirable. On receipt of such certification, the person specified in the
certification shall be regarded as, for the purposes set forth in the
certification, the shareholder of record of the specified shares in place of the
shareholder who makes the certification.
2.10 Inspectors. At any meeting of shareholders, the presiding officer
of the meeting may, and upon the request of any shareholder shall, appoint one
or more persons as inspectors for such meeting. Such inspectors shall ascertain
and report the number of shares represented at the meeting based on their
determination of the validity and effect of proxies, count all votes, report the
results and perform such other acts as are proper to conduct the election and
voting with impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or by
a majority of them if there is more than one inspector acting at such meeting.
If there is more than one inspector, the report of a majority shall be the
report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
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2.11 Nominations and Shareholder Business.
(a) Annual Meetings of Shareholders.
(i) Nominations of persons for election to the Board and the proposal
of business to be considered by the shareholders may be made at an annual
meeting of shareholders (A) pursuant to the Trust's notice of meeting, (B) by or
at the direction of the Board or (C) by any shareholder of the Trust who was a
shareholder of record at the time of giving the notice provided for in this
Section 2.11(a), who is entitled to vote at the meeting and who complied with
the notice procedures set forth in this Section 2.11(a).
(ii) For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (C) of paragraph (i) of this
Section 2.11(a), the shareholder must have given timely notice thereof in
writing to the Secretary. To be timely, a shareholder's notice shall be
delivered to the Secretary at the principal executive offices of the Trust not
less than 60 days nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that if the date of the
annual meeting is advanced by more than 30 days or delayed by more than 60 days
from such anniversary date or if the Trust has not previously held an annual
meeting, notice by the shareholder to be timely must be so delivered not more
than 90 days prior to such annual meeting nor less than 60 days prior to such
annual meeting or ten days following the day on which public announcement of the
date of such meeting is first made by the Trust. Such shareholder's notice shall
set forth (A) as to each person whom the shareholder proposes to nominate for
election or reelection as a Trustee, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
Trustees, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a Trustee if elected), (B) as to any other
business that the shareholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such shareholder and of the beneficial owner, if any, on whose
behalf the proposal is made, and (C) as to the shareholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is
made, (1) the name and address of such shareholder, as they appear on the
Trust's books, and of such beneficial owner and (2) the class and number of
shares of the Trust which are owned beneficially and of record by such
shareholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of paragraph (ii)
of this Section 2.11(a) to the contrary, if the number of Trustees to be elected
to the Board is increased and there is no public announcement naming all of the
nominees for Trustee or specifying the size of the increased Board made by the
Trust at least 70 days prior to the first anniversary of the preceding year's
annual meeting, a shareholder's notice required by this Section 2.11(a) shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal
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executive offices of the Trust not more than ten days following the day on which
such public announcement is first made by the Trust.
(b) Special Meetings of Shareholders. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the Trust's notice of meeting. Nominations of persons
for election to the Board may be made at a special meeting of shareholders at
which Trustees are to be elected (i) pursuant to the Trust's notice of meeting,
(ii) by or at the direction of the Board or (iii) provided that the Board has
determined that Trustees shall be elected at such special meeting, by any
shareholder of the Trust who was a shareholder of record at the time of giving
of notice provided for in this Section 2.11(b), who is entitled to vote at the
meeting and who complied with the notice procedures set forth in this Section
2.11(b). If the Trust calls a special meeting of shareholders for the purpose of
electing one or more Trustees to the Board, any such shareholder may nominate a
person or persons (as the case may be) for election to such position as
specified in the Trust's notice of meeting, if the shareholder's notice required
by paragraph (ii) of Section 2.11(a) shall be delivered to the Secretary at the
principal executive offices of the Trust not more than 90 days prior to such
meeting nor less than 60 days prior to such meeting or ten days following the
day on which public announcement of the date of the special meeting and of the
nominees proposed by the Board to be elected at such meeting is first made by
the Trust.
(c) General.
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 2.11 shall be eligible to serve as Trustees
and only such business shall be conducted at a meeting of shareholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 2.11. The presiding officer of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Section 2.11 and, if any proposed nomination or business is not in
compliance with this Section 2.11, to declare that such nomination or proposal
be disregarded.
(ii) For purposes of this Section 2.11, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable news service or in a document publicly filed by
the Trust with the Securities and Exchange Commission.
(iii) Notwithstanding the foregoing provisions of this Section 2.11, a
shareholder shall also comply with all applicable requirements of state law and
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 2.11. Nothing in this Section 2.11 shall be
deemed to affect any rights of shareholders to request inclusion of, nor any
rights of the Trust to omit, proposals in the Trust's proxy statement pursuant
to Rule 14a-8 under the Exchange Act.
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2.12 Informal Action by Shareholders. Any action required or permitted
to be taken at a meeting of shareholders may be taken without a meeting if a
consent in writing, setting forth such action, is signed by a sufficient
proportion of the Class A Shareholders and Class B Shareholders as would be
required to approve such action at a meeting.
2.13 Voting by Ballot. Voting on any question or in any election may be
vive voce unless the presiding officer shall order or any shareholder shall
demand that voting be by ballot.
ARTICLE III
TRUSTEES
3.1 General Powers. The business and affairs of the Trust shall be
managed under the direction of the Board. The Board shall keep a record of its
acts and proceedings, which shall form a part of the records of the Trust in the
custody of the Secretary.
3.2 Number, Term and Qualifications. At any regular meeting or at any
special meeting called for that purpose, a majority of the Trustees may
establish, increase or decrease the number of Trustees, provided that the number
thereof shall never be less than seven nor more than 15, and provided further
that the term of office of a Trustee shall not be affected by any decrease in
the number of Trustees. Each Trustee shall hold office for the term for which he
or she is elected and until his or her successor is elected and qualifies,
subject, however, to prior death, resignation or removal from office. The
initial number of Trustees is eight.
3.3 Annual and Regular Meetings. An annual meeting of the Board shall
be held immediately after and at the same place as the annual meeting of
shareholders, no notice other than this Bylaw being necessary. The Board may
provide, by resolution, the time and place, either within or without the State
of Maryland, for the holding of regular meetings of the Board without other
notice than such resolution.
3.4 Special Meetings. Special meetings of the Board may be called by or
at the request of the Chairman of the Board, the Chief Executive Officer or the
President or by a majority of the Trustees then in office. The person or persons
authorized to call special meetings of the Board may fix any place, either
within or without the State of Maryland, as the place for holding any special
meeting of the Board called by them.
3.5 Notice. Notice of any special meeting shall be given by written
notice delivered personally, transmitted by facsimile, telegraphed, couriered or
mailed to each Trustee at his or her business or residence address. Personally
delivered, facsimile transmitted or telegraphed notices shall be given at least
two days prior to the meeting. Notice by mail shall be given at least five days
prior to the meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail properly addressed, with postage thereon
prepaid. If given by courier such notice shall be deemed given when delivered to
the courier company. If given by telegram, such notice shall be deemed to be
given when the telegram is delivered to the
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telegraph company. If given by facsimile, such notice shall be deemed to be
given upon completion of the transmission and receipt of a completed answer-back
indicating receipt. Neither the business to be transacted at, nor the purpose
of, any annual, regular or special meeting of the Board need be stated in the
notice, unless specifically required by statute or these Bylaws.
3.6 Quorum. A majority of the Trustees shall constitute a quorum for
transaction of business at any meeting of the Board, provided that, if less than
a majority of the Trustees are present at any meeting, a majority of the
Trustees present may adjourn the meeting from time to time without further
notice. The Trustees present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough Trustees to leave less than a quorum.
3.7 Voting. Except as otherwise provided in the Declaration of Trust,
the action of a majority of the Trustees taken at a meeting at which a quorum is
present shall be the action of the Board, unless the concurrence of a greater
proportion is required for such action by applicable statute.
3.8 Telephone Meetings. Trustees may participate in a meeting by means
of a conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time. Participation
in a meeting by these means shall constitute presence in person at the meeting.
3.9 Informal Action by Trustees. Any action required or permitted to be
taken at any meeting of the Board may be taken without a meeting, if a consent
in writing to such action is signed by each Trustee and such written consent is
filed with the minutes of proceedings of the Board. Such action by written
consent shall have the same force and effect as a unanimous vote of such
Trustees.
3.10 Vacancies. If for any reason any or all of the Trustees shall
cease to be Trustees, such event shall not affect these Bylaws or the powers of
the remaining Trustees hereunder (even if fewer than seven Trustees remain). Any
vacancy (including a vacancy created by an increase in the number of Trustees)
shall be filled, at any regular meeting or at any special meeting called for
that purpose, by a majority of the Trustees.
3.11 Removal. The shareholders may, at any time, remove any Trustee in
the manner provided in the Declaration of Trust.
3.12 Interested Trustee Transactions. Section 2-419 of the Maryland
General Corporation Law shall be available for and apply to any contract or
other transaction between the Trust and any of its Trustees or between the Trust
and any other trust, corporation, firm or other entity in which any of its
Trustees is a trustee or director or has a material financial interest.
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3.13 Adjourned Meetings. A quorum of the Trustees may adjourn any
Trustees' meeting to meet again at a stated day and hour. In the absence of a
quorum a majority of the Trustees present may adjourn from time to time to meet
again at a stated day and hour prior to the time fixed for the next regular
meeting of the Trustees. The motion for adjournment shall be lodged within the
records of the Trust. Notice of the time and place of an adjourned meeting need
not be given to any Trustee if the time and place is fixed at the meeting
adjourned.
3.14 Compensation. Subject to the provisions of the Declaration of
Trust, the Trustees of the Trust shall receive reasonable compensation for their
services as determined by the Trustees from time to time.
ARTICLE IV
COMMITTEES
4.1 Audit Committee. The Board, by resolution adopted by a majority of
the Trustees, may designate two or more Trustees to constitute an Audit
Committee, to serve as such, unless the resolution designating the Audit
Committee is sooner amended or rescinded by the Board, until the next annual
meeting of the Board or until their respective successors are designated. The
Board, by resolution adopted by a majority of the Trustees, may also designate
additional Trustees as alternate members of the Audit Committee to serve as
members of the Audit Committee in the place and stead of any regular member or
members who may be unable to attend a meeting or otherwise unavailable to act as
a member of the Audit Committee. In the absence or disqualification of a member
and all alternate members who may serve in the place and stead of such member,
the member or members present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another Trustee to act at the meeting in the place of any such absent or
disqualified member. At least two members of the Audit Committee shall be
independent of management of the Trust and free from any relationship that, in
the opinion of the Board, would interfere with the exercise of independent
judgment as a member of the Audit Committee.
Except as expressly limited by the laws of the State of Maryland or the
Declaration of Trust, the Audit Committee shall have and may exercise all the
powers and authority of the Board to establish auditing procedures for the Trust
and to appoint and oversee the Trust's independent public accountants to the
fullest extent. The Audit Committee shall keep a record of its acts and
proceedings, which shall form a part of the records of the Trust in the custody
of the Secretary, and all actions of the Audit Committee shall be reported to
the Board at the next meeting of the Board.
Meetings of the Audit Committee may be called at any time by the
Chairman of the Board, the Chief Executive Officer or the President or by any
two Audit Committee members. Two days' written or telephonic notice of meetings
shall be given. A majority of the members of the Audit Committee shall
constitute a quorum for the transaction of business and, except as expressly
limited by this Section 4.1, the act of a majority of the members present at any
meeting
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at which there is a quorum shall be the act of the Audit Committee. Except as
expressly provided in this Section 4.1, the Audit Committee shall fix its own
rules of procedure.
4.2 Compensation Committee. The Board, by resolution adopted by a
majority of the Trustees, may designate two or more Trustees to constitute a
Compensation Committee, to serve as such, unless the resolution designating the
Compensation Committee is sooner amended or rescinded by the Board, until the
next annual meeting of the Board or until their respective successors are
designated. The Board, by resolution adopted by a majority of the Trustees, may
also designate additional Trustees as alternate members of the Compensation
Committee to serve as members of the Compensation Committee in the place and
stead of any regular member or members who may be unable to attend a meeting or
otherwise unavailable to act as a member of the Compensation Committee. In the
absence or disqualification of a member and all alternate members who may serve
in the place and stead of such member, the member or members present at any
meeting and not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another Trustee to act at the
meeting in the place of any such absent or disqualified member. Each member of
the Compensation Committee shall be a "non-employee director" within the meaning
of Rule 16b-3(b)(3)(i) promulgated under the Exchange Act.
Except as expressly limited by the laws of the State of Maryland or the
Declaration of Trust, the Compensation Committee shall have and may exercise
such powers as the Board may determine and specify by resolution. The
Compensation Committee shall keep a record of its acts and proceedings, which
shall form a part of the records of the Trust in the custody of the Secretary,
and all actions of the Compensation Committee shall be reported to the Board at
the next meeting of the Board.
Meetings of the Compensation Committee may be called at any time by the
Chairman of the Board, the Chief Executive Officer or the President or by any
two Compensation Committee members. Two days' written or telephonic notice of
meetings shall be given. A majority of the members of the Compensation Committee
shall constitute a quorum for the transaction of business and, except as
expressly limited by this Section 4.2, the act of a majority of the members
present at any meeting at which there is a quorum shall be the act of the
Compensation Committee. Except as expressly provided in this Section 4.2, the
Compensation Committee shall fix its own rules of procedure.
4.3 Other Committees. The Board, by resolution adopted by a majority of
the Trustees, may designate one or more other committees, each such committee to
consist of two or more Trustees. Except as expressly limited by the laws of the
State of Maryland or the Declaration of Trust, any such committee shall have and
may exercise such powers as the Board may determine and specify in the
resolution designating such committee. The Board, by resolution adopted by a
majority of the Trustees, may also designate one or more additional Trustees as
alternate members of any such committee to replace any absent or disqualified
member at any meeting of the committee, and at any time may change the
membership of any committee or amend or rescind the resolution designating the
committee. In the absence or
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disqualification of a member or alternate member of a committee, the member of
members present at any meeting and not disqualified from voting, whether or not
such member or members constitute a quorum, may unanimously appoint another
Trustee to act at the meeting in the place of any such absent or disqualified
member, provided that the Trustee so appointed meets any qualifications stated
in the resolution designating the committee. Each committee shall keep a record
of proceedings and report the same to the Board to such extent and in such form
as the Board may require. Unless otherwise provided in the resolution
designating a committee, a majority of all the members of any such committee may
select its chairman, fix its rules of procedure, fix the time and place of its
meetings and specify what notice of meetings, if any, shall be given.
4.4 Telephone Meetings. Members of a committee of the Board may
participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting.
4.5 Informal Action by Committees. Any action required or permitted to
be taken at any meeting of a committee of the Board may be taken without a
meeting, if a consent in writing to such action is signed by each member of the
committee and such written consent is filed with the minutes of proceedings of
such committee.
ARTICLE V
OFFICERS
5.1 General Provisions. The officers of the Trust may include a Chief
Executive Officer, a President, a Chief Financial Officer, one or more Vice
Presidents, a Secretary, a Treasurer, one or more Assistant Secretaries and one
or more Assistant Treasurers. In addition, the Board may from time to time
appoint such other officers with such powers and duties as they shall deem
proper. The officers of the Trust shall be elected annually by the Board at the
first meeting of the Board held after each annual meeting of shareholders,
except that each of the Chief Executive Officer and the President may appoint
one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers. If
the election of officers shall not be held at such meeting, such election shall
be held as soon thereafter as may be convenient. Each officer shall hold office
until his or her successor is elected and qualifies or until his or her death,
resignation or removal in the manner hereinafter provided. Any two or more
offices except President and Vice President may be held by the same person. In
its discretion, the Board may leave unfilled any office. Election of an officer
or agent shall not of itself create contract rights between the Trust and such
officer or agent.
5.2 Removal and Resignation. Any officer or agent of the Trust may be
removed by the Board if in its judgment the best interests of the Trust would be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Any officer of the Trust may resign at
any time by giving written notice of his or her resignation to
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the Board, the Chairman of the Board, the Chief Executive Officer, the President
or the Secretary. Any resignation shall take effect at any time subsequent to
the time specified therein or, if the time when it shall become effective is not
specified therein, immediately upon its receipt. The acceptance of a resignation
shall not be necessary to make it effective unless otherwise stated in the
resignation. Such resignation shall be without prejudice to the contract rights,
if any, of the Trust.
5.3 Vacancies. A vacancy in any office may be filled by the Board for
the balance of the term.
5.4 Chief Executive Officer. The Chief Executive Officer shall preside
over the meetings of the Board and of shareholders at which the Chairman of the
Board is not present and he or she shall be present. The Chief Executive Officer
shall have general responsibility for implementation of the policies of the
Trust, as determined by the Board, and for the management, supervision and
control of all of the business and affairs of the Trust. He or she may execute
any deed, mortgage, bond, contract or other instrument, except in cases where
the execution thereof shall be expressly delegated by the Board or by these
Bylaws to some other officer or agent of the Trust or shall be required by law
to be otherwise executed; and in general shall perform all duties incident to
the office of Chief Executive Officer and such other duties as may be prescribed
by the Board from time to time.
5.5 President. The President shall have general responsibility for
implementation of the policies of the Trust, as determined by the Board and the
Chief Executive Officer. In the absence of the Chief Executive Officer, or if
there is a vacancy in such office, the President shall perform the duties of the
Chief Executive Officer and when so acting shall have all the powers of and be
subject to all the restrictions on the Chief Executive Officer. He or she may
execute any deed, mortgage, bond, contract or other instrument, except in cases
where the execution thereof shall be expressly delegated by the Board or the
Chief Executive Officer or by these Bylaws to some other officer or agent of the
Trust or shall be required by law to be otherwise executed; and in general shall
perform all duties incident to the office of President and such other duties as
may be prescribed by the Board or the Chief Executive Officer from time to time.
5.6 Chief Financial Officer. The Chief Financial Officer shall have
general responsibility for implementation of the policies of the Trust, as
determined by the Board and the Chief Executive Officer or the President, and
for the management, supervision and control of the financial and accounting
affairs of the Trust. In the absence of a designation of a Treasurer by the
Board, the Chief Financial Officer shall be the Treasurer of the Trust. In the
absence of the Chief Executive Officer and the President, or if there are
vacancies in such offices, the Chief Financial Officer shall perform the duties
of the Chief Executive Officer and the President and when so acting shall have
all the powers of and be subject to all the restrictions on the Chief Executive
Officer and the President. He or she may execute any deed, mortgage, bond,
contract or other instrument, except in cases where the execution thereof shall
be expressly delegated by the Board, the Chief Executive Officer or the
President or by these Bylaws to some other officer or agent of the Trust or
shall be required by law to be otherwise executed; and in general shall
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perform all duties incident to the office of Chief Financial Officer and such
other duties as may be prescribed by the Board, the Chief Executive Officer or
the President from time to time.
5.7 Vice Presidents. In the absence of the Chief Executive Officer, the
President and the Chief Financial Officer, or if there are vacancies in such
offices, the Vice President (or if there is more than one Vice President, the
Vice Presidents in the order designated at the time of their election or, in the
absence of any designation, then in the order of their election) shall perform
the duties of the Chief Executive Officer and the President and when so acting
shall have all the powers of and be subject to all the restrictions on the Chief
Executive Officer and the President; and shall perform such other duties as from
time to time may be assigned to him or her or them by the Chief Executive
Officer, the President or the Board . The Board may designate one or more Vice
Presidents as Executive Vice Presidents or as Vice Presidents for particular
areas of responsibility.
5.8 Secretary. The Secretary shall (a) keep the minutes of the
proceedings of the shareholders, the Board and committees of the Board in one or
more books provided for that purpose, (b) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law, (c) be
custodian of the records and of the seal of the Trust, (d) keep a register of
the post office address of each shareholder which shall be furnished to the
Secretary by such shareholder, (e) have general charge of the share transfer
books of the Trust and (f) in general perform such other duties as from time to
time may be assigned to him or her by the Chief Executive Officer or the Board.
5.9 Treasurer. The Treasurer shall have the custody of the funds and
securities of the Trust and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the Trust and shall deposit all moneys
and other valuable effects in the name and to the credit of the Trust in such
depositories as may be designated by the Board. In the absence of a designation
of a Chief Financial Officer by the Board, the Treasurer shall be the Chief
Financial Officer.
The Treasurer shall disburse the funds of the Trust as may be ordered
by the Board, taking proper vouchers for such disbursements, and shall render to
the Chief Executive Officer, the President and the Board, at the regular
meetings of the Board or whenever it may so require, an account of all his or
her transactions as Treasurer and of the financial condition of the Trust.
If required by the Board, he or she shall give the Trust a bond in such
sum and with such surety or sureties as shall be satisfactory to the Board for
the faithful performance of the duties of his or her office and for the
restoration to the Trust, in case of his or her death, resignation, retirement
or removal from office, of all books, papers, vouchers, moneys and other
property of whatever kind in his or her possession or under his or her control
belonging to the Trust.
5.10 Assistant Secretaries and Assistant Treasurers. The Assistant
Secretaries and Assistant Treasurers, in general, shall perform such duties as
shall be assigned to them by the Secretary or Treasurer, respectively, or by the
Chief Executive Officer, the President or the
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Board. The Assistant Treasurers shall, if required by the Board, give bonds for
the faithful performance of their duties in such sums and with such surety or
sureties as shall be satisfactory to the Board.
5.11 Salaries. The salaries and other compensation of the officers
shall be fixed from time to time by the Board and no officer shall be prevented
from receiving such salary by reason of the fact that he or she is also a
Trustee.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
6.1 Contracts. The Chairman of the Board, the Chief Executive Officer,
the President, the Chief Financial Officer and each Vice President are each
authorized to enter into any contract and to execute and deliver any instrument
in the name of and on behalf of the Trust, so long as the dollar value of the
Trust's obligation or liability under such contract or instrument does not
exceed $5,000,000. The Board may authorize any officer or agent to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the Trust, and such authority may be general or confined to specific
instances. Any agreement, deed, mortgage, lease or other document executed by
one or more of the Trustees or by an authorized person shall be valid and
binding on the Board and on the Trust when such execution is authorized or
ratified by these Bylaws or by action of the Board.
6.2 Checks and Drafts. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Trust shall be signed by the Chief Financial Officer or such officer or
officers, agent or agents of the Trust designated by the Chief Financial Officer
or in such other manner as shall from time to time be determined by the Board.
6.3 Deposits. All funds of the Trust not otherwise employed shall be
deposited from time to time to the credit of the Trust in such banks, trust
companies or other depositories as the Chief Executive Officer, the President,
the Chief Financial Officer or the Board may designate.
ARTICLE VII
SHARES
7.1 Certificates. Each shareholder shall be entitled to a certificate
or certificates which shall represent and certify the number of shares of each
class held by him or her in the Trust. Each certificate shall be signed by the
Chairman, the Chief Executive Officer, the President or any Vice President and
countersigned by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer and may be sealed with the seal, if any, of the Trust. The
signatures may be either manual or facsimile. Certificates shall be
consecutively numbered; and if the Trust shall, from time to time, issue several
classes of shares, each class may have its own
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number series. A certificate is valid and may be issued whether or not an
officer who signed it is still an officer when it is issued. Each certificate
representing shares which are restricted as to their transferability or voting
powers, which are preferred or limited as to their dividends or distributions or
as to their allocable portion of the assets upon liquidation or which are
redeemable at the option of the Trust, shall have a statement of such
restriction, limitation, preference or redemption provision, or a summary
thereof, plainly stated on the certificate. In lieu of such statement or
summary, the Trust may set forth on the face or back of the certificate a
statement that the Trust will furnish to any shareholder, upon request and
without charge, a full statement of such information.
7.2 Transfers. Upon surrender to the Trust or the transfer agent of the
Trust of a share certificate duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, the Trust shall issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction on its books.
The Trust shall be entitled to treat the holder of record of any share
as the holder in fact thereof and, accordingly, shall not be bound to recognize
any equitable or other claim to or interest in such share on the part of any
other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of the State of Maryland.
Any issuance, redemption or transfer of, or restriction on, shares
which would operate to disqualify the Trust as a real estate investment trust
for Federal income tax purposes shall be void ab initio.
Notwithstanding the foregoing, transfers of shares of any class will be
subject in all respects to the Declaration of Trust and all of the terms and
conditions contained therein.
7.3 Lost Certificate. The Board or the Secretary (or any other officer
designated by the Board or the Secretary) may direct a new certificate to be
issued in place of any certificate previously issued by the Trust alleged to
have been lost, stolen or destroyed upon the making of an affidavit of that fact
by the person claiming the certificate to be lost, stolen or destroyed. When
authorizing the issuance of a new certificate, the Board or the Secretary (or
any other officer designated by the Board or the Secretary) may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or his or her legal
representative to advertise the same in such manner as it or he or she shall
require and/or to give bond, with sufficient surety, to the Trust to indemnify
it against any loss or claim which may arise as a result of the issuance of a
new certificate.
7.4 Closing of Transfer Books or Fixing of Record Date. The Board may
set, in advance, a record date for the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or shareholders
entitled to receive payment of any dividend or distribution or the allotment of
any other rights, or in order to make a determination of shareholders for any
other proper purpose. Such date, in any case, shall not be prior to the close of
business on the day the record date is fixed and shall be not more than 90 days
and, in the case
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of a meeting of shareholders, not less than ten days, before the date on which
the meeting or particular action requiring such determination of shareholders is
to be held or taken.
In lieu of fixing a record date, the Board may provide that the share
transfer books shall be closed for a stated period but not longer than 20 days.
If the share transfer books are closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least ten days before the date of such meeting.
If no record date is fixed and the share transfer books are not closed
for the determination of shareholders, (a) the record date for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the day on which the notice of meeting is
mailed or the 30th day before the meeting, whichever is the closer date to the
meeting, and (b) the record date for the determination of shareholders entitled
to receive payment of a dividend or distribution or an allotment of any other
rights shall be the close of business on the day on which the resolution of the
Board declaring the dividend or distribution or allotment of rights is adopted.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section 7.4, such determination
shall apply to any adjournment thereof, except when (a) the determination has
been made through the closing of the transfer books and the stated period of
closing has expired or (b) the meeting is adjourned to a date more than 120 days
after the record date fixed for the original meeting, in either of which cases a
new record date shall be determined as provided above.
7.5 Share Ledger. The Trust shall maintain at its principal office or
at the office of its counsel, accountants or transfer agent, an original or
duplicate share ledger containing the name and address of each shareholder and
the number of shares of each class held by such shareholder.
7.6 Fractional Shares; Issuance of Units. The Board may issue
fractional shares or provide for the issuance of scrip, all on such items and
under such conditions as they may determine. Notwithstanding any other provision
of the Declaration of Trust or these Bylaws, the Board may issue units
consisting of different securities of the Trust. Any security issued in a unit
shall have the same characteristics as any identical securities issued by the
Trust, except that the Board may provide that for a specified period securities
of the Trust issued in such unit may be transferred on the books of the Trust
only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
The Board shall have the power, from time to time, to fix the fiscal
year of the Trust by a duly adopted resolution.
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ARTICLE IX
DIVIDENDS AND DISTRIBUTIONS
9.1 Declaration. Dividends and distributions on the shares of the Trust
may be authorized and declared by the Board, subject to the provisions of law
and the Declaration of Trust. Dividends and distributions may be paid in cash,
property or other assets of the Trust or in securities of the Trust or from any
other source as the Board in its discretion shall determine, subject to the
provisions of law and the Declaration of Trust.
9.2 Contingencies. Before payment of any dividends or distributions,
there may be set aside out of any funds of the Trust available for dividends and
distributions such sum or sums as the Board may from time to time, in its
absolute discretion, think proper as a reserve fund for contingencies, for
equalizing dividends and distributions, for repairing or maintaining any
property of the Trust or for such other purpose as the Board shall determine to
be in the best interest of the Trust, and the Board may modify or abolish any
such reserve in the manner in which it was created.
ARTICLE X
INVESTMENT POLICY
Subject to the provisions of law and the Declaration of Trust, the
Board may from time to time adopt, amend, revise or terminate any policy or
policies with respect to investments by the Trust as it shall deem appropriate
in its sole discretion.
ARTICLE XI
SEAL
11.1 Seal. The Board may authorize the adoption of a seal by the Trust.
The seal shall have inscribed thereon the name of the Trust. The Board may
authorize one or more duplicate seals and provide for the custody thereof.
11.2 Affixing Seal. Whenever the Trust is required to affix its seal to
a document, it shall be sufficient to meet the requirements of any law, rule or
regulation relating to a seal to place the word "(SEAL)" adjacent to the
signature of the person authorized to execute the document on behalf of the
Trust.
ARTICLE XII
INDEMNIFICATION
12.1 Indemnification. To the maximum extent permitted by Maryland law,
as amended from time to time, the Trust shall indemnify and hold harmless, and
pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to, each Trustee and officer
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from and against all claims and liabilities, whether they proceed to judgment or
are settled, in connection with any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, to
which such Trustee or officer may become subject by reason of his or her being
or having been a Trustee or officer, or by reason of any action alleged to have
been taken or omitted by him or her as Trustee or officer, and shall reimburse
him or her for all reasonable legal and other expenses incurred by him or her in
connection with any such claim or liability, including any claim or liability
arising under the provisions of federal or state securities laws. The foregoing
indemnification shall include any action alleged to have been taken or omitted
by any such Trustee or officer by reason of serving or having served at the
request of the Trust as a director, trustee, officer, partner, employee or agent
of another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. The Trust, without requiring a
preliminary determination of the ultimate entitlement to indemnification, shall
pay or reimburse reasonable expenses, as such expenses are incurred by any
Trustee or officer in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, to which such Trustee or officer a Trustee or officer; provided
that if such payment or reimbursement is to be made prior to the final
disposition of any proceeding to which a Trustee or officer is a party, no
payment or reimbursement shall be made by the Trust unless and until the Trust
shall receive a written affirmation from such Trustee or officer of his or her
good faith belief that the standard for indemnification of a Trustee or officer
under Maryland law and as provided above has been met and a written undertaking
by such Trustee or officer to repay such amounts paid or reimbursed by the Trust
if it shall ultimately be determined that such standard for indemnification has
not been met. The rights accruing to a Trustee or officer under these provisions
shall not exclude any other right to which he or she may be lawfully entitled,
nor shall anything herein contained restrict the right of the Trust to indemnify
or reimburse such Trustee or officer in any proper cause even though not
specifically provided for herein.
12.2 Expenses Included. The indemnification authorized by this Article
XII shall include payment of (i) reasonable attorneys' fees or other expenses
incurred in settling any such claim or liability or incurred in any finally
adjudicated legal proceeding and (ii) expenses incurred by the removal of any
liens affecting any property of the person to be indemnified. Indemnification
shall be made from assets of the Trust, and no shareholder shall be personally
liable to any person to be indemnified. This Section 12.2 shall inure to the
benefit of the Trustees and their Affiliates. For purposes of this Section 12.2
only, the term "Affiliates" shall mean any person performing services on behalf
of the Trust who (i) directly or indirectly controls, is controlled by, or is
under common control with the Trustees; (ii) owns or controls 10% or more of the
outstanding voting securities of the Trustees or (iii) is an officer, director,
partner, or trustee of the Trustees or (iv) is any company for which the
Trustees act as an officer, director, partner or trustee.
12.3 Effect of Amendment. Neither the amendment nor repeal of this
Article, nor the adoption or amendment of any other provision of these Bylaws or
Declaration of Trust inconsistent with this Article, shall apply to or affect in
any respect the applicability of the
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preceding paragraph with respect to any act or failure to act which occurred
prior to such amendment, repeal or adoption.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the Declaration
of Trust or these Bylaws or pursuant to applicable law, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at nor the purpose of any
meeting need be set forth in the waiver of notice, unless specifically required
by statute. The attendance of any person at any meeting shall constitute a
waiver of notice of such meeting, except if such person attends such meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
ARTICLE XIV
AMENDMENT OF BYLAWS
The Board shall have the exclusive power to adopt, alter or repeal any
provision of these Bylaws and to make new Bylaws without the consent of the
shareholders.
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CERTIFICATE OF SECRETARY
OF
STARWOOD FINANCIAL TRUST
I, Jerome C. Silvey, do hereby certify that:
1. I am the duly elected and acting Secretary of Starwood Financial
Trust, a Maryland real estate investment trust (the "Trust").
2. The foregoing Bylaws were validly authorized and approved by
resolutions of the Board of Directors of the Trust duly adopted on May ___,
1998, true and complete copies of which are attached hereto as Exhibit A, and
such resolutions are in full force and effect on the date hereof and have not
been amended, modified or repealed.
IN WITNESS THEREOF, I have executed this Certificate as Secretary of
the Trust this _______th day of May, 1998.
____________________________________
Jerome C. Silvey
Secretary
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