<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
STARWOOD FINANCIAL TRUST
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MARYLAND 95-6881527
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
------------------------------
1114 AVENUE OF THE AMERICAS, 27TH FLOOR
NEW YORK, NEW YORK 10036
(212) 930-9400
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
JAY SUGARMAN
CHIEF EXECUTIVE OFFICER
STARWOOD FINANCIAL TRUST
1114 AVENUE OF THE AMERICAS, 27(TH) FLOOR
NEW YORK, NEW YORK 10036
(212) 930-9400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------------
COPIES TO:
ROBERT E. KING, JR., ESQ. JAMES M. DUBIN, ESQ.
JOHN A. HEALY, ESQ. PAUL, WEISS, RIFKIND, WHARTON &
ROGERS & WELLS LLP GARRISON
200 PARK AVENUE 1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10166 NEW YORK, NEW YORK 10019
(212) 878-8000 (212) 373-3000
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT PRICE(1) FEE(2)
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share............ 28,826,774 $30.0625 $866,604,893 $240,916
9.375% Series B Cumulative Redeemable Preferred
Stock, par value $.001 per share................ 2,000,000 $25.00 $ 50,000,000 $ 13,900
9.200% Series C Cumulative Redeemable Preferred
Stock, par value $.001 per share................ 1,300,000 $25.00 $ 32,500,000 $ 9,035
8.000% Series D Cumulative Redeemable Preferred
Stock, par value $.001 per share................ 4,000,000 $25.00 $ 100,000,000 $ 27,800
</TABLE>
(1) Pursuant to Rules 457(c) and 457(f) under the Securities Act of 1933, as
amended, and estimated solely for the purpose of calculating the
registration fee, the proposed maximum aggregate offering price is equal to
the market value of the shares of common stock of TriNet Corporate Realty
Trust, Inc. to be cancelled in the merger and is based upon $30.0625, the
average of the high and low sales prices of the shares of common stock of
Starwood Financial Trust on the American Stock Exchange on August 23, 1999.
(2) Includes a fee of $355,295 which was previously paid.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 25, 1999
[TriNet Letterhead]
[Date]
Dear Fellow TriNet Stockholder:
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
I am writing to you not only as a founder, Chief Executive Officer and
Chairman of our company, but also as someone who, like you, has a significant
investment in TriNet and wishes to see that investment grow in value.
Our merger with Starwood Financial Trust will create the largest
publicly-traded finance company in the United States focused exclusively on
commercial real estate. Your board believes that you will benefit from the
merger because, among other things, your quarterly dividend per TriNet share is
expected to increase and you will own a security with significantly improved
growth prospects.
Starwood Financial is a leading structured finance company that delivers
financing solutions to the real estate industry. It offers a creative,
entrepreneurial approach to providing investment capital to its borrowers and
corporate customers. More than 80% of its asset portfolio consists of secured
loans and credit tenant leases, and it has never had a default in its six-year
history. In the six quarters it has been a public company, Starwood Financial
has provided a growing and secure yield to its investors, increasing its
earnings and dividend every quarter. Over that period, it has grown its basic
earnings per share by 67.5% and its dividends per share by 22.9%.
TriNet's credit tenant lease business also provides capital to major
corporations and real estate owners nationwide by structuring longer-term
purchase/leaseback transactions and acquiring properties subject to existing
long-term leases.
All of the members of your Board of Directors believe that TriNet and
Starwood Financial have a very strong strategic fit because of their
complementary businesses. Together, we can offer a full range of structured
financing products to the commercial real estate community on a scale comparable
to the largest commercial finance companies.
YOU ARE INVITED TO ATTEND A SPECIAL MEETING OF THE TRINET STOCKHOLDERS,
WHICH WILL BE HELD ON [DATE] AT [PLACE]. AT THE SPECIAL MEETING, WE WILL SEEK
YOUR APPROVAL OF THE MERGER AND THE MERGER AGREEMENT, WHICH HAVE BEEN
UNANIMOUSLY APPROVED BY YOUR BOARD. WE URGE YOU TO VOTE FOR THE MERGER PROPOSAL.
PLEASE REMEMBER THAT YOUR VOTE WILL HELP MAKE THE MERGER HAPPEN AND NOT VOTING
IS A VOTE AGAINST THE MERGER.
Your Board's decision to enter into the proposed merger began in September
1998 with the reexamination of TriNet's strategy. After this extensive review,
the Board concluded that as an independent company, TriNet did not have the
business attributes necessary to achieve appropriate growth in earnings and cash
flow and, consequently, an adequate total return to its shareholders. In
particular, the following concerns were considered:
1. The significant stock market underperformance of TriNet's stock price
relative to the REIT indices and to other triple net REITs.
2. TriNet's significant constraints on creating value for stockholders and the
risk of further declines in TriNet's stock price.
3. TriNet's status as a relatively small niche company and its lack of asset
diversity relative to larger real estate companies, and its related exposure
to lease rollover risks and risks associated with asset concentration.
<PAGE>
4. The current lack of equity capital available in the public markets at an
attractive cost to equity REITs generally and TriNet particularly.
5. The limited growth prospects of TriNet, particularly because of the
increasing cost and limited availability of equity capital.
6. The desire to dispose of some of TriNet's prior investments involving
multi-tenant properties and speculative development projects and, to some
extent, shorter-term leases, which are inconsistent with TriNet's
longer-term core credit tenant lease strategy.
Early in 1999, your Board considered a wide range of alternatives to address
these challenges. We contacted a number of potential merger partners or
acquirors and discussed a variety of possible transactions. Your Board
determined that the alternative proposals to acquire TriNet were inferior in
value to the shareholder value created by the merger with Starwood Financial. In
making this determination, your Board considered the independent valuation of
Starwood Financial and the combined company made by Greenhill & Co., LLC,
TriNet's financial advisor. Your Board also focused on the tax-free nature of
the merger to TriNet's shareholders and the ability of TriNet's shareholders to
participate in the potential future growth and expected attractive dividend
yield of the combined company, none of which benefits would be realized in a
cash transaction alternative.
I would like to highlight a few reasons why your Board recommends that you
vote for the merger, and how we believe that the merger addresses the challenges
facing our company, maintains a secure dividend for our shareholders and
positions us for future growth.
- PROVEN SUCCESS, SHARPER FOCUS: Starwood Financial's structured financing
techniques, dynamic leadership, and proven track record of superior
returns on invested capital will enable TriNet to sharpen its focus on its
core credit tenant lease strategy.
- LARGER, MORE DIVERSE ENTERPRISE: We will benefit from the advantages of a
much larger enterprise with real estate assets diversified across product
type and geographic region, reducing exposure to such risks as lease
rollovers and asset concentration.
- INCREASED DIVIDEND: In the first full quarter after the merger is
completed, we currently expect to be able to raise your dividend to an
annualized rate equivalent to $2.76 per TriNet share (which is $2.40 per
share of the combined company's stock multiplied by the exchange ratio in
the merger of 1.15:1), a $0.16 increase from the current annualized rate
of $2.60.
- SECURE RETURNS: Starwood Financial's stable asset portfolio, more than 80%
of which consists of secured loans and credit tenant leases, combined with
TriNet's predictable cash flow, should provide you with a secure return on
your investment. In its six-year history, Starwood Financial has
originated or acquired over $2.7 billion of financings and has never had a
loss.
- IMPROVED ACCESS TO CAPITAL: The combined company should have improved
access to larger amounts and more diverse forms of capital at an
attractive cost, providing TriNet with the capital it needs to fuel growth
and take advantage of available credit tenant lease opportunities.
ALL OF THE MEMBERS OF YOUR BOARD ARE FIRMLY COMMITTED TO THE COMBINED
COMPANY. WE STRONGLY BELIEVE THERE IS NO BETTER ALTERNATIVE AVAILABLE, EITHER AS
AN INDEPENDENT COMPANY OR IN AN ALTERNATIVE TRANSACTION, TO MAXIMIZE VALUE FOR
OUR SHAREHOLDERS.
As a sign of confidence in the combined company's prospects, all of your
directors have entered into option standstill agreements with Starwood
Financial, which means we have agreed not to sell any of the equity in TriNet we
have earned since 1993 for at least 12 months following the completion of the
merger.
The merger cannot be completed unless holders of at least 66 2/3% of the
outstanding common stock of TriNet approve it. We have scheduled a special
meeting of the stockholders to vote on the merger.
<PAGE>
YOUR VOTE IS VERY IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE TAKE THE TIME TO VOTE
BY COMPLETING AND MAILING THE ENCLOSED PROXY CARD. IF YOU SIGN, DATE AND MAIL
YOUR PROXY CARD WITHOUT INDICATING HOW YOU WANT TO VOTE, YOUR PROXY WILL BE
COUNTED AS A VOTE IN FAVOR OF THE MERGER. FAILURE TO RETURN YOUR PROXY CARD WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER. THE OTHER DIRECTORS AND I
URGE YOU TO VOTE FOR THE MERGER. More detailed voting instructions are included
in the accompanying joint proxy statement and prospectus.
The accompanying joint proxy statement and prospectus also provides you with
detailed information about the proposed merger. We encourage you to read it
carefully in its entirety. In addition, you may obtain information about
Starwood Financial and TriNet from documents each company has filed with the
Securities and Exchange Commission. To find out how to obtain these documents,
please read the section of the proxy statement and prospectus entitled "Where
You Can Find More Information" on page 44.
Most sincerely,
------------------------------------------------------------------------------
Robert W. Holman, Jr.
Chairman and Chief Executive Officer
TriNet Corporate Realty Trust, Inc.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED THE STARWOOD FINANCIAL COMMON AND PREFERRED SHARES TO BE
ISSUED UNDER THIS JOINT PROXY STATEMENT AND PROSPECTUS OR DETERMINED WHETHER
THIS JOINT PROXY STATEMENT AND PROSPECTUS IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This joint proxy statement and prospectus is dated [ ], 1999 and
will be first mailed to stockholders on or about [ ], 1999.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 25, 1999
STARWOOD FINANCIAL TRUST
1114 AVENUE OF THE AMERICAS, 27TH FLOOR
NEW YORK, NEW YORK 10036
Dear Starwood Financial Shareholder:
You are being asked to vote on three important steps Starwood Financial
proposes to take to further our goal of becoming the leading provider of
structured financing to the real estate industry. First, as we announced on June
16, 1999, Starwood Financial proposes to enter into a merger with TriNet
Corporate Realty Trust, Inc. TriNet presents a strong strategic fit with
Starwood Financial and is the largest public company specializing in the net
leasing of corporate office and warehouse distribution facilities to
creditworthy tenants. We believe that significantly expanding Starwood
Financial's existing credit tenant leasing business through the merger with
TriNet and applying our creative investment and financing strategies to TriNet's
business will provide Starwood Financial with significant growth and value
creation opportunities. As a result of the merger, Starwood Financial will be
among the largest commercial finance companies in the United States.
You are also being asked to approve Starwood Financial's acquisition of 100%
of the ownership interests in Starwood Financial Advisors, L.L.C., Starwood
Financial's external advisor. This transaction will bring Starwood Financial's
management team in-house to devote their full time and attention to Starwood
Financial's affairs. We also believe that Starwood Financial will earn a very
attractive yield on its acquisition of the advisor, and that being a
self-advised company will benefit our company's equity valuation in the public
markets. Completion of the advisor transaction is a condition of our merger with
TriNet.
In addition to the merger with TriNet and the advisor transaction, we are
also asking you to approve our proposed reorganization from a Maryland trust to
a Maryland corporation. This transaction will give us an organizational form
which we believe is more customary for companies in the finance sector, and will
also enable us to eliminate our Class A/B share structure and have only one
class of common stock going forward. All of our outstanding Class B shares of
beneficial interest will be converted into shares of common stock on a
49-for-one basis. If you own Class A shares, this transaction will not affect in
any way the number of shares which you own. Although Starwood Financial will be
organized as a corporation, Starwood Financial intends to continue to elect to
be taxed as a real estate investment trust.
The accompanying joint proxy statement and prospectus provides you with
detailed information about the proposed transactions. We encourage you to read
it carefully. In addition, you may obtain information about Starwood Financial
and TriNet from documents each company has filed with the Securities and
Exchange Commission. To find out how to obtain these documents, see "Where You
Can Find More Information" on page 44.
It is important that as many as possible of our shareholders be present or
represented by proxy at our special meeting of shareholders described in the
accompanying joint proxy statement and prospectus. I look forward to seeing all
of you who attend in person.
Sincerely,
Jay Sugarman
Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED THE STARWOOD FINANCIAL COMMON AND PREFERRED SHARES TO BE
ISSUED UNDER THIS JOINT PROXY STATEMENT AND PROSPECTUS OR DETERMINED WHETHER
THIS JOINT PROXY STATEMENT AND PROSPECTUS IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This joint proxy statement and prospectus is dated [ ], 1999 and will be
first mailed to shareholders on or about [ ], 1999.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 25, 1999
STARWOOD FINANCIAL TRUST
1114 Avenue of the Americas, 27th Floor
New York, NY 10036
(212) 930-9400
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on [date], 1999
------------------------
The Starwood Financial Trust special meeting of shareholders is scheduled to
be held at 1:00 p.m., local time, on [date], 1999 at the Sheraton New York Hotel
& Towers, 811 Seventh Avenue, New York, New York 10019. Your Board of Trustees
asks you to attend this meeting (in person or by proxy) for the following
purposes:
1. To consider and approve the merger proposal (See pages 46 and 50).
2. To consider and approve the advisor transaction proposal (solely to
fulfill the requirements of the rules and regulations of the American
Stock Exchange) (See pages 46 and 86).
3. To consider and approve the incorporation merger proposal (See pages 46
and 84).
4. To transact any other business as may properly come before the meeting
and any adjournments of the meeting.
Shareholders of Starwood Financial are not entitled to appraisal rights in
connection with any of the above-mentioned transactions.
Only shareholders of record of Starwood Financial as of the close of
business on [date], 1999 are entitled to notice of, and to vote at, this meeting
and any adjournments of this meeting. A list of shareholders of record as of the
close of business on [date], 1999 will be available at the special meeting for
examination by any shareholder, or the shareholder's attorney or agent. Please
note that, by delivering a proxy to vote at the special meeting, you are also
granting a proxy voting in favor of any adjournments of the special meeting.
We invite you to attend the special meeting because it is important that
your shares be represented at the meeting. Whether or not you plan to attend the
special meeting, please sign, date and return the enclosed proxy card in the
accompanying postage-paid envelope. If you attend the meeting, you may vote in
person, which will revoke a signed proxy if you have already sent one in. You
may also revoke your proxy at any time before the meeting either in writing or
by notifying us.
By the Order of the Board of Trustees,
Spencer B. Haber
Chief Financial Officer and Secretary
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
THE BOARD OF TRUSTEES OF STARWOOD FINANCIAL HAS UNANIMOUSLY APPROVED EACH OF
THE PROPOSED TRANSACTIONS AND RECOMMENDS THAT STARWOOD FINANCIAL'S SHAREHOLDERS
VOTE IN FAVOR OF EACH OF THEM.
A SPECIAL COMMITTEE OF INDEPENDENT TRUSTEES OF STARWOOD FINANCIAL HAS ALSO
UNANIMOUSLY APPROVED THE ADVISOR TRANSACTION AND RECOMMENDS THAT STARWOOD
FINANCIAL'S SHAREHOLDERS VOTE IN FAVOR OF THE ADVISOR TRANSACTION PROPOSAL.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 25, 1999
TRINET CORPORATE REALTY TRUST, INC.
One Embarcadero Center, 33rd Floor
San Francisco, CA 94111
(415) 391-4300
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be held on [date], 1999
------------------------
The TriNet Corporate Realty Trust, Inc. special meeting of stockholders is
scheduled to be held at [location], at [time], local time, on [date], 1999. Your
Board of Directors asks you to attend this meeting (in person or by proxy) for
the following purposes:
1. To consider and approve the merger proposal (See pages 46 and 50).
2. To transact any other business as may properly come before the meeting
and any adjournments of the meeting.
Stockholders of TriNet are not entitled to appraisal rights in connection
with the merger.
Only stockholders of record of TriNet as of the close of business on [date],
1999 are entitled to notice of, and to vote at, this meeting and any
adjournments of this meeting. A list of stockholders of record as of the close
of business on [date], 1999 will be available at the special meeting for
examination by any stockholder or the stockholder's attorney or agent. Please
note that, by delivering a proxy to vote at the special meeting, you are also
granting a proxy voting in favor of any adjournments of the special meeting.
We invite you to attend the special meeting because it is important that
your shares be represented at the meeting. Whether or not you plan to attend the
special meeting, please sign, date and return the enclosed proxy card in the
accompanying postage-paid envelope. If you attend the meeting, you may vote in
person, which will revoke a signed proxy if you have already sent one in. You
may also revoke your proxy at any time before the meeting either in writing or
by notifying us.
By the Order of the Board of
Directors,
Geoffrey M. Dugan
Vice President, Administration,
General Counsel and Secretary
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
THE BOARD OF DIRECTORS OF TRINET CORPORATE REALTY TRUST, INC. HAS
UNANIMOUSLY APPROVED THE MERGER OF TRINET WITH STARWOOD FINANCIAL AND RECOMMENDS
THAT TRINET'S STOCKHOLDERS VOTE IN FAVOR OF THE MERGER AND THE MERGER AGREEMENT.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 25, 1999
------------------------
JOINT PROXY STATEMENT AND PROSPECTUS
FOR THE SPECIAL MEETINGS OF
THE STOCKHOLDERS OF TRINET CORPORATE REALTY TRUST, INC.
AND
THE SHAREHOLDERS OF STARWOOD FINANCIAL TRUST
------------------------
The Board of Directors of TriNet Corporate Realty Trust, Inc. and the Board
of Trustees of Starwood Financial Trust have each unanimously approved the
merger, a transaction in which a newly-formed, wholly-owned subsidiary of
Starwood Financial will merge with and into TriNet, with TriNet surviving the
merger as a subsidiary of Starwood Financial.
The Board of Trustees of Starwood Financial Trust has also unanimously
approved:
1. The advisor transaction, a transaction in which Starwood Financial will
acquire 100% of the ownership interests in its external advisor through a
merger and a contribution of interests by the owners of interests in the
advisor.
2. The incorporation merger, a transaction in which shortly before the
merger with TriNet and the advisor transaction, Starwood Financial will
merge into a newly-formed corporation in order to change its form of
organization from a Maryland trust to a Maryland corporation and
eliminate its dual class common share structure.
In the TriNet merger:
- Each outstanding share of TriNet common stock will be converted into 1.15
shares of common stock of Starwood Financial, which means that a TriNet
stockholder will receive 115 shares of the combined company's common stock
for every 100 shares of TriNet common stock that the stockholder owns.
- Each outstanding share of Series A, B and C Cumulative Redeemable
Preferred Stock of TriNet will be converted into one share of Series B, C
or D (respectively) Cumulative Redeemable Preferred Stock of Starwood
Financial, each with substantially the same rights and privileges as the
share converted.
The Starwood Financial common and preferred stock to be issued in the
transactions is expected to be approved for listing on the New York Stock
Exchange, subject to official notice of issuance.
This joint proxy statement and prospectus provides you with detailed
information about the proposed transactions. We encourage you to read this
entire document carefully. In addition, you may obtain information regarding
Starwood Financial and TriNet from documents they have filed with the Securities
and Exchange Commission. See "Where You Can Find More Information" on page 44.
For a discussion of risks that you should consider in evaluating the
transactions, please read the section of this joint proxy statement and
prospectus entitled "Risk Factors," beginning on page 29.
Neither the SEC nor any state securities commission has approved or
disapproved the securities to be issued in the transactions or has passed upon
the accuracy or adequacy of this joint proxy statement and prospectus. Any
representation to the contrary is a criminal offense.
------------------------
Joint proxy statement and prospectus dated [date], 1999
and first mailed to stockholders of TriNet and shareholders of Starwood
Financial
on [date], 1999.
------------------------
<PAGE>
This joint proxy statement and prospectus incorporates important business
and financial information about Starwood Financial and TriNet that is not
included in this document (including the information described in the section of
this joint proxy statement and prospectus entitled "Where You Can Find More
Information"). Additional information regarding Starwood Financial and TriNet
may be found in each company's filings under the Securities Exchange Act of
1934. Copies of some of Starwood Financial's filings are being delivered with
this joint proxy statement and prospectus.
Additional information regarding Starwood Financial and TriNet is available
upon written or oral request to the following addresses and telephone numbers
and will be sent by first class mail within one business day after receipt of
that request:
<TABLE>
<S> <C>
TriNet Corporate Realty Trust, Inc. Starwood Financial Trust
One Embarcadero Center, 33rd floor 1114 Avenue of the Americas, 27th Floor
San Francisco, CA 94111 New York, NY 10036
Attention: Investor Relations Department Attention: Investor Relations Department
Telephone: (888) 335-3122 Telephone: (212) 930-9400
Fax: (415) 391-6259 Fax: (212) 930-9494
E-mail: [email protected]
http://www.tricorp.com
</TABLE>
TO OBTAIN TIMELY DELIVERY, THE STOCKHOLDERS OF TRINET AND THE SHAREHOLDERS
OF STARWOOD FINANCIAL MUST REQUEST THE INFORMATION NO LATER THAN [FIVE DAYS
BEFORE VOTE], 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS............................................................... 1
Why did TriNet pursue alternatives to remaining an independent company?................................ 1
What does Starwood Financial do? How do the risks of Starwood Financial's business compare to the risks
of TriNet's business?................................................................................. 1
How does the merger address the challenges faced by TriNet as an independent company?.................. 2
What alternatives to the merger with Starwood Financial did TriNet consider?........................... 3
Why are TriNet and Starwood Financial good merger partners?............................................ 4
What will be the dividend policy of the combined company?.............................................. 4
Will the combined company be a REIT?................................................................... 5
What is the effect of the advisor transaction?......................................................... 5
Why is the advisor transaction beneficial to all stockholders of the combined company?................. 5
What were the principal considerations taken into account by the TriNet Board of Directors in its
approval of the exchange ratio of 1.15:1?............................................................. 6
Why did the parties agree to a fixed exchange ratio in the merger?..................................... 6
If the merger agreement terminates because the stockholders of TriNet or the shareholders of Starwood
Financial do not approve the merger, are termination fees payable?.................................... 6
How was the amount of the $50 million termination fee determined?...................................... 6
Why is Starwood Financial completing the incorporation merger?......................................... 7
What are the tax consequences of the merger?........................................................... 7
What will the tax basis of TriNet's stockholders be in the Starwood Financial common or preferred
shares they receive in the merger?.................................................................... 7
What do I need to do now?.............................................................................. 7
If my shares are held in "street name" by my broker, will my broker vote my shares for me?............. 7
Can I change my vote after I have mailed my signed proxy card?......................................... 8
Should Starwood Financial shareholders or TriNet stockholders send in their stock certificates now?.... 8
When do you expect the merger to be completed?......................................................... 8
Who can help answer my questions?...................................................................... 8
SUMMARY.................................................................................................... 9
The Companies.......................................................................................... 9
Description of the Transactions........................................................................ 11
Recommendations to Stockholders of TriNet and Shareholders of Starwood Financial....................... 15
The Special Meetings................................................................................... 17
The Shareholder Agreement.............................................................................. 17
Restrictions on Transfer by Certain Securityholders.................................................... 18
Risk Factors........................................................................................... 19
About This Joint Proxy Statement and Prospectus........................................................ 19
UNAUDITED COMBINED COMPANY SUMMARY SELECTED PRO FORMA FINANCIAL DATA AND SUMMARY SELECTED HISTORICAL
FINANCIAL DATA FOR STARWOOD FINANCIAL AND TRINET......................................................... 20
Comparative Market and Per Share Data.................................................................. 27
RISK FACTORS............................................................................................... 29
Risk Factors Relating to the Merger.................................................................... 29
Risk Factors Relating to the Business of the Combined Company.......................................... 31
General Risk Factors................................................................................... 33
Special Note Regarding Forward-Looking Statements...................................................... 34
</TABLE>
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THE COMPANIES.............................................................................................. 36
The Combined Company................................................................................... 36
Starwood Financial..................................................................................... 38
TriNet................................................................................................. 41
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 44
THE MEETINGS............................................................................................... 46
Times and Places; Purposes............................................................................. 46
The TriNet Special Meeting............................................................................. 46
The Starwood Financial Special Meeting................................................................. 48
THE MERGER................................................................................................. 50
Background of the Merger............................................................................... 50
Recommendation of the Board of Directors of TriNet; Reasons for the Merger............................. 55
Recommendation of the Board of Trustees of Starwood Financial; Reasons for the Merger.................. 58
The Opinion of Greenhill............................................................................... 60
The Opinion of Bear Stearns............................................................................ 66
Interests of Certain Parties in the Merger--TriNet Affiliates.......................................... 70
Interests of Certain Parties in the Merger--Starwood Financial Affiliates.............................. 72
Accounting Treatment................................................................................... 73
No Appraisal Rights.................................................................................... 73
THE MERGER AGREEMENT....................................................................................... 74
General................................................................................................ 74
Effective Time of the Merger........................................................................... 75
Exchange of Certificates............................................................................... 75
Representations and Warranties......................................................................... 75
Covenants.............................................................................................. 76
No Solicitation of Transactions........................................................................ 78
Treatment of TriNet and Starwood Financial Stock Options............................................... 78
Indemnification of Officers and Directors.............................................................. 79
Conditions to the Merger............................................................................... 79
Termination............................................................................................ 80
Termination Fees....................................................................................... 81
CERTAIN AGREEMENTS RELATED TO THE MERGER................................................................... 82
The Shareholder Agreement.............................................................................. 82
The Starwood Financial Affiliate Lock-Up Agreements.................................................... 82
The Option Standstill Agreements....................................................................... 83
The TriNet Subsidiary Stock Purchase Agreement......................................................... 84
The Incorporation Merger Agreement..................................................................... 84
THE ADVISOR TRANSACTION.................................................................................... 86
The Advisor............................................................................................ 86
Background of the Advisor Transaction.................................................................. 86
The Opinion of Houlihan Lokey.......................................................................... 89
Interests of Certain Parties in the Advisor Transaction................................................ 94
Accounting Treatment................................................................................... 95
No Appraisal Rights.................................................................................... 95
THE ADVISOR TRANSACTION AGREEMENT.......................................................................... 96
General................................................................................................ 96
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<S> <C>
Effective Time of the Advisor Transaction.............................................................. 96
Representations and Warranties......................................................................... 96
Covenants.............................................................................................. 96
Conditions to the Advisor Transaction.................................................................. 97
Termination............................................................................................ 97
MANAGEMENT OF THE COMBINED COMPANY......................................................................... 99
Directors and Executive Officers of the Combined Company............................................... 99
PRINCIPAL SHAREHOLDERS OF STARWOOD FINANCIAL............................................................... 106
COMPENSATION OF EXECUTIVE OFFICERS AND TRUSTEES OF STARWOOD FINANCIAL...................................... 109
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................. 113
COMPARISON OF STOCKHOLDER RIGHTS; DESCRIPTION OF THE COMBINED COMPANY'S SECURITIES......................... 114
Comparison of Rights of Stockholders of TriNet and the Combined Company................................ 114
Comparison of Rights of Shareholders of Starwood Financial Trust and Stockholders of Starwood Financial
Inc................................................................................................... 120
Description of the Capital Stock of the Combined Company............................................... 124
Anti-Takeover Effect of Certain Provisions of Maryland Law and of the Combined Company Charter and
Bylaws................................................................................................ 133
MATERIAL FEDERAL INCOME TAX CONSEQUENCES................................................................... 134
LEGAL MATTERS.............................................................................................. 139
EXPERTS.................................................................................................... 139
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
ANNEX A -- THE MERGER AGREEMENT............................................................................
ANNEX B -- THE ADVISOR TRANSACTION AGREEMENT...............................................................
ANNEX C -- OPINION OF GREENHILL & CO., LLC.................................................................
ANNEX D -- OPINION OF BEAR, STEARNS & CO. INC..............................................................
ANNEX E -- OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN........................................................
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS
TRANSACTION RATIONALE
Q: Why did TriNet pursue alternatives to remaining an independent company?
A: TRINET'S BOARD OF DIRECTORS WAS CONCERNED ABOUT THE FOLLOWING SIGNIFICANT
ISSUES:
- Since 1998, TriNet's stock price has underperformed REIT indices and the
stock price of companies focused on triple net leasing and has not
achieved its past levels of performance.
- TriNet's significant constraints on creating value for stockholders and
the risk of further declines in TriNet's stock price.
- TriNet's status as a relatively small niche company and its lack of asset
diversity relative to larger real estate companies, and its related
exposure to lease rollover risks and risks associated with asset
concentration.
- The current lack of equity capital available in the public markets at an
attractive cost to equity REITs generally and TriNet particularly.
- The limited growth prospects of TriNet, particularly because of the
increasing cost and limited availability of equity capital.
- The desire to dispose of some of TriNet's prior investments involving
multi-tenant properties and speculative development projects and, to some
extent, shorter-term leases, which are inconsistent with TriNet's
longer-term core credit tenant lease strategy.
As described below, TriNet's Board of Directors believes that the merger
with Starwood Financial addresses these concerns and materially enhances the
future prospects for TriNet's stockholders.
Q: What does Starwood Financial do? How do the risks of Starwood Financial's
business compare to the risks of TriNet's business?
A: STARWOOD FINANCIAL PROVIDES LEADING REAL ESTATE OWNERS AND CORPORATE
CUSTOMERS WITH INNOVATIVE, CUSTOM-TAILORED SOLUTIONS TO THEIR FINANCING
NEEDS. The structured financing provided by Starwood Financial includes
mortgage and mezzanine debt and long-term net lease financing. Starwood
Financial's loan collateral typically includes high quality, institutional
properties and multiple-property portfolios predominantly located in major
metropolitan markets nationwide. Starwood Financial primarily originates its
own assets rather than acquiring pre-existing loans from others. Starwood
Financial does not invest any material amount of its assets in commercial or
residential mortgage-backed securities.
TriNet typically makes equity investments in commercial real estate
properties which are net leased to corporate tenants. As an equity investor
in real estate, the value of TriNet's investments is directly impacted by
any increase or decrease in property values. In addition, the stability of
TriNet's cash flow from operations is contingent upon its ability to renew
tenant leases or find suitable replacement tenants as the leases in its
properties expire.
As a lender on commercial real estate, Starwood Financial's investments are
senior to the borrowers' equity investments in the properties. As such, the
principal balances of Starwood Financial's loans are not directly impacted
by increases or decreases in property values. For instance, at June 30,
1999, the average loan-to-value ratio for Starwood Financial's portfolio was
approximately 75%. This figure represents the ratio of Starwood Financial's
loan balances to the underlying property values across its portfolio.
Consequently, the underlying value of the properties
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which collateralize Starwood Financial's loans could decline by up to 25%
(on average) before the collateral value was insufficient to cover Starwood
Financial's loan balance.
In addition, Starwood Financial's loans typically provide for a regular,
stated interest payment to Starwood Financial supported by the underlying
properties' cash flow. At June 30, 1999, the average debt service coverage
of Starwood Financial's portfolio was 1.4x. This figure represents the
ratio of the underlying properties' cash flow to the payment rate on
Starwood Financial's loans. Consequently, the underlying properties' cash
flow could decline by up to 29% (on average) before the properties' cash
flow was insufficient to support the interest payments on Starwood
Financial's loans.
Since its formation in 1993, Starwood Financial and its predecessors have
originated or acquired over $2.7 billion in financings and have never
suffered a loss. In addition, since entering the public markets in March
1998, Starwood Financial has increased earning per share and dividends every
quarter. At June 30, 1999, 56% of Starwood Financial's portfolio consisted
of secured first mortgage loans and credit tenant leases, while an
additional 25% consisted of secured second mortgages. Only 19% of Starwood
Financial's portfolio consisted of loans secured by partnership interests
and unsecured loans (so-called "mezzanine" loans) and other investments.
Starwood Financial's portfolio is substantially diversified by asset type,
borrower, property type and geographic location to provide additional
protection against downturns in any given property sector or region.
Q: How does the merger address the challenges faced by TriNet as an independent
company?
A: THE MERGER REPOSITIONS TRINET FOR GROWTH. Starwood Financial's growth
orientation and entrepreneurial approach to the financing business should
provide TriNet with renewed investor focus and improved growth prospects.
Since its March 1998 recapitalization, Starwood Financial has completed over
$1.3 billion in new financing commitments, more than doubling its asset
base, including acquiring the mezzanine loan portfolio of its largest
competitor in December 1998. Starwood Financial is now the largest
independent, publicly-held provider of structured real estate financing in
the U.S. In the six quarters since its first quarter as a public company
(the pro forma quarter ended March 31, 1998), Starwood Financial has grown
basic earnings per share and dividends per share by 67.5% and 22.9%,
respectively. Since March 31, 1998, TriNet's growth in basic earnings per
share was 5.0%, and its growth in dividends per share was 1.6%.
THE MERGER ENHANCES TRINET'S ACCESS TO CAPITAL. Because the merger should
provide TriNet with renewed growth prospects, enhanced investment community
support and increased size and diversification, management of Starwood
Financial and TriNet expect that the merger will lead to improved access to
capital. The combined company will have a broader array of capital
resources, including secured and unsecured debt, $1.5 billion in credit
facilities and public and private equity capital. The combined company will
also have a more diverse stockholder base, with expanded relationships with
key institutional investors and should attract greater interest from
research analysts who follow other major finance companies. For example,
Starwood Financial's shareholders include a number of large corporate and
state pension funds, including six of the top pension funds in the U.S., as
well as a number of high net worth families. The combined company's improved
size, diversification and capital alternatives are expected to lead to an
overall reduced cost of capital.
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THE COMBINED COMPANY INTENDS TO EXPAND THE FOCUS OF TRINET'S NET LEASE
BUSINESS BY:
- Taking advantage of the fact that corporate credits are often undervalued
in the real estate market relative to the corporate tenants' credit risk.
- Capturing the best risk-adjusted return in the capital structure by
providing senior debt, junior debt or equity financing, as appropriate.
- Capitalizing on TriNet's corporate relationships in the credit tenant
lease market to develop new business opportunities.
- Using state-of-the-art insurance instruments for credit enhancing leases
to reduce risk and improve investment returns.
- Emphasizing investment in long-term leases to major corporate users of
general-purpose, but essential, facilities.
- Developing innovative lease structures to differentiate the combined
company from other lessors.
THE COMBINED COMPANY WILL HAVE BETTER PORTFOLIO DIVERSIFICATION THAN EITHER
TRINET OR STARWOOD FINANCIAL INDIVIDUALLY. The combined company will benefit
from increased diversification of its asset base, measured in
borrower/tenant concentration, property type, asset type and geography. The
combined company's assets will be clustered in major metropolitan markets
nationwide, particularly on the East and West Coasts. This increased
diversification is expected to reduce the risks to the combined company
associated with any given loan or lease, geographic region or property type.
Management of Starwood Financial and TriNet believe that improved
diversification should benefit the combined company's credit quality and
borrowing costs.
THE MERGER IMPROVES MANAGEMENT DEPTH. The combined company will have an
industry-leading senior management team with fully-integrated capabilities
in the origination and acquisition of new investments, capital markets,
mergers and acquisitions, asset management and loan servicing. In the
merger, TriNet will benefit from Starwood Financial's entrepreneurial,
growth-oriented management style and strengths in creating and evaluating a
large number of investment transactions with attractive risk/return
characteristics. Starwood Financial will benefit from TriNet's established
organizational infrastructure and asset management capabilities. Starwood
Financial's loan servicing business, based in Hartford, CT, and TriNet's
asset management operation, located in Atlanta, GA, will provide functional
support to the entire organization. Both companies are committed to
integrating the best practices of each organization into the combined
company's management philosophy and structure; the integration process is
already underway pending completion of the merger.
Q: What alternatives to the merger with Starwood Financial did TriNet consider?
A: TRINET'S BOARD OF DIRECTORS AND ITS FINANCIAL ADVISOR, GREENHILL, CONSIDERED
AND PURSUED A NUMBER OF ALTERNATIVES TO THE STARWOOD FINANCIAL MERGER. In
particular, TriNet, through Greenhill, approached a group of eight potential
acquirors that TriNet's Board viewed as most capable of completing a
transaction. TriNet received preliminary proposals, in each case for a cash
transaction, from three of the potential acquirors. However, TriNet's Board
determined that the preliminary proposals were inferior in value to the
strategic combination with Starwood Financial. The valuations indicated by
the preliminary proposals were generally well below the "net asset value"
estimates for TriNet's portfolio published by a number of Wall Street equity
research analysts. In addition, these preliminary proposals were highly
conditioned on a number of factors such as the availability of financing and
satisfaction of due diligence requirements. As a result, TriNet and
Greenhill viewed these alternatives as having a lower likelihood of
completion than the Starwood Financial merger. Finally, TriNet's corporate
debt structure would have to be significantly altered in order to complete a
"going private" transaction. TriNet considered the substantial costs
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associated with prepaying its corporate debt as an additional detractor from
the valuation to stockholders resulting from the alternative transactions.
In concluding that the merger with Starwood Financial created a greater
opportunity to maximize stockholder value than the alternative transactions,
TriNet's Board considered the independent valuation analysis of Starwood
Financial prepared by Greenhill which indicated that the consideration to be
received in the Starwood Financial merger was superior in value to the
alternative cash proposals. Additionally, the Starwood Financial merger is
tax-free, and allows TriNet's stockholders to continue to receive an
attractive dividend yield and participate in the upside potential resulting
from the combined company's business strategy. The cash proposals would have
been taxable to TriNet's stockholders and offered no potential upside or
continuing dividend stream. See "The Merger--Background of the Merger"
beginning on page 50 and "The Opinion of Greenhill" beginning on page 60.
Q: Why are TriNet and Starwood Financial good merger partners?
A: THE MERGER CAPITALIZES ON A STRONG STRATEGIC FIT BETWEEN TRINET'S AND
STARWOOD FINANCIAL'S BUSINESS PLANS. The merger combines two complementary
businesses, which are both focused on providing innovative financing
alternatives to the commercial real estate industry--in TriNet's case, by
providing net leases to creditworthy corporate tenants and, in Starwood
Financial's case, by providing mortgage and other structured financing
alternatives to leading real estate owners. Additionally, as a stand-alone
company, Starwood Financial has already structured approximately $250
million in credit lease transactions, and it believes that this market can
provide attractive risk/ return dynamics to the combined company.
THE MERGER CREATES THE LARGEST PUBLICLY-TRADED FINANCE COMPANY FOCUSED
EXCLUSIVELY ON COMMERCIAL REAL ESTATE, WHICH SHOULD MAKE THE COMBINED
COMPANY'S STOCK AN ATTRACTIVE HOLDING FOR PUBLIC EQUITY INVESTORS IN THE
FINANCE SECTOR. The combined company will have a pro forma book equity
capitalization of approximately $1.9 billion and total market capitalization
(market value of equity plus debt) in excess of $4.0 billion. As one of the
largest participants in its core mortgage, mezzanine and lease financing
businesses, the combined company's size will allow it to focus on completing
larger transactions, which are generally subject to less competition than
smaller transactions. The merger enhances the national reach of both
TriNet's and Starwood Financial's businesses, establishing coast-to-coast
coverage of real estate borrowers and corporate customers. With headquarters
in New York City, Starwood Financial brings to TriNet a significant presence
in the East Coast financial center. TriNet's San Francisco office gives
Starwood Financial a natural operating base for its origination and
acquisition activities in the western half of the U.S. The combined
company's size and diversification should also provide it with more
efficient debt financing alternatives and a lower cost of capital.
DIVIDENDS AND REIT STATUS
Q: What will be the dividend policy of the combined company?
A: THE COMBINED COMPANY INTENDS TO CONTINUE PAYING AN ATTRACTIVE CURRENT
DIVIDEND. Beginning with the first full quarter following the merger, the
combined company currently expects to pay former TriNet shareholders
quarterly dividends on their combined company shares equivalent to an
annualized dividend rate of $2.76 per TriNet share per year (which is an
annualized rate of $2.40 per combined company share multiplied by the 1.15:1
exchange ratio in the merger). For TriNet shareholders, the proposed
dividend is $0.16 (6.2%) higher than TriNet's current annualized dividend
rate of $2.60 per TriNet share. The combined company expects to be able to
cover its dividend payments out of cash flow from operations. Both Starwood
Financial and TriNet plan to continue to pay dividends on their common
shares until the closing of the merger consistent with their current
distribution policies. Starwood Financial has increased its dividend each
quarter since it commenced paying dividends (the quarter ended June 30,
1998).
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Q: Will the combined company be a REIT?
A: YES. The combined company intends to continue to elect to be taxed as a REIT.
THE ADVISOR TRANSACTION
Q: What is the effect of the advisor transaction?
A: THE COMBINED COMPANY WILL ISSUE A TOTAL OF FOUR MILLION SHARES OF ITS COMMON
STOCK TO THE OWNERS OF INTERESTS IN THE ADVISOR AND, AS A RESULT, THE
ADVISOR WILL BECOME A WHOLLY-OWNED SUBSIDIARY OF THE COMBINED COMPANY. This
means that the combined company will be internally-managed and have a more
typical corporate management structure.
Q: Why is the advisor transaction beneficial to all stockholders of the combined
company?
A: THE ADVISOR TRANSACTION BRINGS STARWOOD FINANCIAL'S MANAGEMENT TEAM IN-HOUSE.
The combined company is acquiring the advisor because it wishes to
internalize the substantial expertise of the Starwood Financial management
team and business franchise. Starwood Financial's investment, financing and
operational affairs are currently managed by its external advisor. This
external advisor is indirectly owned by a number of Starwood Financial's
trustees and officers, as well as certain other individuals affiliated with
Starwood. The highly experienced management team which has successfully led
Starwood Financial and its predecessors to date will become employees of the
combined company, and the combined company will be in a position to take
advantage of the resulting economies of scale as it expands its business.
THE ADVISOR TRANSACTION IS HIGHLY ACCRETIVE TO THE COMBINED COMPANY. The
combined company is also acquiring the advisor because it believes it will
earn a very attractive yield on its purchase of the advisor, and because it
is issuing shares to do so. The advisor's primary source of income is the
base and incentive advisory fees earned from Starwood Financial. Based on
this fee stream, the advisor expects to earn approximately $20 million in
total revenues for the 12 months ending December 31, 1999, with operating
expenses for that period of approximately $5 million. As a result, by
acquiring the advisor, the incremental impact on the combined company's
earnings before interest, taxes, depreciation and amortization is an
increase of approximately $15 million. This increase was determined without
giving effect to the increased fees that would arise from future growth in
the equity capital base and in the earnings of Starwood Financial as an
externally-advised company.
THE ADVISOR TRANSACTION SHOULD BENEFIT THE COMBINED COMPANY'S EQUITY
VALUATION. The combined company is acquiring the advisor because it believes
its equity valuation in the public markets will be higher under a
self-advised, self-managed structure. Both TriNet and Starwood Financial
believe that public equity investors view externally-advised companies less
favorably than internally-advised companies, and that the valuations for
internally-advised companies are consequently higher, all other things being
equal. In addition, the combined company believes that eliminating the
advisor structure will facilitate a comparison to other commercial finance
companies, none of whom (to the companies' knowledge) has an external
advisor.
The advisor transaction was reviewed and approved by Starwood Financial's
independent trustees, who have no business relationship with Starwood
Financial or its affiliates and own no interest in the advisor. Starwood
Financial's institutional investors, which generally consist of large,
sophisticated pension funds and high net worth families, also fully reviewed
the advisor transaction in connection with certain approvals required to
accomplish the transaction. These investors represent approximately 99% in
interest of Starwood Financial's outstanding Class A common shares.
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TERMS OF THE TRANSACTIONS
Q: What were the principal considerations taken into account by the TriNet Board
of Directors in its approval of the exchange ratio of 1.15:1?
A: THE PRINCIPAL CONSIDERATION WAS THE HISTORIC AND PROJECTED RELATIVE
CONTRIBUTION BY EACH OF TRINET AND STARWOOD FINANCIAL TO THE COMBINED
COMPANY'S EARNINGS, EBITDA, FUNDS FROM OPERATIONS, ASSETS AND OTHER
FINANCIAL AND OPERATING ATTRIBUTES, ASSUMING COMPLETION OF THE ADVISOR
TRANSACTION AND THE DECLARATION AND PAYMENT OF A SPECIAL STOCK DIVIDEND OF
1.0 MILLION COMMON SHARES OF STARWOOD FINANCIAL TO ITS EXISTING
SHAREHOLDERS.
Q: Why did the parties agree to a fixed exchange ratio in the merger?
A: THE FIXED EXCHANGE RATIO OF 1.15:1 REFLECTS THE RELATIVE CONTRIBUTION BY EACH
OF TRINET AND STARWOOD FINANCIAL TO THE COMBINED COMPANY'S FINANCIAL AND
OPERATING PERFORMANCE AS DESCRIBED ABOVE. Because of the small number of
common shares of Starwood Financial available for trading in the public
markets and the resulting volatility of Starwood Financial's stock price,
Starwood Financial's relative contribution may not be reflected in the
trading price of its common shares. Therefore, the parties determined that
it was not appropriate for the historical stock price of Starwood
Financial's shares to be used to determine the exchange ratio, or for its
future stock price to be used to adjust the exchange ratio (i.e., through
the use of a "collar" arrangement or
floating exchange ratio). Of the 11 real estate investment trust mergers and
acquisitions over $500 million announced or completed in 1999 to date, 10
had no collar arrangements.
Q: If the merger agreement terminates because the stockholders of TriNet or the
shareholders of Starwood Financial do not approve the merger, are
termination fees payable?
A: TRINET HAS TO REIMBURSE STARWOOD FINANCIAL'S EXPENSES, UP TO A MAXIMUM OF
$3.5 MILLION, if the TriNet stockholders do not approve the merger. In
addition, if TriNet's stockholders do not approve the merger and TriNet
agrees to an alternative transaction involving a change of control of TriNet
within nine months after the merger agreement terminates, then TriNet has to
pay Starwood Financial a termination fee of $50 million.
STARWOOD FINANCIAL HAS TO REIMBURSE TRINET'S EXPENSES, UP TO A MAXIMUM OF
$3.5 MILLION, AND PAY TRINET A TERMINATION FEE OF $60 MILLION if the
shareholders of Starwood Financial do not approve the merger for any reason
other than because TriNet fails to exercise the proxy granted to it by
Starwood Financial's principal shareholders (who represent 99% of Starwood
Financial's voting power).
You should note that there are additional termination events which may result
in the payment of termination fees by Starwood Financial or TriNet which are
described in this joint proxy statement and prospectus.
Q: How was the amount of the $50 million termination fee determined?
A: THE AMOUNT OF THE $50 MILLION TERMINATION FEE WAS DETERMINED BY REFERENCE TO
THE ESTIMATED TRANSACTION VALUE OF THE TRINET-STARWOOD FINANCIAL MERGER
(DEFINED AS THE AGGREGATE MERGER CONSIDERATION TO BE RECEIVED BY TRINET'S
COMMON STOCKHOLDERS, PLUS TRINET'S PREFERRED STOCK AND NET DEBT). The
termination fee equates to approximately 3.0% of this estimated transaction
value (based on the median of the range of values which the TriNet Board and
its financial advisor, Greenhill, placed on the aggregate consideration to
be received by TriNet's stockholders). See "The Merger--The Opinion of
Greenhill." TriNet and Starwood Financial believe this ratio falls generally
within the range of termination fees for comparable transactions. For
example, each of the other 11 real estate investment trust mergers and
acquisitions referenced above provided for termination fees, and these fees
averaged 2.6% of the transaction value.
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THE INCORPORATION MERGER
Q: Why is Starwood Financial completing the incorporation merger?
A: STARWOOD FINANCIAL IS COMPLETING THE INCORPORATION MERGER FOR TWO REASONS:
THE INCORPORATION MERGER WILL ALLOW THE COMBINED COMPANY TO BE STRUCTURED AS
A CORPORATION INSTEAD OF A BUSINESS TRUST, WHICH STARWOOD FINANCIAL BELIEVES
IS MORE CONSISTENT WITH ITS MARKET POSITION AS A FINANCE COMPANY.
IN THE INCORPORATION MERGER, STARWOOD FINANCIAL WILL ELIMINATE ITS CLASS A/B
SHARE STRUCTURE AND HAVE ONLY ONE CLASS OF COMMON STOCK GOING FORWARD. The
elimination of the class B shares, which have supermajority voting rights,
will simplify the combined company's corporate structure. The combined
company believes that public equity investors generally prefer companies
which do not have multiple classes of common stock, and that the elimination
of the dual-class structure will also facilitate the listing of the combined
company's common stock on the New York Stock Exchange.
TAX CONSEQUENCES
Q: What are the tax consequences of the merger?
A: WE HAVE STRUCTURED THE MERGER SO THAT TRINET, STARWOOD FINANCIAL AND OUR
RESPECTIVE STOCKHOLDERS WILL NOT RECOGNIZE ANY GAIN OR LOSS FOR FEDERAL
INCOME TAX PURPOSES IN THE MERGER, EXCEPT IN THE CASE OF CASH TO BE RECEIVED
BY TRINET STOCKHOLDERS INSTEAD OF STARWOOD FINANCIAL FRACTIONAL SHARES. As
part of the closing, each company will receive legal opinions confirming
these tax consequences.
Q: What will the tax basis of TriNet's stockholders be in the Starwood Financial
common or preferred shares they receive in the merger?
A: YOUR TAX BASIS IN THE STARWOOD FINANCIAL COMMON AND PREFERRED SHARES WILL
EQUAL YOUR CURRENT TAX BASIS IN YOUR TRINET COMMON AND PREFERRED SHARES
SURRENDERED IN THE EXCHANGE, DECREASED BY YOUR TAX BASIS ATTRIBUTABLE TO
FRACTIONAL SHARES.
HOW TO VOTE
Q: What do I need to do now?
A: AFTER READING THIS JOINT PROXY STATEMENT AND PROSPECTUS, JUST MAIL YOUR
SIGNED PROXY CARD IN THE ENCLOSED RETURN ENVELOPE AS SOON AS POSSIBLE. Thus,
your shares can be voted at the [date], 1999 Starwood Financial special
shareholder meeting, if you are a Starwood Financial shareholder, or at the
[date], 1999 TriNet special stockholder meeting, if you are a TriNet
stockholder. FOR APPROVAL OF THE MERGER AND THE MERGER AGREEMENT, IF A
TRINET STOCKHOLDER DOES NOT RETURN A SIGNED PROXY CARD, THE SHARES OF TRINET
STOCK WILL NOT BE VOTED AND THUS WILL HAVE THE EFFECT OF A VOTE "AGAINST"
THE PROPOSALS. SIMILARLY, A BROKER NON-VOTE OR AN ABSTENTION WILL HAVE THE
EFFECT OF A VOTE "AGAINST" THE PROPOSALS.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: YOUR BROKER WILL VOTE YOUR SHARES ONLY IF YOU PROVIDE INSTRUCTIONS TO YOUR
BROKER ON HOW TO VOTE. You should contact your broker and ask what
directions your broker will need from you. Your broker will not be able to
vote your shares without instructions from you.
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Q: Can I change my vote after I have mailed my signed proxy card?
A: YES. YOU CAN CHANGE YOUR VOTE AT ANY TIME BEFORE YOUR PROXY IS VOTED AT THE
APPLICABLE STOCKHOLDER MEETING. You can do this in one of three ways. First,
you can send a written notice stating that you revoke your proxy. Second,
you can complete and submit a new proxy card, dated a later date than the
first proxy card. Third, you can attend the appropriate meeting and vote in
person. Your attendance at the stockholder meeting will not, however, by
itself revoke your proxy. If you hold your shares in "street name" and have
instructed your broker to vote your shares, you must follow directions
received from your broker to change those instructions.
Q: Should Starwood Financial shareholders or TriNet stockholders send in their
stock certificates now?
A: NO. If you are a TriNet stockholder, after the merger is completed you will
receive written instructions for exchanging your TriNet common and preferred
shares for Starwood Financial common and preferred shares, and any cash
payments you may be entitled to receive. If you are a Starwood Financial
shareholder, you should retain your certificates, as you will continue to
hold the Starwood Financial shares you currently own.
OTHER INFORMATION
Q: When do you expect the merger to be completed?
A: WE HOPE TO COMPLETE THE MERGER ON [DATE], 1999, OR AS QUICKLY AS POSSIBLE
AFTER THAT.
Q: Who can help answer my questions?
A: If you are a TriNet stockholder or Starwood Financial shareholder and you
have more questions about the merger, you should contact:
Innisfree M&A Incorporated
(888) 750-4834
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SUMMARY
THIS SUMMARY HIGHLIGHTS SOME INFORMATION FROM THIS JOINT PROXY STATEMENT AND
PROSPECTUS. BECAUSE IT IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION
THAT YOU SHOULD CONSIDER IN MAKING YOUR DECISION AS TO HOW TO VOTE YOUR SHARES.
YOU SHOULD READ THE ENTIRE JOINT PROXY STATEMENT AND PROSPECTUS CAREFULLY,
INCLUDING THE SECTION ENTITLED "RISK FACTORS" AND THE SUMMARY AND PRO FORMA
FINANCIAL STATEMENTS AND THE RELATED NOTES TO THOSE STATEMENTS INCLUDED IN THIS
JOINT PROXY STATEMENT AND PROSPECTUS. BECAUSE STARWOOD FINANCIAL TRUST, A
MARYLAND REAL ESTATE INVESTMENT TRUST, WILL REORGANIZE AS STARWOOD FINANCIAL
INC., A MARYLAND CORPORATION, ALL REFERENCES TO "STARWOOD FINANCIAL" ARE
REFERENCES TO STARWOOD FINANCIAL TRUST PRIOR TO THE REORGANIZATION AND ARE
REFERENCES TO STARWOOD FINANCIAL INC. AFTER THE REORGANIZATION. FOR MORE
INFORMATION REGARDING THE REORGANIZATION, PLEASE REFER TO THE SECTION OF THIS
SUMMARY ENTITLED "DESCRIPTION OF THE TRANSACTIONS--THE INCORPORATION MERGER" AND
THE SECTION OF THIS JOINT PROXY STATEMENT AND PROSPECTUS ENTITLED "CERTAIN
AGREEMENTS RELATED TO THE MERGER--THE INCORPORATION MERGER AGREEMENT."
THE COMPANIES
THE COMBINED COMPANY
The combined company will be the largest publicly-traded finance company in
the United States focused exclusively on commercial real estate. The combined
company will have a nationwide platform for providing real estate borrowers and
corporate customers with innovative, custom-tailored solutions to their
structured financing needs. The merger combines Starwood Financial's structured
finance orientation and track record of growth in earnings and assets with
TriNet's portfolio of credit tenant leases and its credit tenant lease
origination and asset management capabilities.
The combined company expects to continue to implement an investment strategy
targeting specific sectors of the real estate credit markets in which it
believes it has a competitive advantage, thereby creating pricing power and
maximizing risk-adjusted returns. Management intends to expand the focus of
TriNet's credit tenant lease business to complement Starwood Financial's overall
investment philosophy through innovative lease structures, efficient use of
leverage, state-of-the-art credit enhancement instruments, better risk
allocation, and by focusing on market inefficiencies. The combined company is
considering the disposition of approximately $200 million of TriNet's non-core
properties, which generally have short-term lease rollover risk or other
characteristics inconsistent with the combined company's structured finance
focus. The combined company will have an extensive geographically and
economically diverse portfolio of assets.
The combined company expects to have access to capital resources comparable
to those of the largest publicly-traded commercial finance companies. The
combined company will have approximately $1.9 billion of permanent book equity
capital and a total market capitalization in excess of $4.0 billion. Management
believes that the increased scale and diversification of the combined company
will lower its cost of capital and allow it to access a wide range of capital
sources to finance its investment and growth strategy, including a match-funded
securitized debt program under development, a combined $1.5 billion available
under its credit facilities (both secured and unsecured), rated corporate debt
raised at the TriNet subsidiary level and public and private common and
preferred equity securities. The combined company intends to use its
coast-to-coast platform to continue to seek opportunities to add other
finance-related businesses to its franchise.
The combined company intends to implement a stock repurchase program upon
closing of the merger. The combined company will be authorized to repurchase up
to 5.0 million shares of its common stock from time to time, primarily using
proceeds from the disposition of assets and excess cash flow from operations,
but also using borrowings under its credit facilities if the combined company
determines that it is advantageous to do so.
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The combined company will have a dynamic, experienced and fully-integrated
management team drawn from the current management of Starwood Financial and
TriNet, bringing together experienced professionals with in-house expertise in
the origination and acquisition of new investments, capital markets
transactions, mergers and acquisitions, asset management and loan servicing. The
combined company's management depth and expertise are consistent with its role
as a market leader in each of its core financing businesses.
The combined company will be headquartered in New York, NY and will have
super-regional offices in San Francisco, CA, Atlanta, GA and Hartford, CT. For
more information on the combined company, please refer to the section of this
joint proxy statement and prospectus entitled "The Companies--The Combined
Company."
STARWOOD FINANCIAL TRUST
1114 Avenue of the Americas, 27(th) Floor
New York, NY 10036
(212) 930-9400
Starwood Financial Trust is a leading structured finance company that
delivers financial solutions to the real estate industry by implementing an
innovative, value added and entrepreneurial approach to providing investment
capital. Starwood Financial primarily focuses on providing custom-tailored
mortgage, mezzanine and lease financing to the real estate industry through the
origination and acquisition of loans on commercial properties to create superior
risk-adjusted returns for its shareholders. Starwood Financial seeks to take
advantage of its underwriting and risk management experience in the real estate
industry to capture strategic growth opportunities, create a proprietary
origination pipeline and capitalize on developing trends in the industry.
The Starwood organization started Starwood Financial's business in 1993
through private investment funds formed to capitalize on inefficiencies in the
real estate finance market. The investors in these funds include a number of
large corporate and state pension funds as well as a number of high net worth
families. Starwood's private business grew to approximately $1.1 billion in
assets and, in March 1998, Starwood contributed this business to a
publicly-traded entity now known as Starwood Financial Trust. Approximately 99%
of Starwood Financial's shares are owned by Starwood's original private
investment funds and other affiliates. Since 1993, Starwood Financial and its
private investment fund predecessors have originated or acquired approximately
60 financing transactions with a total commitment value of over $2.7 billion.
Since March 1998, Starwood Financial has completed over $1.5 billion in new
financing commitments and approximately doubled its asset base. In September
1998, Starwood Financial acquired the loan origination and servicing business of
Phoenix Realty Services, Inc., a subsidiary of Phoenix Home Life Insurance
Company. In December 1998, Starwood Financial acquired its largest private
competitor's mortgage and mezzanine loan portfolio for approximately $280
million and concurrently raised $220 million of perpetual preferred equity. At
June 30, 1999, the book value of Starwood Financial's assets was approximately
$2.2 billion. In the six quarters since its first quarter as a public company
(the pro forma quarter ended March 31, 1998), Starwood Financial has grown basic
earnings per share and dividends per share by 67.5% and 22.9%, respectively.
Following the advisor transaction, Starwood Financial will become
internally-managed and, as a result, all fees currently paid to its external
advisor will be eliminated and the combined company will be responsible for the
salaries and other overhead necessary to provide the services that the advisor
currently provides to Starwood Financial. For more information regarding the
advisor transaction, you should refer to the section of this Summary under the
heading "--Description of the Transactions-- The Advisor Transaction" and the
sections of this joint proxy statement and prospectus entitled "The Advisor
Transaction" and "The Advisor Transaction Agreement."
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Starwood Financial is headquartered in New York, NY, and maintains a
regional office in Hartford, CT. Starwood Financial will make an election to be
taxed as a REIT for its taxable year beginning January 1, 1998.
For more information on Starwood Financial, please refer to the section of
this joint proxy statement and prospectus entitled "The Companies--Starwood
Financial."
TRINET CORPORATE REALTY TRUST, INC.
One Embarcadero Center, 33rd Floor
San Francisco, CA 94111
(415) 391-4300
E-mail: [email protected]
http://www.tricorp.com
TriNet is the largest publicly-traded company specializing in the net
leasing of corporate office and warehouse distribution facilities. TriNet
provides investment capital to major corporations and real estate owners
nationwide by structuring purchase/leaseback transactions and acquiring
properties subject to existing long-term leases to creditworthy office and
industrial tenants. TriNet uses its real estate and credit underwriting
expertise to structure transactions that seek to generate consistent,
predictable cash flow growth and substantial residual value. As of June 30,
1999, TriNet's portfolio consisted of 145 office and industrial properties
principally subject to net leases to more than 175 tenants, comprising 19.5
million square feet in 25 states.
TriNet, whose private predecessor company was founded in 1985, completed its
initial public offering on June 3, 1993, and is incorporated under the laws of
the state of Maryland. TriNet has elected to be taxed as a REIT under the
Internal Revenue Code.
For more information on TriNet, please refer to the section of this joint
proxy statement and prospectus entitled "The Companies--TriNet."
DESCRIPTION OF THE TRANSACTIONS
This joint proxy statement and prospectus is being circulated to you in
connection with three transactions:
1. The merger.
2. The advisor transaction.
3. The incorporation merger.
These three transactions are referred to together in this joint proxy
statement and prospectus as the "transactions."
THE MERGER
TriNet, Starwood Financial and a newly-formed, wholly-owned subsidiary of
Starwood Financial executed an agreement and plan of merger on June 15, 1999
providing for the merger of the newly-formed subsidiary with and into TriNet.
TriNet will survive the merger as a subsidiary of Starwood Financial. In this
transaction, each holder of common stock of TriNet will receive 1.15 common
shares of Starwood Financial. Each holder of Starwood Financial common shares
will retain its shares.
Each holder of a share of Series A, Series B or Series C Cumulative
Redeemable Preferred Stock of TriNet will receive, respectively, for each such
share, a share of Series B, Series C or Series D Cumulative Redeemable Preferred
Stock of Starwood Financial. The Starwood Financial preferred stock issued to
the former TriNet preferred stockholders will have substantially the same terms
as the TriNet preferred stock, except that the new Starwood Financial Series B,
C, and D preferred stock will
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have additional voting rights not associated with the TriNet preferred stock.
The holders of Starwood Financial Series A preferred stock will retain their
preferred shares with the same rights and preferences as existed prior to the
merger.
Following the merger, the combined company will have approximately 87
million shares of common stock outstanding, and TriNet's stockholders will own
approximately 33% of this total (before taking into account the exercise of
outstanding stock options, warrants, and other outstanding securities that are
convertible into, or exchangeable for, the common equity of Starwood Financial
or TriNet). The remaining 67% of the combined company's common stock will be
owned by a combination of Starwood Financial's common shareholders immediately
prior to the merger and the owners of Starwood Financial's external advisor, who
will receive a total of four million Starwood Financial common shares in the
advisor transaction.
Immediately following the closing of the transactions, Starwood Financial
will be governed by a Board of Directors which will initially have 15 members,
10 from Starwood Financial and five from TriNet. Eight of the 15 directors will
be independent directors.
TriNet's outstanding indebtedness before the merger will remain obligations
of the combined company's new TriNet subsidiary. Because TriNet will be a
subsidiary of Starwood Financial after the merger, the combined company plans to
utilize the TriNet corporate entity as a platform for raising capital in the
rated debt markets to finance the operations of the new TriNet subsidiary.
On June 15, 1999, Greenhill & Co., LLC delivered a written opinion to the
Board of Directors of TriNet, stating that, as of that date, the exchange ratio
is fair from a financial point of view to the holders of common stock of TriNet.
This opinion, which is based upon and subject to various qualifications and
assumptions, is attached as Annex C to this joint proxy statement and
prospectus. We encourage you to read this opinion in its entirety. The analyses
performed by Greenhill are summarized in this joint proxy statement and
prospectus under the caption "The Merger--The Opinion of Greenhill."
On June 15, 1999, Bear, Stearns & Co. Inc. delivered its oral opinion
(subsequently confirmed in writing) to the Board of Trustees of Starwood
Financial, stating that, as of that date, the exchange ratio is fair from a
financial point of view to Starwood Financial and its shareholders. This
opinion, which is based upon and subject to various qualifications and
assumptions, is attached as Annex D to this joint proxy statement and
prospectus. We encourage you to read this opinion in its entirety. The analyses
performed by Bear Stearns are summarized in this joint proxy statement and
prospectus under the caption "The Merger--The Opinion of Bear Stearns."
Some of TriNet's officers and directors have interests in the merger that
are different from, or in addition to, those of TriNet stockholders generally.
In connection with the merger, some of the officers of TriNet will become
officers of Starwood Financial. Some officers of TriNet will receive payments
and other compensation because of their pre-existing change of control
agreements with TriNet. All of the current directors of TriNet will become
directors of Starwood Financial and will exchange their pre-existing options to
purchase TriNet stock for options to purchase Starwood Financial stock. For more
information regarding these arrangements, please read the section of this joint
proxy statement and prospectus entitled "The Merger--Interests of Certain
Parties in the Merger--TriNet Affiliates." In connection with the merger, the
TriNet directors have agreed with Starwood Financial not to exercise or transfer
their Starwood Financial options for one year, subject to customary exceptions.
For more information regarding these option standstill agreements, please read
the section of this "Summary" entitled "Restrictions on Transfer by Certain
Securityholders--The Option Standstill Agreements" and the section of this joint
proxy statement and prospectus entitled "Certain Agreements Related to the
Merger--The Option Standstill Agreements."
Some of Starwood Financial's officers have interests in the merger that are
different from, or in addition to, those of Starwood Financial's shareholders.
Options to purchase Starwood Financial
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Class A shares held by one of the officers of Starwood Financial will vest and
become exercisable upon consummation of the merger. For more information
regarding these options, please read the section of this joint proxy statement
and prospectus entitled "The Merger--Interests of Certain Parties in the
Merger--Starwood Financial Affiliates."
The merger has been structured as a tax-free reorganization under federal
tax law and will be accounted for as a purchase of TriNet by Starwood Financial.
For more information concerning the treatment of the merger under the federal
tax laws, please read the section of this joint proxy statement and prospectus
entitled "Material Federal Income Tax Considerations."
The completion of the merger is conditioned upon, among other customary
conditions, the affirmative vote in favor of the merger and the merger agreement
by the holders of at least two thirds of the shares of TriNet common stock
outstanding on the record date for the TriNet special meeting and there not
having occurred a material adverse change in TriNet or Starwood Financial.
Approximately 1.3% of the common stock of TriNet is held by TriNet directors,
officers and their affiliates. For more information regarding the conditions
precedent to the completion of the merger, please read the section of this joint
proxy statement and prospectus entitled "The Merger Agreement-- Conditions to
the Merger."
The merger is also conditioned on approval by the holders of at least two
thirds of Starwood Financial's common shares; however, the holders of
approximately 99% of Starwood Financial's common shares have agreed with TriNet
to vote in favor of the transactions and have granted an irrevocable proxy to
TriNet to vote their Starwood Financial stock accordingly. For more information
regarding these matters, please read the section of this "Summary" entitled "The
Shareholder Agreement" and the section of this joint proxy statement and
prospectus entitled "Certain Agreements Related to the Merger--The Shareholder
Agreement."
If the merger agreement is terminated because TriNet's stockholders do not
approve the merger, TriNet will be required to reimburse Starwood Financial for
its expenses, up to a maximum of $3.5 million. If TriNet's stockholders do not
approve the merger and, within nine months after termination, TriNet enters into
an agreement to complete or completes an alternative change of control
transaction, TriNet will also be obligated to pay Starwood Financial a
termination fee of up to $50.0 million in addition to the expense reimbursement
discussed above. Both TriNet and Starwood Financial are also required to pay a
termination fee to the other party or reimburse the other party's expenses in
additional circumstances described in more detail in the section of this joint
proxy statement and prospectus entitled "The Merger Agreement--Termination
Fees."
Prior to the closing of the merger, Starwood Financial intends to declare
and pay a special dividend of one million shares of its common stock pro rata to
all pre-merger holders of its common shares as of a record date to be set by the
Starwood Financial's Board of Trustees.
Starwood Financial is currently listed on the American Stock Exchange under
the symbol "APT" and is expected to be approved for listing on the New York
Stock Exchange, subject to official notice of issuance, under the symbol "SFI"
upon completion of the transactions.
There are no federal or state regulatory requirements that must be complied
with or approvals that must be obtained in connection with the transactions. No
dissenters' appraisal rights are available to the stockholders of TriNet or the
shareholders of Starwood Financial in connection with the merger.
If you need more information regarding the merger, please read the merger
agreement attached to this joint proxy statement and prospectus as Annex A and
the sections of this joint proxy statement and prospectus entitled "The Merger"
and "The Merger Agreement."
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THE ADVISOR TRANSACTION
In the advisor transaction, Starwood Financial will acquire 100% of the
interests in its external advisor in exchange for total consideration of four
million shares of common stock of Starwood Financial. The advisor transaction is
expected to become effective simultaneously with the effectiveness of Starwood
Financial's merger with TriNet.
As a result of the advisor transaction, the combined company will be
internally-managed. The combined company will not pay any of the advisory fees
that Starwood Financial currently pays to the advisor under its existing
advisory agreement, but will be responsible for the salaries and other overhead
necessary to provide the services that the advisor currently provides to
Starwood Financial.
On June 15, 1999, Houlihan Lokey Howard & Zukin delivered a written opinion
to the special committee of the independent members of the Board of Trustees of
Starwood Financial, stating that, as of that date, the consideration to be paid
to the owners of Starwood Financial's advisor is fair from a financial point of
view to the shareholders of Starwood Financial who do not hold ownership
interests in the advisor. This opinion, which is based upon and subject to
various qualifications and assumptions, is attached as Annex E to this joint
proxy statement and prospectus. We encourage you to read this opinion in its
entirety. The analyses performed by Houlihan Lokey are summarized in this joint
proxy statement and prospectus under the caption "The Advisor Transaction--The
Opinion of Houlihan Lokey."
Some of Starwood Financial's officers and trustees own interests in the
advisor and therefore have interests in the advisor transaction that are
different from, or in addition to, those of the shareholders of Starwood
Financial who have no interests in the advisor. For more information regarding
these interests, please see the section of this joint proxy statement and
prospectus entitled "The Advisor Transaction--Interests of Certain Parties in
the Advisor Transaction." The advisor transaction was unanimously approved by a
special committee of independent trustees of Starwood Financial who have no
conflicting interests and own no interest in the advisor. The special committee
retained its own financial advisor and legal counsel to advise them with regard
to the advisor transaction.
No gain or loss will be recognized by Starwood Financial or its shareholders
for federal tax purposes as a result of the advisor transaction. For more
information concerning the treatment of the transactions under the federal tax
laws, please read the section of this joint proxy statement and prospectus
entitled "Material Federal Income Tax Considerations--Federal Income Tax
Consequences of the Transactions to Starwood Financial's Shareholders."
The completion of the advisor transaction depends on meeting or waiving a
number of conditions, including approval of the advisor transaction by the
shareholders of Starwood Financial and approval for listing on the New York
Stock Exchange or the American Stock Exchange of the shares of Starwood
Financial common stock to be issued in the advisor transaction, along with other
customary conditions. For more information regarding the conditions precedent to
the advisor transaction, please see the section of this joint proxy statement
and prospectus entitled "The Advisor Transaction Agreement--Conditions to the
Advisor Transaction."
The advisor transaction agreement may not be terminated without the consent
of TriNet unless: any judgment, injunction, order, decree or action by any
governmental entity of competent authority preventing the consummation of the
advisor transaction has become final and non-appealable; the required approval
of the shareholders of Starwood Financial has not been obtained at the Starwood
Financial special shareholders meeting; the advisor transaction has not been
consummated by December 31, 1999; or any other party materially breaches the
advisor transaction agreement. For more information concerning the termination
provisions of the advisor transaction agreement, please read the section of this
joint proxy statement and prospectus entitled "The Advisor Transaction
Agreement-- Termination."
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If the merger agreement with TriNet is terminated because the advisor
transaction agreement is terminated, Starwood Financial will be obligated to pay
TriNet a termination fee of up to $50.0 million and reimburse TriNet's expenses
up to a maximum amount of $3.5 million. For more information concerning
termination fees under the merger agreement, please read the section of this
joint proxy statement and prospectus entitled "The Merger
Agreement--Termination" and "--Termination Fees."
The advisor transaction was unanimously approved by the owners of the
advisor; accordingly, no dissenters' appraisal rights are available in
connection with the advisor transaction.
If you need more information regarding the advisor transaction, please read
the advisor transaction agreement attached to this joint proxy statement and
prospectus as Annex B and the sections of this joint proxy statement and
prospectus entitled "The Advisor Transaction" and "The Advisor Transaction
Agreement."
THE INCORPORATION MERGER
The incorporation merger agreement provides for the merger of Starwood
Financial Trust with and into a newly-formed Maryland corporation, Starwood
Financial Inc., prior to the completion of the advisor transaction and the
TriNet merger. The sole purposes of the incorporation merger are: (1) to change
Starwood Financial Trust's form from a Maryland trust to a Maryland corporation;
and (2) to eliminate Starwood Financial Trust's dual class share structure. The
corporation will be the surviving company in the merger.
In the incorporation merger, each issued and outstanding Class A share of
beneficial interest of Starwood Financial Trust will be converted into one share
of common stock of Starwood Financial Inc. Every 49 issued and outstanding Class
B shares of Starwood Financial Trust will be converted into one share of common
stock of Starwood Financial Inc. (the same ratio at which Class B shares
currently are convertible into Class A shares). Each issued and outstanding 9.5%
Series A Preferred Share of Starwood Financial Trust will be converted into one
share of 9.5% Series A Cumulative Redeemable Preferred Stock of Starwood
Financial Inc. The voting powers, rights and preferences of the Series A
Preferred Stock will be substantially identical to the powers, rights and
preferences of the Starwood Financial Trust Series A Preferred Shares. As a
result of the incorporation merger, Starwood Financial Trust's two existing
classes of common shares of beneficial interest will be replaced with one class
of common stock of Starwood Financial Inc. For more information regarding the
incorporation merger and the incorporation merger agreement, please refer to the
section of this joint proxy statement and prospectus entitled "Certain
Agreements Related to the Merger--The Incorporation Merger Agreement."
RECOMMENDATIONS TO STOCKHOLDERS OF TRINET AND SHAREHOLDERS OF STARWOOD FINANCIAL
TO TRINET STOCKHOLDERS: THE TRINET BOARD OF DIRECTORS BELIEVES THAT THE
MERGER IS IN YOUR BEST INTEREST AND RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL
TO APPROVE THE MERGER AND APPROVE AND ADOPT THE MERGER AGREEMENT FOR THE
FOLLOWING REASONS:
- The recent underperformance of TriNet's common stock price and the risk of
further declines in its stock price.
- TriNet's limited growth opportunities as an independent company.
- The opportunity presented by the merger to refocus TriNet on its core
credit tenant lease strategy.
- The TriNet Board's completion of a thorough examination of stand-alone
alternatives and its determination that stand-alone strategies would not
maximize long-term stockholder value.
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- The TriNet Board's extensive review of TriNet's strategic alternatives and
its determination that the merger with Starwood Financial was the best
available opportunity to maximize long-term value for TriNet's
stockholders.
- The combined company's superior business strategy, capability and growth
prospects.
- The advantages of a larger enterprise with greater asset diversity.
- The combined company's improved access to capital.
- The expected higher annualized dividend rate of the combined company.
- Starwood Financial's dynamic and entrepreneurial leadership, and resulting
track record of superior returns to its investors.
- The opinion of Greenhill, TriNet's financial advisor, that the exchange
ratio in the merger is fair from a financial point of view to the holders
of common stock of TriNet.
For more information regarding TriNet's reasons for the merger, please refer
to the section of this joint proxy statement and prospectus entitled "The
Merger--Recommendation of the Board of Directors of TriNet; Reasons for the
Merger."
TO STARWOOD FINANCIAL SHAREHOLDERS: THE STARWOOD FINANCIAL BOARD OF TRUSTEES
BELIEVES THAT EACH OF THE MERGER AND THE INCORPORATION MERGER IS IN YOUR
INTEREST AND RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO APPROVE THE MERGER
AND ADOPT THE MERGER AGREEMENT AND "FOR" THE PROPOSAL TO APPROVE THE
INCORPORATION MERGER AGREEMENT FOR THE FOLLOWING REASONS:
- The growth opportunities associated with the combination of two leading
franchises in complementary businesses.
- The combined company's access to more efficient financing alternatives and
a potentially lower cost of capital.
- Access to TriNet's numerous corporate real estate relationships.
- The benefits of a more diversified credit profile and asset base.
- The ability to offer tenants and borrowers a full range of services
coast-to-coast.
- The fairness opinion of Bear Stearns, Starwood Financial's financial
advisor, that the exchange ratio in the merger is fair, from a financial
point of view, to Starwood Financial and its shareholders.
For more information regarding Starwood Financial's reasons for the merger,
please refer to the section of this joint proxy statement and prospectus
entitled "The Merger--Recommendation of the Board of Trustees of Starwood
Financial; Reasons for the Merger."
THE STARWOOD FINANCIAL BOARD OF TRUSTEES, INCLUDING THE SPECIAL COMMITTEE OF
INDEPENDENT TRUSTEES OF THE STARWOOD FINANCIAL BOARD, BELIEVES THAT THE ADVISOR
TRANSACTION IS IN YOUR BEST INTEREST AND RECOMMENDS THAT YOU VOTE "FOR" THE
PROPOSAL TO APPROVE THE ADVISOR TRANSACTION AND ADOPT THE ADVISOR TRANSACTION
AGREEMENT FOR THE FOLLOWING REASONS:
- The benefits associated with bringing the expertise of Starwood
Financial's management team in-house.
- The accretive effect of the advisor transaction on the combined company.
- The potentially positive effects of the advisor transaction on the
combined company's equity valuation.
- The report of the special committee of Starwood Financial's independent
trustees.
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- The fairness opinion of Houlihan Lokey, the financial advisor to the
special committee, that the consideration to be paid to the owners of
interests in Starwood Financial's advisor is fair, from a financial point
of view, to the shareholders of Starwood Financial who do not hold
ownership interests in the advisor.
THE SPECIAL MEETINGS
THE TRINET SPECIAL MEETING
- The TriNet special meeting of stockholders is scheduled to be held at
[time] local time, on [date], 1999 at [place].
- The TriNet Board of Directors has fixed the close of business on [date],
1999 as the record date for the determination of holders of shares of
TriNet common stock entitled to notice of and to vote at, the TriNet
special meeting of stockholders.
- The affirmative vote of at least two thirds of the issued and outstanding
shares of TriNet common stock is required to approve the merger and the
merger agreement.
- For more information regarding the TriNet special meeting, please refer to
the section of this joint proxy statement and prospectus entitled "The
Meetings--The TriNet Special Meeting."
THE STARWOOD FINANCIAL SPECIAL MEETING
- The Starwood Financial special meeting of shareholders is scheduled to be
held at 1:00 p.m., local time, on [date], 1999 at the Sheraton New York
Hotel & Towers, 811 Seventh Avenue, New York, New York 10019.
- The Starwood Financial Board has fixed the close of business on [date],
1999 as the record date for the determination of holders of Starwood
Financial common shares entitled to notice of and to vote at the Starwood
Financial special meeting of shareholders.
- The affirmative vote of at least two thirds of the issued and outstanding
Starwood Financial Class A shares and Class B shares, voting as a single
class, is required to approve each of the merger and the incorporation
merger.
- The affirmative vote of a majority of the votes cast by the holders of
issued and outstanding Starwood Financial Class A shares and Class B
shares, voting as a single class, is required to approve the advisor
transaction (solely to fulfill the requirements of the rules and
regulations of the American Stock Exchange).
- For more information regarding the Starwood Financial special meeting,
please refer to the section of this joint proxy statement and prospectus
entitled "The Meetings--The Starwood Financial Special Meeting."
THE SHAREHOLDER AGREEMENT
In connection with the merger, the principal shareholders of Starwood
Financial (SOFI-IV SMT Holdings, L.L.C., Starwood Mezzanine Investors, L.P. and
B Holdings, L.L.C.), who together hold approximately 99% of the voting power of
Starwood Financial's outstanding common shares, executed a shareholder agreement
with TriNet, dated as of June 15, 1999 and amended as of July 12, 1999,
agreeing, among other things, to vote their shares in favor of the transactions.
As required by the shareholder agreement, Starwood Financial's principal
shareholders have each executed an irrevocable proxy to TriNet to vote their
common shares in favor of the merger and against any competing proposals.
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The principal shareholders cannot make any transfers of their shares prior
to the closing of the merger or make additional pledges of their shares unless
the transferees or pledgees agree to become parties to the shareholder agreement
and execute an irrevocable proxy as required by the shareholder agreement.
The shareholder agreement terminates upon the termination of the merger
agreement or by written consent of the parties.
For more information regarding the shareholder agreement, please refer to
the section of this joint proxy statement and prospectus entitled "Certain
Agreements Related to the Merger--The Shareholder Agreement."
RESTRICTIONS ON TRANSFER BY
CERTAIN SECURITYHOLDERS
THE STARWOOD FINANCIAL AFFILIATE LOCK-UP AGREEMENTS
On June 15, 1999, the principal shareholders of Starwood Financial and the
owners of interests in Starwood Financial's external advisor who will receive
shares of combined company common stock in connection with the advisor
transaction executed lock-up agreements with Greenhill pertaining to the period
following completion of the advisor transaction.
In their lock-up agreements, each of the principal shareholders of Starwood
Financial agreed, subject to customary exceptions (including pledges to
lenders):
- Not to transfer or encumber any of its shares in the combined company
during the first six months after the closing of the transactions, other
than 5% of its holdings that may be transferred in any manner, 20% that
may be transferred in public offerings by Starwood Financial and 30% that
may be transferred in transactions other than on a national securities
exchange; all shares transferred under any exemption will also count
against the amount transferrable under the other two exemptions.
- Not to transfer or encumber any of its shares in the combined company
during the second six months after the closing of the transactions, other
than one-third of the shares it held as of the six-month anniversary of
the closing of the transactions.
- Not to transfer or encumber any of its shares in the combined company
during the third six months after the closing of the transactions, other
than two thirds of the shares it held as of the six-month anniversary of
the closing of the transactions.
The owners of interests in the advisor, in their lock-up agreements, agreed,
subject to customary exceptions, not to transfer or encumber any of the shares
in the combined company that they receive in the advisor transaction during the
12 months after the closing of the transactions.
For more information regarding the lock-up agreements, please refer to the
section of this joint proxy statement and prospectus entitled "Certain
Agreements Related to the Merger--The Starwood Financial Affiliate Lock-Up
Agreements."
THE OPTION STANDSTILL AGREEMENTS
In connection with the transactions, each of the current members of TriNet's
Board of Directors will exchange his options to purchase TriNet common stock for
options to purchase combined company common stock. On June 15, 1999, each TriNet
Director entered into an option standstill agreement, agreeing not to exercise
or transfer his options to purchase shares in the combined company during the 12
months after the closing of the transactions, subject to customary exceptions.
18
<PAGE>
THE REGISTRATION RIGHTS AGREEMENT
Starwood Financial has agreed to file a shelf registration statement
covering sales of shares issued in the advisor transaction. The registration
statement will permit sales of shares in non-underwritten offerings after the
expiration of the applicable lock-up period.
RISK FACTORS
You should carefully consider all of the information provided in this joint
proxy statement and prospectus and, in particular, you should evaluate the
specific factors described under "Risk Factors" on page 29 for a description of
the risks associated with the merger and the other transactions described in
this joint proxy statement and prospectus.
ABOUT THIS JOINT PROXY STATEMENT AND PROSPECTUS
This joint proxy statement and prospectus is part of a registration
statement that Starwood Financial Inc. has filed with the Securities and
Exchange Commission relating to the shares of Starwood Financial Inc. common
stock being issued in connection with the merger. This joint proxy statement and
prospectus provides you with a general description of the securities Starwood
Financial will offer. You should read this joint proxy statement and prospectus
together with the additional information described under the heading "Where You
Can Find More Information."
19
<PAGE>
UNAUDITED COMBINED COMPANY SUMMARY SELECTED PRO FORMA FINANCIAL DATA
AND SUMMARY SELECTED HISTORICAL FINANCIAL DATA FOR
STARWOOD FINANCIAL AND TRINET
The following tables set forth selected financial data on a consolidated
historical basis for Starwood Financial, on a consolidated historical basis for
TriNet and on a pro forma basis for the combined company after giving effect to
the merger, the advisor transaction and the incorporation merger. The financial
data should be read in conjunction with Starwood Financial's consolidated
financial statements and notes thereto and TriNet's consolidated financial
statements and notes thereto incorporated by reference into this joint proxy
statement and prospectus. The consolidated historical financial data for
Starwood Financial and TriNet as of December 31, 1998 and 1997 and for the years
ended December 31, 1998, 1997, 1996, 1995 and 1994 have been derived from
audited financial statements. The financial data of Starwood Financial and
TriNet as of June 30, 1999 and for the three-and six-month periods ending June
30, 1999 and 1998 have been derived from unaudited financial statements, which,
in the opinion of each company's management, include all adjustments, consisting
only of normal recurring adjustments necessary for a fair statement of the
results for the unaudited interim periods.
The unaudited pro forma operating data for the six months ended June 30,
1999 (assuming the completion of the transactions) and for the year ended
December 31, 1998 (assuming the completion of the transactions) is presented as
if the transactions had occurred on January 1, 1998. The unaudited pro forma
balance sheet (assuming the completion of the transactions) as of June 30, 1999
is presented as if the transactions had occurred on June 30, 1999. In addition,
for the year ended December 31, 1998, the pro forma operating data is presented
as if certain other, already-consummated capital transactions for both TriNet
and Starwood Financial had occurred on January 1, 1998, including, most
significantly, the Starwood Financial recapitalization transactions consummated
on March 18, 1998. For a description of the Starwood Financial recapitalization
transactions, please see notes 4 and 5 to the consolidated financial statements
of Starwood Financial incorporated by reference and delivered with this joint
proxy statement and prospectus.
Prior to the consummation of the recapitalization transactions, Starwood
Financial did not have substantial capital resources or lending operations.
Therefore, the following selected financial data relating to Starwood
Financial's historical financial information as of and for the years ended
December 31, 1997, 1996, 1995 and 1994 and for the period from January 1, 1998
through March 18, 1998 does not reflect the current operations of Starwood
Financial as a well-capitalized, structured finance company operating in the
commercial real estate industry. Prior to the recapitalization transactions,
Starwood Financial's structured finance operations were conducted by two
investment partnerships affiliated with Starwood Capital Group, L.L.C. which
contributed assets to Starwood Financial in the recapitalization transactions in
exchange for cash and shares in Starwood Financial.
The pro forma information is based upon assumptions that are included in the
notes to the pro forma financial statements included elsewhere in this joint
proxy statement and prospectus. The pro forma information is unaudited and is
not necessarily indicative of what the financial position and results of
operations of the combined company would have been as of and for the dates or
periods indicated, nor does it purport to represent the future financial
position and results of operations for future dates or periods.
20
<PAGE>
UNAUDITED COMBINED COMPANY PRO FORMA
SUMMARY SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE AND SUPPLEMENTAL DATA)
COMBINED COMPANY
<TABLE>
<CAPTION>
PRO FORMA
FOR THE PRO FORMA
SIX MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------------- ------------------
<S> <C> <C>
OPERATING DATA:
Interest income.......................................................... $ 105,205 $ 138,291
Operating lease/rental income............................................ 87,069 173,845
Other income............................................................. 9,879 9,776
------------------- ------------------
Total revenue...................................................... 202,153 321,912
------------------- ------------------
Interest expense......................................................... 63,469 98,410
Depreciation and amortization............................................ 17,523 35,053
Property operating costs................................................. 4,034 7,651
General and administrative expense....................................... 10,486 20,770
Provision for possible credit losses..................................... 2,250 2,750
Stock option compensation expense (1).................................... -- 5,985
Special charge (2)....................................................... -- 2,990
------------------- ------------------
Total expenses..................................................... 97,762 173,609
------------------- ------------------
Income before minority interest.......................................... 104,391 148,303
Minority interest (3).................................................... (81) (128)
------------------- ------------------
Net income............................................................... $ 104,310 $ 148,175
Preferred dividends...................................................... (18,454) (16,622)
------------------- ------------------
Net income allocable to common shareholders.............................. $ 85,856 $ 131,553
------------------- ------------------
------------------- ------------------
Basic earnings per common share (4)...................................... $ 0.99 $ 1.52
Diluted earnings per common share........................................ $ 0.94 $ 1.46
SUPPLEMENTAL DATA:
Pro forma funds from operations allocable to common shareholders
(5)(6)................................................................. $ 105,122 $ 172,491
Pro forma ratio of EBITDA
to interest expense.................................................... 2.9x 2.9x
Pro forma ratio of EBITDA
to fixed charges (7)................................................... 2.3x 2.4x
Weighted average common shares outstanding--basic (8).................... 86,661 86,598
Weighted average common shares outstanding--diluted (8).................. 91,148 90,565
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
AS OF JUNE
30, 1999
-----------
<S> <C>
BALANCE SHEET DATA:
Real estate investments, net......................................................................... $ 3,691,042
Total assets......................................................................................... 3,777,939
Debt obligations..................................................................................... 1,815,671
Minority interest in consolidating entities.......................................................... 2,565
Shareholders' equity................................................................................. 1,890,414
SUPPLEMENTAL DATA:
Total debt to shareholders' equity................................................................... 1.0x
</TABLE>
21
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE AND SUPPLEMENTAL DATA)
STARWOOD FINANCIAL
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ----------------------
HISTORICAL HISTORICAL
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING DATA:
Interest income......................................................... $ 52,007 $ 28,663 $ 101,926 $ 31,956
Operating lease/rental income........................................... 3,723 3,750 7,450 4,274
Other income............................................................ 3,525 1,291 5,303 1,440
---------- ---------- ---------- ----------
Total revenue..................................................... 59,255 33,704 114,679 37,670
---------- ---------- ---------- ----------
Interest expense........................................................ 20,556 9,398 40,249 10,494
Depreciation and amortization........................................... 1,365 1,374 2,730 1,569
General and administrative expense...................................... 1,185 532 1,669 813
Provision for possible credit losses.................................... 1,250 750 2,250 750
Advisory fees........................................................... 5,016 1,761 9,681 1,991
Stock option compensation expense (1)................................... -- -- -- 5,985
---------- ---------- ---------- ----------
Total expenses.................................................... 29,372 13,815 56,579 21,602
---------- ---------- ---------- ----------
Income (loss) before minority interest.................................. 29,883 19,889 58,100 16,068
Minority interest (3)................................................... -- -- -- (54)
---------- ---------- ---------- ----------
Net income (loss)....................................................... $ 29,883 $ 19,889 $ 58,100 $ 16,014
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Preferred dividends..................................................... (5,308) -- (10,615) --
---------- ---------- ---------- ----------
Net income allocable to common shareholders............................. $ 24,575 $ 19,889 $ 47,485 $ 16,014
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income allocable to Class A Shares.................................. $ 24,329 $ 19,690 $ 47,010 $ 15,854
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic earnings (loss) per Class A share (4)............................. $ 0.46 $ 0.38 $ 0.90 $ 0.52
Diluted earnings (loss) per Class A share............................... $ 0.43 $ 0.37 $ 0.84 $ 0.51
Dividends declared per Class A share (9)................................ $ 0.43 $ 0.35 $ 0.85 $ 0.35
SUPPLEMENTAL DATA:
Dividends declared on preferred shares (9).............................. 5,225 -- 10,450 --
Dividends declared on Class A and B shares (9).......................... 22,790 18,524 45,053 --
Funds from operations allocable to common shareholders (5)(6)........... 26,110 21,263 50,553 17,583
Cash flows from:
Operating activities.................................................. 30,860 27,302 53,376 27,691
Investing activities.................................................. 9,973 (213,864) (94,804) (550,872)
Financing activities.................................................. (38,852) 150,586 50,836 529,063
Weighted average Class A shares outstanding--basic (8).................. 52,471 52,390 52,459 30,637
Weighted average Class A shares outstanding--diluted (8)................ 56,602 54,178 56,588 31,665
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
AS OF JUNE
30, 1999
-------------
<S> <C>
BALANCE SHEET DATA:
Real estate investments, net....................................................................... $ 2,116,683
Total assets....................................................................................... 2,171,628
Debt obligations................................................................................... 1,160,885
Minority interest in consolidating entities........................................................ --
Shareholders' equity............................................................................... 1,002,171
SUPPLEMENTAL DATA:
Total debt to shareholders' equity................................................................. 1.2x
</TABLE>
22
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE AND SUPPLEMENTAL DATA)
STARWOOD FINANCIAL
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
HISTORICAL
-------------------------------------------------------
1998 1997 1996 1995 1994
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income....................................................... $ 112,914 $ 896 $ 478 $ 145 $ 296
Operating lease/rental income......................................... 12,378 -- -- -- --
Other income.......................................................... 2,804 991 10 3 --
----------- --------- --------- --------- ---------
Total revenue................................................... 128,096 1,887 488 148 296
----------- --------- --------- --------- ---------
Interest expense...................................................... 44,697 -- 272 -- 270
Depreciation and amortization......................................... 4,287 -- -- -- --
General and administrative expense.................................... 2,583 461 639 283 356
Provision for possible credit losses.................................. 2,750 -- -- -- --
Advisory fees......................................................... 7,837 -- -- -- --
Stock option compensation expense (1)................................. 5,985 -- -- -- --
----------- --------- --------- --------- ---------
Total expenses.................................................. 68,139 461 911 283 626
----------- --------- --------- --------- ---------
Income (loss) before minority interest................................ 59,957 1,426 (423) (135) (330)
Minority interest (3)................................................. (54) (1,415) (154) -- --
----------- --------- --------- --------- ---------
Net income (loss)..................................................... $ 59,903 $ 11 $ (577) $ (135) $ (330)
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Preferred dividends................................................... (944) -- -- -- --
----------- --------- --------- --------- ---------
Net income allocable to common shareholders........................... $ 58,959 $ 11 $ (577) $ (135) $ (330)
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Net income allocable to Class A Shares................................ $ 58,369 $ 11 $ (571) $ (134) $ (327)
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Basic earnings (loss) per Class A share (4)........................... $ 1.40 $ 0.00 $ (1.34) $ (0.30) $ (0.78)
Diluted earnings (loss) per Class A share............................. $ 1.36 $ 0.00 $ (1.34) $ (0.30) $ (0.78)
Dividends declared per Class A share (9).............................. $ 1.14 -- -- -- --
SUPPLEMENTAL DATA:
Dividends declared on preferred shares................................ 929 -- -- -- --
Dividends declared on Class A and B shares............................ 60,343 -- -- -- --
Funds from operations allocable to common shareholders (5)(6)......... 63,261 1,426 (423) (135) (330)
Cash flows from:
Operating activities................................................ 54,915 1,271 (227) (184) (397)
Investing activities................................................ (1,271,309) (6,013) (522) 175 (1,371)
Financing activities................................................ 1,226,208 4,924 -- -- 101
Weighted average Class A shares outstanding--basic (8)................ 41,607 1,258 425 425 425
Weighted average Class A shares outstanding--diluted (8).............. 43,460 2,562 425 425 425
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
AS OF DECEMBER 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate investments, net.................................. $ 2,013,703 $ -- $ -- $ -- $ --
Total assets.................................................. 2,059,616 13,441 5,674 2,194 2,372
Debt obligations.............................................. 1,055,719 -- -- -- --
Minority interest in consolidating entities................... -- 5,175 3,917 -- --
Shareholders' equity.......................................... 970,728 6,351 1,578 2,155 2,290
SUPPLEMENTAL DATA:
Total debt to shareholders' equity............................ 1.1x
</TABLE>
23
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA AND SUPPLEMENTAL DATA)
TRINET CORPORATE REALTY TRUST, INC.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ----------------------
<S> <C> <C> <C> <C>
HISTORICAL HISTORICAL
---------------------- ----------------------
<CAPTION>
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING DATA:
Interest income......................................................... $ 1,723 $ 459 $ 3,279 $ 580
Operating lease/rental income........................................... 39,287 36,689 78,573 71,955
Other income............................................................ 2,334 1,519 4,576 3,004
---------- ---------- ---------- ----------
Total revenue....................................................... 43,344 38,667 86,428 75,539
---------- ---------- ---------- ----------
Interest expense........................................................ 11,009 8,863 22,171 17,569
Depreciation and amortization........................................... 7,160 6,642 14,264 13,099
Property operating costs................................................ 2,208 1,671 4,034 2,931
General and administrative expenses..................................... 3,229 2,845 6,307 5,355
Special charge (2)...................................................... -- -- -- --
---------- ---------- ---------- ----------
Total expenses...................................................... 23,606 20,021 46,776 38,954
---------- ---------- ---------- ----------
Income before minority interest, gain/(loss) on sale of real estate,
extraordinary items and cumulative effect............................. 19,738 18,646 39,652 36,585
Minority interest (3)................................................... (40) (34) (81) (46)
Provision for assets held for sale...................................... -- -- -- --
Gain/(loss) on sale of real estate...................................... -- -- 1,153 1,115
Income before extraordinary items and cumulative effect................. 19,698 18,612 40,724 37,654
Extraordinary gain/(loss)............................................... -- (1,272) -- (1,272)
Cumulative effect of a change in accounting principle................... -- -- (1,810) --
---------- ---------- ---------- ----------
Net income.......................................................... $ 19,698 $ 17,340 $ 38,914 $ 36,382
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Preferred dividends..................................................... (3,920) (3,920) (7,839) (7,839)
---------- ---------- ---------- ----------
Net income allocable to common shareholders............................. $ 15,778 $ 13,420 $ 31,075 $ 28,543
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic earnings per share................................................ $ 0.63 $ 0.54 $ 1.25 $ 1.19
Diluted earnings per share.............................................. $ 0.63 $ 0.54 $ 1.23 $ 1.18
Dividends declared per common share..................................... $ 0.65 $ 0.64 $ 1.30 $ 1.28
SUPPLEMENTAL DATA:
Dividends declared on preferred shares.................................. $ 3,920 $ 3,920 $ 7,839 $ 7,839
Dividends declared on common shares..................................... $ 16,215 $ 15,912 $ 32,382 $ 31,381
Funds from operations allocable to common shareholders (5)(6)........... $ 23,645 $ 21,798 $ 47,401 $ 42,428
Cash flow from:
Operating activities.................................................. $ 19,751 $ 25,937 $ 46,711 $ 57,681
Investing activities.................................................. (4,409) (104,653) (7,104) (288,679)
Financing activities.................................................. (18,475) 69,443 (51,371) 236,402
Weighted average common shares outstanding--basic....................... 24,957 24,649 24,917 23,894
Weighted average common shares outstanding--diluted..................... 25,449 24,853 25,335 24,141
Ratio of EBITDA to interest expense..................................... 3.4x 3.7x 3.4x 3.8x
Ratio of EBITDA to fixed charges (7).................................... 2.5x 2.6x 2.5x 2.6x
Ratio of earnings to combined fixed charges and preferred stock
dividends (10)........................................................ 1.7x 1.8x 1.7x 2.0x
Ratio of earnings to fixed charges (10)................................. 2.1x 2.5x 2.1x 2.7x
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
AS OF JUNE
30, 1999
-------------
<S> <C>
BALANCE SHEET DATA:
Real estate investments, net......................................................................... $ 1,421,387
Total assets......................................................................................... 1,495,026
Debt obligations..................................................................................... 622,334
Minority interest in consolidating activities........................................................ 2,565
Shareholders' equity................................................................................. 808,028
SUPPLEMENTAL DATA:
Total debt to shareholders' equity................................................................... 0.8x
</TABLE>
24
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA AND SUPPLEMENTAL DATA)
TRINET CORPORATE REALTY TRUST, INC.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
HISTORICAL
-----------------------------------------------------
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income................................................. $ 3,176 $ 550 $ 620 $ 693 $ 385
Operating lease/rental income................................... 153,155 106,862 75,252 56,199 35,020
Other income.................................................... 6,484 1,880 1,196 -- 67
--------- --------- --------- --------- ---------
Total revenue............................................... 162,815 109,292 77,068 56,892 35,472
--------- --------- --------- --------- ---------
Interest expense................................................ 40,535 25,845 23,623 17,329 6,726
Depreciation and amortization................................... 28,035 19,781 13,503 14,162 9,472
Property operating costs........................................ 7,466 3,828 2,955 1,275 804
General and administrative expenses............................. 12,720 6,589 5,352 3,892 2,558
Special charge (2).............................................. 2,990 -- -- -- --
--------- --------- --------- --------- ---------
Total expenses.............................................. 91,746 56,043 45,433 36,658 19,560
--------- --------- --------- --------- ---------
Income before minority interest, gain/(loss) on sale of real
estate, extraordinary items and cumulative effect............. 71,069 53,249 31,635 20,234 15,912
Minority interest (3)........................................... (128) -- -- -- --
Provision for assets held for sale.............................. (5,662) -- (6,800) -- --
Gain/(loss) on sale of real estate.............................. (1,436) 985 6,807 -- --
Income before extraordinary items and cumulative effect......... 63,843 54,234 31,642 20,234 15,912
Extraordinary gain/(loss)....................................... (1,272) 98 987 (9,561) --
Cumulative effect of a change in accounting principle........... -- -- -- -- --
--------- --------- --------- --------- ---------
Net income.................................................. $ 62,571 $ 54,332 $ 32,629 $ 10,673 $ 15,912
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Preferred dividends............................................. (15,678) (9,522) (3,646) -- --
--------- --------- --------- --------- ---------
Net income allocable to common shareholders..................... $ 46,893 $ 44,810 $ 28,983 $ 10,673 $ 15,912
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic earnings per share........................................ $ 1.92 $ 2.31 $ 2.09 $ 0.95 $ 1.84
Diluted earnings per share...................................... $ 1.91 $ 2.28 $ 2.08 $ 0.95 $ 1.83
Dividends declared per common share............................. $ 2.57 $ 2.53 $ 2.49 $ 2.45 $ 2.38
SUPPLEMENTAL DATA:
Dividends declared on preferred shares.......................... $ 15,678 $ 9,522 $ 3,646 $ -- $ --
Dividends declared on common shares............................. $ 63,467 $ 52,024 $ 34,577 $ 28,422 $ 20,254
Funds from operations allocable to common shareholders (5)(6)... $ 87,940 $ 63,574 $ 41,551 $ 30,642 $ 22,380
Cash flow from:
Operating activities.......................................... $ 107,522 $ 71,272 $ 46,683 $ 38,788 $ 24,531
Investing activities.......................................... (336,995) (448,165) (162,700) (161,474) (156,352)
Financing activities.......................................... 248,493 372,212 111,625 122,751 138,063
Weighted average common shares outstanding--basic............... 24,387 19,435 13,864 11,219 8,647
Weighted average common shares outstanding--diluted............. 24,504 19,626 13,956 11,254 8,694
Ratio of EBITDA to interest expense............................. 3.2x 3.9x 3.0x 2.4x 4.8x
Ratio of EBITDA to fixed charges (7)............................ 2.3x 2.8x 2.6x 2.4x 4.8x
Ratio of earnings to combined fixed charges and preferred stock
dividends (10)................................................ 1.7x 2.2x 1.8x 2.0x 2.7x
Ratio of earnings to fixed charges (10)......................... 2.3x 3.1x 2.1x 2.0x 2.7x
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
AS OF DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate investments, net....................................... $1,428,839 $1,110,804 $ 667,969 $ 508,457 $ 357,670
Total assets....................................................... 1,526,567 1,155,904 708,238 559,727 401,241
Debt obligations................................................... 647,720 434,122 306,931 244,750 204,415
Minority interest in consolidating activities...................... 2,565 765 -- -- --
Shareholders' equity............................................... 803,460 675,223 366,048 289,340 186,687
SUPPLEMENTAL DATA:
Total debt to shareholders' equity................................. 0.8x 0.6x 0.8x 0.9x 1.1x
</TABLE>
25
<PAGE>
EXPLANATORY NOTES:
(1) Historical stock option expense represents the option value of approximately
2.5 million fully-vested options to acquire Class A shares which were issued
to Starwood Financial's external advisor upon consummation of the March 18,
1998 recapitalization of Starwood Financial. A portion of those options were
then regranted to employees of the advisor subject to vesting periods which
were typically three years from the date of grant. The remainder of those
options were regranted on a fully-vested basis to an affiliate of Starwood
Capital Group L.L.C., which then further regranted those options to certain
of its employees subject to vesting restriction.
(2) Represents a one-time charge by TriNet recognized in the third quarter of
1998 in connection with the expected reduction of its acquisition activity.
The costs associated with this charge relate to severance and related
compensation, office closures, and abandonment of certain acquisitions.
(3) Historical minority interest for Starwood Financial represents a minority
interest in APMT Limited Partnership which was converted into Class A shares
on March 18, 1998, the date the partnership was liquidated and terminated.
Pro forma minority interests and TriNet's historical minority interests
represent minority interests in certain of TriNet's consolidated ventures
which will remain outstanding upon consummation of the merger.
(4) Earnings per Class A share is calculated based on the weighted average
shares outstanding during each of the periods after deduction for dividends
on the outstanding preferred shares and the Class B shares' 1% interest.
(5) Management generally considers funds from operations, or FFO, to be one
measure of the financial performance which provides a relevant basis for
comparison among REITs. FFO is presented to assist investors in analyzing
the performance of REITs. In 1995, the National Association of Real Estate
Investment Trusts, or NAREIT, established new guidelines clarifying its
definition of FFO and requested that REITs adopt this new definition
beginning in 1996. FFO, as defined by NAREIT, is income (loss) before
minority interest (determined in accordance with generally accepted
accounting principles), excluding gains (losses) from debt restructuring and
sales of property, plus real estate-related depreciation and amortization
and after adjustments for unconsolidated partnerships and joint ventures.
The combined company's pro forma and TriNet's historical FFO allocable to
common shareholders for the year ended December 31, 1998 exclude the
approximately $3.0 million special charge recorded by TriNet (see TriNet's
Annual Report on Form 10-K for that year, which is incorporated by reference
into this joint proxy statement and prospectus). FFO does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash available to
fund cash needs. FFO should not be considered an alternative to net income
as an indication of financial performance nor an alternative to cash flows
from operating, investing, and financing activities as measures of
liquidity.
(6) Because of certain non-cash or non-recurring items included in income for
generally accepted accounting purposes, which are not adjusted for or
eliminated under the NAREIT definition of FFO, FFO may differ from actual
cash available for distribution to shareholders. These items include
amortization of premiums or discounts on loan investments, provisions for
possible credit losses, gains from sales of assets, deferred interest
arising from differences between loan accrual and payment rates, non-cash
rental revenues and capital expenditures. Accordingly, FFO is not
necessarily indicative of cash available to fund cash needs or to pay
dividends to shareholders.
(7) Fixed charges are comprised of interest expense and preferred stock dividend
requirements.
(8) As adjusted for one-for-six reverse stock split effected by Starwood
Financial on June 18, 1998.
(9) Starwood Financial generally declares common and preferred dividends in the
month subsequent to the end of the quarter.
(10) For the purposes of determining the ratios of: (1) earnings to combined
fixed charges and preferred stock dividends; and (2) earnings to fixed
charges, earnings consist of net income before loss/gain on sales of real
estate, provision for assets held for sale, and extraordinary items plus
interest expense. Fixed charges consist of interest expense, capitalized
interest and amortization of loan costs, and with respect to the ratio of
earnings to combined fixed charges and preferred stock dividends, preferred
stock dividend requirements.
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<PAGE>
COMPARATIVE MARKET AND PER SHARE DATA
We have summarized below the per share information for our respective
companies on an historical basis, combined pro forma basis and combined
equivalent pro forma basis. The combined pro forma summary amounts are based on
the purchase method of accounting. The TriNet per share combined pro forma
equivalents are calculated by multiplying the combined pro forma per share
amounts by 1.15. TriNet stockholders will receive 1.15 Starwood Financial common
shares in exchange for each TriNet common share. The following information
should be read together with the historical and pro forma financial statements
included or incorporated by reference in this joint proxy statement and
prospectus.
On June 15, 1999, the last trading day prior to the announcement of the
signing of the merger agreement, the closing price of a Starwood Financial Class
A share was $55.00. On the same day, the closing price of a share of TriNet
common stock was $29.3125. The equivalent per share value of a share of TriNet
common stock on that date, applying the exchange ratio per share, was $63.25.
The closing price of a Starwood Financial Class A share on [date close to the
effective date], 1999 was $[ ]. On the same day, the closing price of a
share of TriNet common stock was $[ ]. The equivalent per share value of a
TriNet share of common stock on that date, applying the exchange ratio per
share, was $[ ].
Between June 16, 1999 and [date], 1999, the daily closing price of Starwood
Financial's Class A shares has ranged between a high of $ on [date] and a
low of $ on [date close to the effective date], with an average daily
closing price of $ and an average daily trading volume of [ ],
representing approximately % of the approximately 630,000 Class A shares of
Starwood Financial subject to public trading on the American Stock Exchange as
of [date close to the effective date]. Substantially all of the remaining 51.8
million Class A shares are held by various Starwood Financial affiliates.
On June 10, 1998, due in part to the size of Starwood Financial's market
capitalization, including those shares held by Starwood Financial affiliates,
Starwood Financial was included by the Frank Russell Company in the Russell 1000
and Russell 3000 equity indices. This planned inclusion was announced on June
12, 1998. From the announcement date of its inclusion in the indices, Starwood
Financial believes that a large number of the Starwood Financial Class A shares
in the public float were purchased by index funds who were required to purchase
such shares to mirror the Russell indices' performance. As a result of those
purchases, and the limited availability of the shares in the public float, the
"market" price for the Class A shares dramatically increased. The stock price
increased from approximately $30.00 per share 10 trading days prior to its
inclusion in the indices (June 19, 1998) to $54.00 per share 10 trading days
after its inclusion (July 10, 1998). Since July 10, 1998, the reported stock
price has been highly volatile (at one point reaching over $80.00 per share),
and trading volume has been relatively low due to the very limited number of
shares available for trading.
27
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
---------------------- ----------------------
<S> <C> <C> <C> <C>
STARWOOD STARWOOD
FINANCIAL TRINET FINANCIAL TRINET
---------- ---------- ----------- ---------
Net income per share attributable to common shares:
Basic:
Historical......................................................... $ 0.90 $ 1.25 $ 1.40 $ 1.92
Combined Pro Forma................................................. $ 0.99 N/A $ 1.52 N/A
1.15 Starwood Financial-TriNet Pro Forma Equivalent................ N/A $ 1.14 N/A $ 1.75
Diluted:
Historical......................................................... $ 0.84 $ 1.23 $ 1.36 $ 1.91
Combined Pro Forma................................................. $ 0.94 N/A $ 1.46 N/A
1.15 Starwood Financial-TriNet Pro Forma Equivalent................ N/A $ 1.08 N/A $ 1.68
Distributions per common share:
Historical (1)..................................................... $ 0.85 $ 1.30 $ 1.14 $ 2.57
Book value per Class A/common share:
(at end of period):
Historical......................................................... $ 14.60 $ 24.95 $ 14.03 $ 24.97
Combined Pro Forma................................................. $ 17.14 N/A N/A N/A
1.15 Starwood Financial-TriNet Pro Forma Equivalent................ N/A 19.71 N/A N/A
</TABLE>
- ------------------------
(1) As discussed elsewhere in this joint proxy statement and prospectus,
beginning with the first full quarter following the merger, the combined
company currently expects to pay quarterly dividends at an annualized rate
of $2.40 per combined company share. For TriNet's shareholders, this
represents an annualized rate of $2.76 per TriNet share.
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<PAGE>
RISK FACTORS
RISK FACTORS RELATING TO THE MERGER
- THE EXPECTATION THAT THE MERGER WILL RESULT IN AN EFFICIENT INTEGRATION OF
THE COMPANIES MAY NOT BE REALIZED.
TriNet and Starwood Financial have entered into the merger agreement with
the expectation that the merger will create a combined company which will be
able to operate efficiently. Achieving this anticipated result will depend in
part on the efficient integration of the businesses of TriNet and Starwood
Financial. There can be no assurance that an efficient integration will occur.
- THE DIRECTORS AND OFFICERS OF TRINET MAY HAVE INTERESTS IN THE COMPLETION
OF THE MERGER THAT ARE DIFFERENT FROM THE INTEREST OF THE STOCKHOLDERS OF
TRINET AND OF THE COMBINED COMPANY. PERSONS AFFILIATED WITH STARWOOD
FINANCIAL AND ITS EXTERNAL ADVISOR MAY HAVE INTERESTS IN THE COMPLETION OF
THE TRANSACTIONS THAT ARE DIFFERENT FROM THE INTEREST OF THE SHAREHOLDERS
OF STARWOOD FINANCIAL AND OF THE COMBINED COMPANY.
The merger agreement provides that the current members of TriNet's Board of
Directors (Messrs. Willis Andersen, Jr., Robert W. Holman, Jr., John G.
McDonald, Stephen B. Oresman and George W. Puskar) will be members of the Board
of Directors of Starwood Financial after the closing of the merger. The
shareholder agreement restricts the principal shareholders of the combined
company from shortening the initial terms of office of those directors. Each of
those directors will also exchange his options to purchase the stock of TriNet
for options to purchase combined company common stock. Each of those directors
has also agreed not to exercise these options for a period of 12 months after
the effective time of the transactions. For more information regarding the terms
and provisions of the shareholder agreement, please read the sections of this
joint proxy statement and prospectus entitled "Certain Agreements Related to the
Merger--The Shareholder Agreement" and "--The Option Standstill Agreements."
During 1997, TriNet entered into agreements with several senior executives
which entitle them to receive substantial severance payments and other material
compensation upon involuntary or constructive termination of employment with
TriNet or its successor following a change of control of TriNet. At this time,
the following officers of TriNet are parties to change of control agreements:
Ms. Elisa DiTommaso (Senior Vice President and Chief Financial Officer), Ms. Jo
Ann Chitty (Senior Vice President), Mr. James Ida (Senior Vice President) and
Mr. Geoffrey Dugan (Vice President and General Counsel). These officers and
other employees of TriNet are also entitled to accelerated vesting of all
options to purchase shares of TriNet common stock and dividend equivalent rights
upon a change of control of TriNet. The merger will be a change of control under
these agreements. For further information regarding the change of control
arrangements and TriNet officer compensation under the merger agreement, please
refer to the section of this joint proxy statement and prospectus entitled "The
Merger Agreement--Interests of Certain Parties in the Merger--TriNet
Affiliates."
Mr. A. William Stein (former President and Chief Operating Officer of
TriNet) was also a party to a change of control agreement with TriNet which he
entered into in 1998 and which was later amended. In connection with Mr. Stein's
resignation as of August 1, 1999 from his employment with TriNet, Mr. Stein
entered into a consulting and separation agreement which extinguished Mr.
Stein's change of control agreement, as amended. The consulting and separation
agreement provides for the payment to Mr. Stein of compensation in the event of
certain change of control transactions involving TriNet, including the merger.
This compensation is substantially identical to what Mr. Stein would have
received under his pre-existing change of control agreement in the event of his
termination upon a change of control of TriNet. For more information regarding
this compensation, please read the section of this joint proxy statement and
prospectus entitled "The Merger Agreement--Interests of Certain Parties in the
Merger--TriNet Affiliates."
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<PAGE>
The merger agreement also provides that some of the current officers of
TriNet will become officers of Starwood Financial after the merger. For more
information regarding the future roles of the current officers of TriNet, please
refer to the section of this joint proxy statement and prospectus entitled
"Management of the Combined Company--Directors and Executive Officers of the
Combined Company."
Messrs. Barry S. Sternlicht, Jay Sugarman, Spencer B. Haber, Jeffrey G.
Dishner, Jonathan D. Eilian and Merrick R. Kleeman, each of whom is a trustee or
executive officer of Starwood Financial, own shares of stock in the parent
company of Starwood Financial's external advisor. They will receive a total of
3,507,638 shares of common stock in the combined company in the advisor
transaction in exchange for their interests in the parent company of the
advisor. Each of Messrs. Sternlicht, Sugarman, Haber, Dishner, Eilian and
Kleeman has agreed that he will not sell any of the shares of common stock of
the combined company which he receives in the advisor transaction for a period
of 12 months after the effective time of the advisor transaction. For more
information concerning the lock-up agreements entered into by the shareholders
of the advisor, please read the section of this joint proxy statement and
prospectus entitled "Certain Agreements Related to the Merger--The Starwood
Financial Affiliate Lock-Up Agreements." In addition, Mr. Sternlicht, chairman
of the Starwood Financial Board, is also Chairman of the advisor and Mr.
Sugarman, Chief Executive Officer, President and a Trustee of Starwood
Financial, is also Chief Executive Officer and President of the advisor.
Pursuant to the pre-existing employment arrangement between Mr. Spencer B.
Haber, Starwood Financial's Chief Financial Officer, and Starwood Financial, a
portion of Mr. Haber's options to purchase Class A shares of Starwood Financial
will vest and become exercisable upon completion of the merger. See "The
Merger--Interests of Certain Parties in the Merger--Starwood Financial."
- THE OWNERSHIP OF THE COMMON SHARES OF THE COMBINED COMPANY WILL BE
CONCENTRATED.
After the merger, SOFI-IV SMT and Starwood Mezzanine will hold approximately
48.3% and 12.6%, respectively, of the outstanding shares of common stock of the
combined company. Starwood Capital Group, L.L.C. controls the general partner of
Starwood Opportunity Fund IV, L.P., which in turn is the sole member and general
manager of SOFI-IV SMT. In addition, entities which Starwood Capital Group,
L.L.C. may be deemed to control serve as the co-general partners of Starwood
Mezzanine. See "Principle Shareholders of Starwood Financial." As a result of
their ownership interests in Starwood Financial, SOFI-IV SMT and Starwood
Mezzanine will have the power to elect all of the members of the Board of
Directors (subject to the terms of the shareholder agreement) of the combined
company. Furthermore, since Maryland law requires the affirmative vote of two
thirds of the outstanding shares of common stock of the combined company in
order to approve a change of control, reorganization, sale of all or
substantially all of the assets of the combined company, dissolution or other
business combination transaction, those transactions will not occur without the
approval of SOFI-IV SMT.
- THE FIXED EXCHANGE RATIO WILL NOT REFLECT CHANGES IN THE RELATIVE VALUE OF
EACH OF THE TWO COMPANIES AFTER THE DATE THE MERGER AGREEMENT WAS SIGNED,
AND THE FAIRNESS OPINIONS OBTAINED BY STARWOOD FINANCIAL AND TRINET WILL
NOT BE UPDATED TO REFLECT THE CHANGES IN RELATIVE VALUE.
The fixed exchange ratio is not subject to adjustment after the date the
merger agreement was signed. Therefore, the exchange ratio will not reflect
changes in the relative value of each of the two companies after that date. The
relative value of each company may change because of the financial or other
results of each company, changes in the economic sector in which one company
operates but not the other, changes in economic conditions and other factors
that might affect the business, condition and prospects of Starwood Financial
and TriNet.
Furthermore, TriNet does not intend to obtain an updated fairness opinion
from Greenhill, and Starwood Financial does not intend to obtain an updated
fairness opinion from Bear Stearns or
30
<PAGE>
Houlihan Lokey. Changes in the operations and prospects of TriNet, Starwood
Financial or Starwood Financial's external advisor, general market and economic
conditions and other factors which are beyond the control of TriNet or Starwood
Financial, on which the opinions of Greenhill, Bear Stearns and Houlihan Lokey
are based, may have altered the relative value of the companies after the date
of the original fairness opinions.
RISK FACTORS RELATING TO THE BUSINESS OF THE COMBINED COMPANY
- THE CREDIT TENANT LEASE BUSINESS IS SUBJECT TO A NUMBER OF RISKS THAT ARE
SPECIFIC TO THAT AREA OF BUSINESS.
The combined company's credit tenant lease business is subject to the
following risks:
1. Lease expirations may result in reduced revenues if prevailing market
rents at the time of such expirations are less than the contractual rents
under the expiring leases. In addition, if tenants under expiring leases
elect not to renew their leases, the combined company could experience
long vacancy periods and incur substantial capital expenditures in order
to obtain replacement tenants. The percentage of pro forma lease revenues
for the year ended December 31, 1998 (calculated as if the transactions
had occurred on January 1, 1998) represented by assets held by TriNet and
Starwood Financial as of June 30, 1999 that are subject to expiring
leases during each year from 2000 through 2004 are as follows:
<TABLE>
<S> <C>
2000 3.9%
2001 11.5%
2002 11.3%
2003 9.3%
2004 13.7%
</TABLE>
2. Lease defaults by one or more significant tenants or lease terminations
by tenants following events of casualty or takings by eminent domain
could result in long vacancy periods and require the combined company to
incur substantial capital expenditures in order to obtain replacement
tenants. In addition, there can be no assurance that the rents received
from replacement tenants will be equal to the rents received from the
defaulting or terminating tenants. As of June 30, 1999, 22.0% of the
combined company's annualized operating lease revenues, pro forma for the
transactions, were derived from its five largest tenants.
3. Illiquidity of ownership interests in real property.
4. Risks associated with joint ventures, such as lack of full management
control over venture activities and risk of non-performance by venture
partners.
5. Possible need for significant tenant improvements, including conversions
of single tenant buildings to multi-tenant buildings.
6. Competition from newer, more updated buildings.
Factors 1, 2, 5 and 6 would likely have negative impacts on the combined
company's net income. Factors 3, 4 and 5 may decrease the flexibility of the
combined company to vary its portfolio and investment strategy promptly to
respond to changes in market conditions.
- THE REAL ESTATE FINANCE BUSINESS OF THE COMBINED COMPANY IS SUBJECT TO A
NUMBER OF RISKS THAT ARE SPECIFIC TO THAT AREA OF BUSINESS.
The real estate finance business of the combined company is subject to risks
including the following:
1. Costs and delays associated with the foreclosure process.
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<PAGE>
2. Borrower bankruptcies.
3. Borrower defaults on debt senior to the combined company's loans, if
any.
4. Possible unenforceability of loan terms, such as prepayment provisions.
5. Acts or omissions by owners or managers of the underlying real estate.
6. Where debt senior to the combined company's loans exists, the presence
of intercreditor arrangements limiting the combined company's ability to
amend its loan documents, assign its loans, accept prepayments, exercise
its remedies (through "standstill" periods) and control decisions made in
bankruptcy proceedings relating to borrowers.
7. Lack of control over the underlying asset prior to a default.
8. Defaults by borrowers on non-recourse loans where underlying property
values fall below the loan amount.
The risks described above could impact the combined company's ability to
realize on its collateral or collect expected amounts on account of its
portfolio. Where applicable, these risks could also require the combined company
to expend funds in order to protect its position as a subordinated lender. For
example, the combined company may determine that it is in its interests to
expend funds to keep a more senior lender current on its obligations or to
purchase a senior lender's position. Unanticipated costs may also be incurred by
the combined company after a foreclosure. Bankruptcy and borrower litigation can
significantly increase the time needed for the combined company to acquire
underlying collateral in the event of a default, during which time the
collateral may decline in value.
- THERE ARE RISKS ASSOCIATED WITH THE USE OF LEVERAGE WHICH MAY AFFECT THE
COMBINED COMPANY'S PROFITABILITY.
Both Starwood Financial's and TriNet's success has been derived in part from
their ability to grow portfolios of invested assets through the use of leverage.
The parties expect the combined company to use leverage to a greater degree than
TriNet has on a historical basis, except within the combined company's rated
subsidiary, in which it currently expects leverage will not generally exceed
TriNet's historical levels. The parties currently expect the combined company to
fund its continued growth through both secured and unsecured borrowings. The
combined company's ability to obtain the leverage necessary for the execution of
its business plan will ultimately depend upon its ability to maintain credit
ratios meeting market underwriting standards which will vary according to
lenders' assessments of the combined company's creditworthiness and the terms of
the borrowings. To the extent that changes in market conditions cause the cost
of such financing to increase relative to the income that can be derived from
the assets acquired, the combined company may reduce the amount of its leverage.
Leverage creates an opportunity for increased net income, but at the same
time creates risks. For example, leveraging will magnify changes in the combined
company's net worth. The combined company will use leverage only when there is
an expectation that it will enhance returns, although there can be no assurance
that the use of leverage will prove to be beneficial. Moreover, there can be no
assurance that the combined company will be able to meet its debt service
obligations and, to the extent that it cannot, the combined company risks the
loss of some or all of its assets or a financial loss if it is required to
liquidate assets at a commercially inopportune time.
Starwood Financial and TriNet and their subsidiaries are parties to
agreements and debt instruments which restrict future indebtedness and the
payment of dividends, including indirect restrictions (through, for example,
covenants requiring the maintenance of specified levels of net worth and
earnings to debt service ratios) and direct restrictions. As a result, in the
event of a deterioration in the combined company's financial condition, these
agreements or debt instruments could restrict the
32
<PAGE>
ability of the combined company to pay dividends. Moreover, any failure of the
combined company to pay dividends as required by the Internal Revenue Code,
whether as a result of restrictive covenants in its debt instruments or
otherwise, may result in the loss of its status as a REIT. For more information
regarding the consequences of loss of REIT status, please read the risk factor
entitled "The failure of the combined company to qualify as a REIT could
adversely affect shareholders."
TriNet is party to a credit agreement with several institutional lenders.
Unless TriNet obtains consent of these lenders (or replaces existing commitments
from non-consenting lenders with new commitments from other lenders or with
increased commitments from existing lenders), the combined company will have to
repay all outstanding amounts under those credit agreements. This could result
in an increased cost of capital to the combined company due to increased costs
of replacement financing or result in the imposition of additional covenants.
- THE COMBINED COMPANY FACES A RISK OF LIABILITY UNDER ENVIRONMENTAL LAWS
THAT STARWOOD FINANCIAL PREVIOUSLY DID NOT FACE BECAUSE THE TRINET
SUBSIDIARY, AN OWNER OF REAL PROPERTY, WILL BE MORE DIRECTLY EXPOSED TO
POTENTIAL LIABILITY UNDER ENVIRONMENTAL LAWS THAN WAS STARWOOD FINANCIAL
TRUST FOR MOST OF ITS ASSETS (WITH RESPECT TO WHICH IT GENERALLY ACTS AS A
SECURED LENDER).
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner of real estate (including, in certain
circumstances, a secured lender that succeeds to ownership or control of a
property) may become liable for the costs of removal or remediation of certain
hazardous or toxic substances at, on, under or in its property. Those laws
typically impose cleanup responsibility and liability without regard to whether
the owner or control party knew of or was responsible for the release or
presence of such hazardous or toxic substances. The costs of investigation,
remediation or removal of those substances may be substantial. The owner or
control party of a site may be subject to common law claims by third parties
based on damages and costs resulting from environmental contamination emanating
from a site. Certain environmental laws also impose liability in connection with
the handling of or exposure to asbestos-containing materials, pursuant to which
third parties may seek recovery from owners of real properties for personal
injuries associated with asbestos-containing materials. Absent succeeding to
ownership or control of real property, a secured lender is not likely to be
subject to any of these forms of environmental liability.
GENERAL RISK FACTORS
- THE FAILURE OF THE COMBINED COMPANY TO QUALIFY AS A REIT COULD ADVERSELY
AFFECT STOCKHOLDERS.
TriNet elected to be taxed as a REIT under the Internal Revenue Code
commencing with its taxable year ended December 31, 1993, and Starwood Financial
will make an election to be taxed as a REIT commencing with its taxable year
beginning January 1, 1998. Qualification as a real estate investment trust
involves the application of highly technical and complex provisions of the
Internal Revenue Code for which there are only limited judicial or
administrative interpretations. The determination of various factual matters and
circumstances not entirely within the control of the combined company may affect
its ability to continue to qualify as a real estate investment trust. Moreover,
no assurance can be given that legislation, new regulations, administrative
interpretations or court decisions will not change the tax laws with respect to
qualification as a real estate investment trust or the federal income tax
consequences of such qualification.
Rogers & Wells LLP, special tax counsel to Starwood Financial, will deliver
an opinion in connection with the merger to the effect that, based on various
assumptions relating to the operations of the combined company, representations
made by Starwood Financial and TriNet as to factual matters and legal opinions
with respect to the qualification of Starwood Financial and TriNet as real
estate investment trusts through the effective time of the merger, the combined
company will be able to meet the requirements for qualification and taxation as
a real estate investment trust under the Internal
33
<PAGE>
Revenue Code following the effective time of the merger. This legal opinion is
not binding on the Internal Revenue Service. See "Material Federal Income Tax
Considerations--Certain Federal Income Tax Considerations Relating to the
Combined Company."
If the combined company fails to qualify as a real estate investment trust
in any taxable year, it will not be allowed a deduction for distributions to
shareholders in computing its taxable income and will be subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income at the applicable corporate rate. In addition, unless it is entitled to
relief under statutory provisions, it would be disqualified from treatment as a
real estate investment trust for the four taxable years following the year
during which qualification is lost. This disqualification would reduce funds
available for investment or distribution to shareholders because of the
additional tax liability for the year or years involved.
If the combined company were to fail to qualify as a real estate investment
trust, it no longer would be subject to the REIT distribution requirements of
the Internal Revenue Code. To the extent that distributions to shareholders
would have been made in anticipation of qualifying as a real estate investment
trust, the combined company might be required to borrow funds or to liquidate
assets to pay the applicable corporate income tax.
- THE SALE OF SHARES UNDERLYING OUTSTANDING WARRANTS AND OPTIONS TO PURCHASE
THE COMMON EQUITY OF THE TWO COMPANIES AND SHARES UNDERLYING OTHER
SECURITIES CONVERTIBLE INTO OR EXCHANGEABLE FOR COMMON EQUITY OF THE TWO
COMPANIES MAY HAVE A NEGATIVE EFFECT ON THE PRICE OF THE COMBINED
COMPANY'S COMMON STOCK. THE SALE OF COMBINED COMPANY COMMON STOCK RELEASED
FROM LOCK-UP AGREEMENTS MAY ALSO CAUSE THE MARKET PRICE OF THE COMBINED
COMPANY COMMON STOCK TO DECREASE.
There are currently outstanding, warrants and options to purchase, as well
as other securities convertible into or exchangeable for, Starwood Financial and
TriNet common equity, collectively accounting for approximately 11.5% of the
outstanding combined company common stock after the transactions (assuming the
full conversion and exercise of all those warrants, options and other
securities). The exercise and conversion of the outstanding warrants, options
and other securities and the sale of the underlying shares of combined company
common stock may have a negative effect on the market price of combined company
common stock. The principal shareholders of Starwood Financial and the former
owners of interests in its advisor together will hold (immediately after the
completion of the merger and the advisor transaction) approximately 67% of the
common stock of the combined company (before conversion or exercise of
outstanding securities that are convertible into or exercisable for common stock
of the combined company). Although those shares will be subject to lock-up
agreements, those lock-up agreements contain exceptions and have limited terms.
Starwood Financial has agreed to file a shelf registration statement to permit
sales of shares issued in the advisor transaction after the expiration of the
applicable lock-up period. The sale of the shares locked-up by the lock-up
agreements may cause the market price of combined company common stock to
decrease. For more information regarding the lock-up and registration rights
agreements, please read the section of this joint proxy statement and prospectus
entitled "Certain Agreements Related to the Merger--The Starwood Affiliate
Lock-Up Agreements" and "--The Registration Rights Agreement."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In this joint proxy statement and prospectus we make "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Exchange Act of 1934, which are usually identified by the use
of words such as "will," "anticipates," "believes," "estimates," "expects,"
"projects," "plans," "intends," "should" or similar expressions. Starwood
Financial, TriNet and the combined company intend those forward-looking
statements to be covered by the safe harbor
34
<PAGE>
provisions for forward-looking statements contained in the Private Securities
Reform Act of 1995 and are including this statement for purposes of complying
with these safe harbor provisions.
These forward-looking statements reflect our current views about the
combined company's plans, strategies and prospects, which are based on the
information currently available to us and on assumptions we have made.
Although we believe that our plans, intentions and expectations as reflected
in or suggested by those forward-looking statements are reasonable, we can give
no assurance that the plans, intentions or expectations will be achieved. We
have listed below and have discussed elsewhere in this joint proxy statement and
prospectus some important risks, uncertainties and contingencies which could
cause the combined company's actual results, performances or achievements to be
materially different from the forward-looking statements we make in this joint
proxy statement and prospectus. These risks, uncertainties and contingencies
include, but are not limited to, the following:
- The success or failure of our efforts to implement our current business
strategy.
- Economic conditions generally and in the commercial real estate and
finance markets specifically.
- The performance and financial condition of borrowers and tenants.
- The actions of our competitors and our ability to respond to those
actions.
- The cost of the combined company's capital, which depends in part on the
combined company's portfolio quality, ratings, prospects and outlook and
general market conditions.
- Changes in governmental regulations, tax rates and similar matters.
- Legislative and regulatory changes (including changes to laws governing
the taxation of REITs and other policies and guidelines applicable to
REITs).
- Availability of capital, interest rates, competition, supply and demand
for real estate in the markets.
- Other factors discussed under the heading "Risk Factors" and elsewhere in
this joint proxy statement and prospectus.
We assume no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. In
evaluating forward-looking statements, you should consider these risks and
uncertainties, together with the other risks described from time to time in
Starwood Financial's and TriNet's reports and documents filed with the SEC, and
you should not place undue reliance on those statements.
35
<PAGE>
THE COMPANIES
THE COMBINED COMPANY
The combined company will be the largest publicly-traded finance company in
the United States focused exclusively on commercial real estate. The combined
company will have a nationwide platform for providing real estate borrowers and
corporate customers with innovative, custom-tailored solutions to their
structured financing needs. The merger combines Starwood Financial's structured
finance orientation and track record of growth in earnings and assets with
TriNet's portfolio of credit tenant leases and its credit tenant lease
origination and asset management capabilities.
INVESTMENT STRATEGY. Management of the combined company expects to continue
to implement an investment strategy targeting specific sectors of the real
estate credit markets in which it believes it has a competitive advantage,
thereby creating pricing power and maximizing risk-adjusted returns. Management
intends to expand the focus of the TriNet subsidiary's credit tenant lease
business to complement Starwood Financial's overall investment philosophy
through innovative lease structures, efficient use of leverage, state-of-the-art
credit enhancement instruments, better risk allocation, and by focusing on
market inefficiencies in the credit lease market such as the conversion of
leases from short-term to long-term and from non-bondable to bondable.
Management is considering the disposition during the approximately 12 months
after the closing of the merger of approximately $200 million of TriNet's
non-core properties which generally have short-term lease rollover risk or other
characteristics inconsistent with the combined company's structured finance
focus. The combined company will have a geographically and economically diverse
portfolio of assets.
The combined company intends to implement its investment strategy by:
- Focusing on the proprietary origination of mortgage, mezzanine and lease
financing by developing direct relationships with borrowers and corporate
tenants and avoiding commodity businesses in which there is significant
direct competition from other providers of capital.
- Adding value beyond simply providing capital by offering borrowers and
tenants flexibility, speed, certainty, continuing relationships and
expertise.
- Taking advantage of market anomalies in the real estate financing markets
when the combined company believes credit is being mispriced by other
providers of capital.
- Arbitraging spreads between lease yields and the yields on its tenants'
underlying corporate credit obligations.
The management team's goal will be to expand the focus of the TriNet
subsidiary's credit tenant lease business by:
- Taking advantage of the fact that corporate credits are often undervalued
in the real estate market relative to the corporate tenant's credit risk.
- Capturing the best risk-adjusted return in the capital structure by
providing senior debt, junior debt or equity financing, as appropriate.
- Capitalizing on TriNet's corporate relationships in the credit tenant
lease market to develop new business opportunities.
- Using state-of-the-art insurance instruments for credit enhancing leases
to reduce risk and improve investment returns.
- Emphasizing investment in long-term leases to major corporate users of
general-purpose, but essential, facilities.
- Developing innovative lease structures to differentiate the combined
company from other lessors.
36
<PAGE>
The combined company intends to continue to emphasize a mix of portfolio
financing transactions to create built-in diversification and single-asset
financings for properties with strong, long-term positioning. The combined
company's credit process will continue to focus on:
- Building diversification by geography, asset type, property type, obligor
and loan maturity.
- Financing high-quality real estate in major metropolitan markets.
- Underwriting assets using conservative assumptions regarding collateral
value and future property performance.
- Requiring adequate cash flow coverage on its investments.
- Stress testing potential investments for adverse business conditions.
ENHANCED DIVERSIFICATION BY PROPERTY TYPE AND GEOGRAPHY
(PRO FORMA AT JUNE 30, 1999)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
APARTMENT /
RESIDENTIAL 4%
<S> <C>
Resort / Entertainment 4%
Homebuilder / Land 3%
Retail 8%
Mixed Use 6%
Hotel 10%
Office 48%
Industrial 8%
R & D 6%
Other 3%
Southeast 12%
Mid-Atlantic 9%
Northeast 15%
North Central 1%
Central 6%
South 14%
West 39%
Northwest 4%
</TABLE>
[LOGO]
37
<PAGE>
FINANCING STRATEGY. To finance its investment and growth strategy, the
combined company also expects to have access to a wide range of debt and equity
capital resources. The combined company will have approximately $1.9 billion of
permanent book equity capital and a total market capitalization in excess of
$4.0 billion. The combined company believes that its size, diversification,
sponsorship and track record will decrease its cost of capital, creating a
competitive advantage in its financing businesses.
The combined company expects to maximize return on equity and financial
flexibility by opportunistically accessing a variety of public and private debt
and equity capital sources, including:
- A match-funded, securitized debt program now under development.
- A combined $1.5 billion available under its credit facilities (both
secured and unsecured).
- Public and private common and preferred equity.
The combined company's business model will be premised on significantly
lower leverage than other finance companies. In this regard, the combined
company will seek to:
- Target a maximum debt/book equity ratio of 1.5x to 2.0x at the parent
level.
- Maintain a minimum equity base of $1.5 to $2.0 billion, which is
comparable to or larger than that of comparable commercial finance
companies.
- Retain appropriate credit statistics to warrant investment-grade credit
ratings for the subsidiary into which TriNet will merge.
- Match fund assets and liabilities.
STOCK REPURCHASE PROGRAM. The combined company intends to implement a stock
repurchase program upon closing of the merger. The combined company will be
authorized to repurchase up to 5.0 million shares of its common stock from time
to time, primarily using proceeds from the disposition of assets and excess cash
flow from operations, but also using borrowings under its credit facilities if
the combined company determines that it is advantageous to do so.
SENIOR MANAGEMENT TEAM. The combined company will have a dynamic,
experienced and fully-integrated management team drawn from the current
management of Starwood Financial and TriNet, bringing together professionals
with in-house expertise in origination and acquisition of new investments,
capital markets transactions, mergers and acquisitions, asset management and
loan servicing. As a result, the combined company's management depth and
expertise are consistent with its role as a market leader in each of its core
financing businesses.
MERGER INTEGRATION. The managements and Boards of each of Starwood
Financial and TriNet are committed to a smooth integration process, utilizing a
"best practices" approach to adopting the most successful attributes and
policies of both organizations. The companies have formed an integration task
force headed by senior executive officers of both companies to lead the process.
The companies have also retained a third-party management consulting firm with
integration experience to facilitate the process. The companies expect that the
integration process will entail the relocation of some key executives.
STARWOOD FINANCIAL
Starwood Financial is a leading structured finance company that delivers
financial solutions to the real estate industry by implementing a creative,
value-added and entrepreneurial approach to providing investment capital.
Starwood Financial primarily focuses on providing custom-tailored mortgage,
mezzanine and lease financing through the origination and acquisition of loans
on commercial properties to create superior risk-adjusted returns for its
shareholders. Starwood Financial seeks to take advantage of its underwriting and
risk management experience in the real estate industry to capture
38
<PAGE>
strategic growth opportunities, create a proprietary origination pipeline and
capitalize on developing trends in the real estate industry.
The Starwood organization started Starwood Financial's business in 1993
through private investment funds formed to capitalize on inefficiencies in the
real estate finance market. The investors in these funds include a number of
large corporate and state pension funds as well as a number of leading high net
worth families. Starwood's private business grew to approximately $1.1 billion
in assets and, in March 1998, Starwood contributed this business to a
publicly-traded entity now known as Starwood Financial Trust. Approximately 99%
of Starwood Financial's shares are owned by Starwood's original private
investment funds and other affiliates. Since 1993, Starwood Financial and its
private investment fund predecessors have originated or acquired approximately
60 financing transactions with a total commitment value of over $2.7 billion.
Since March 1998, Starwood Financial has completed over $1.5 billion in new
financing commitments and approximately doubled its asset base. In September
1998, Starwood Financial acquired the loan origination and servicing business of
Phoenix Realty Services, Inc., a subsidiary of Phoenix Home Life Insurance
Company. In December 1998, Starwood Financial acquired its largest private
competitor's mortgage and mezzanine loan portfolio for approximately $280
million and concurrently raised $220 million of perpetual preferred equity. At
June 30, 1999, the book value of Starwood Financial's assets was approximately
$2.2 billion. In the six quarters since its first quarter as a public company
(the pro forma quarter ended March 31, 1998), Starwood Financial has grown basic
earnings per share and dividends per share by 67.5% and 22.9%, respectively.
Starwood Financial's primary product lines include:
- STRUCTURED FINANCE. Starwood Financial provides custom-tailored senior and
subordinated loans from $20 million to $100 million to borrowers
controlling institutional quality real estate. These loans may be either
fixed or floating rate and are structured to meet the specific financing
needs of the borrowers, including financing related to the acquisition,
refinancing, repositioning or construction of large, high-quality real
estate. Starwood Financial offers borrowers a wide range of structured
finance options, including first mortgages, second mortgages, partnership
secured loans, participating debt and interim/bridge facilities.
- PORTFOLIO FINANCE. Starwood Financial provides funding to regional and
national borrowers who own multiple properties in a geographically diverse
portfolio. Loans are cross-collateralized to give borrowers the benefit of
all available collateral and underwritten to recognize inherent
diversification. Property types include multifamily, suburban office,
all-suite, extended stay and limited service hotels and other property
types where individual property values are less than $20 million on
average. Loan terms are structured to meet the specific requirements of
the borrower and range in size from $25 million to $150 million.
- CORPORATE LENDING. Starwood Financial provides senior and subordinated
debt capital to corporations engaged in real estate or real estate-related
businesses. Loans may be either secured or unsecured and range in size
from $20 million to $100 million. Corporate loans may be either cash
flow-oriented or asset-based.
- LOAN ACQUISITION. Starwood Financial acquires whole loans and loan
participations which may be performing, non-performing or sub-performing
and which Starwood Financial believes represent attractive risk-reward
opportunities. Loans are generally acquired at a discount to the principal
balance outstanding and may be acquired with financing provided by the
seller. Starwood Financial restructures many of these loans to performing
status on terms favorable to Starwood Financial. In other cases, Starwood
Financial negotiates a payoff at a price above Starwood Financial's basis
in the loan. Loan acquisitions range from $5 million to $100 million and
are collateralized by all major property types.
39
<PAGE>
- CREDIT TENANT LEASING. Starwood Financial provides capital to owners and
borrowers who control properties leased to single creditworthy tenants.
Properties are generally subject to long-term leases to rated corporate
credit tenants, and typically provide for all expenses at the property to
be paid by the tenant on a triple net lease basis. Credit tenant
transactions range in size from $20 million to $200 million.
- SERVICING. Through its Starwood Asset Services division, Starwood
Financial provides loan servicing to third-party institutional owners of
loan portfolios, as well as to Starwood Financial's own portfolio.
Starwood Financial's servicing business focuses on maximizing
risk-adjusted investment returns through active, ongoing asset management
with particular focus on risk management, asset financing strategy and
opportunistic responsiveness to changing borrower/ tenant needs.
Starwood Financial does not have any prescribed allocation among investments
or product lines. Instead, Starwood Financial focuses on real estate credit
underwriting to develop an in-depth analysis of the risk/reward ratios in
determining the pricing and advisability of each particular transaction.
Starwood Financial considers a number of factors in evaluating an investment,
including the following:
- An analysis of the complexity of the transaction.
- The degree and type of risks presented (including property type and
geographic concentration considerations).
- The quality of the real estate and equity sponsorship (both as to
creditworthiness and reputation).
- The quality and liquidity of the collateral.
- An analysis of how the investment's risk and return compares to
alternative investment opportunities within and outside of the commercial
real estate sector.
Certain summary information concerning Starwood Financial's portfolio at
June 30, 1999 is set forth below.
STARWOOD FINANCIAL ASSETS BY PRODUCT LINE
<TABLE>
<CAPTION>
PERCENT OF TOTAL
PRODUCT LINE PORTFOLIO
- ------------------------------------------------------------------------------ -------------------
<S> <C>
Structured Finance............................................................ 41%
Portfolio Finance............................................................. 21
Loan Acquisition.............................................................. 19
Credit Tenant Leasing......................................................... 12
Corporate Lending............................................................. 7
Servicing..................................................................... --
---
Total..................................................................... 100%
---
---
</TABLE>
STARWOOD FINANCIAL ASSETS BY SECURITY TYPE
<TABLE>
<CAPTION>
PERCENT OF TOTAL
SECURITY TYPE PORTFOLIO
- ------------------------------------------------------------------------------ -------------------
<S> <C>
Senior Mortgages.............................................................. 47%
Subordinated Mortgages........................................................ 25
Partnership Loans/Other....................................................... 19
Operating Leases.............................................................. 9
---
Total....................................................................... 100%
---
---
</TABLE>
40
<PAGE>
STARWOOD FINANCIAL ASSETS BY COLLATERAL TYPE
<TABLE>
<CAPTION>
PERCENT OF TOTAL
COLLATERAL TYPE PORTFOLIO
- ------------------------------------------------------------------------------ -------------------
<S> <C>
Office Properties............................................................. 34%
Hotel Properties.............................................................. 19
Retail Properties............................................................. 14
Mixed Use Properties.......................................................... 11
Retail/Entertainment Properties............................................... 8
Apartment/Residential Properties.............................................. 7
Homebuilder/Land.............................................................. 7
---
Total....................................................................... 100%
---
---
</TABLE>
STARWOOD FINANCIAL ASSETS BY GEOGRAPHIC REGION (U.S.)
<TABLE>
<CAPTION>
PERCENT OF TOTAL
REGION PORTFOLIO
- ------------------------------------------------------------------------------ -------------------
<S> <C>
West.......................................................................... 38%
Northeast..................................................................... 16
South......................................................................... 12
Mid-Atlantic.................................................................. 10
Southeast..................................................................... 10
Northwest..................................................................... 7
Central/North Central......................................................... 7
---
Total....................................................................... 100%
---
---
</TABLE>
Starwood Financial has been externally-advised since March 1998, but
following the advisor transaction, Starwood Financial will become internally
advised and managed. As a result, all fees currently paid to its external
advisor will be eliminated and the combined company will be responsible for the
salaries and other overhead necessary to provide the services that the advisor
currently provides to Starwood Financial. For more information regarding the
advisor transaction, you should refer to the sections of this joint proxy
statement and prospectus entitled "The Advisor Transaction" and "The Advisor
Transaction Agreement."
Starwood Financial will make an election to be taxed as a REIT for its tax
year beginning January 1, 1998.
For more information on Starwood Financial, please refer to Starwood
Financial's Annual Report on Form 10-K for the fiscal year ended December 31,
1998 and Starwood Financial's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999, each of which accompanies this joint proxy statement and
prospectus.
TRINET
TriNet is the largest publicly-traded company specializing in the net
leasing of corporate office and warehouse distribution facilities. TriNet
provides investment capital to major corporations and real estate owners
nationwide by structuring purchase/leaseback transactions and acquiring
properties subject to existing long-term leases to creditworthy office and
industrial tenants. TriNet uses its real estate and credit underwriting
expertise to structure transactions that seek to generate consistent,
predictable cash flow growth, income growth and substantial residual value. As
of June 30, 1999, TriNet's portfolio consisted of 145 office and industrial
properties principally subject to net leases to more than 175 tenants,
comprising 19.5 million square feet in 25 states.
TriNet, whose private predecessor company was founded in 1985, completed its
initial public offering on June 3, 1993, and is incorporated under the laws of
the state of Maryland. TriNet elected to
41
<PAGE>
be taxed as a REIT under the Internal Revenue Code commencing with its taxable
year ended December 31, 1993.
BUSINESS OBJECTIVE. TriNet's business objective is to maximize the total
return to stockholders through growth in earnings and dividends from originating
credit tenant lease transactions and actively managing its existing portfolio of
investments.
TriNet pursues the origination of credit tenant lease transactions in two
ways--by structuring purchase/leasebacks and by acquiring properties subject to
existing long-term net leases. In a typical purchase/leaseback transaction,
TriNet purchases a corporation's property and leases it back to that same
corporation subject to a long-term net lease. This structure allows the
corporate real estate user to reinvest the proceeds from the sale of its real
estate into its core business while TriNet capitalizes on its core area of
expertise.
TriNet generally intends to hold its net-leased assets for long-term
investment. However, subject to certain REIT restrictions, TriNet may dispose of
an asset if it deems the disposition to be in the best interest of the
stockholders and may either reinvest the disposition proceeds, use the proceeds
to reduce debt, or distribute the proceeds to stockholders.
INVESTMENT STRATEGY. TriNet has invested in a diversified portfolio of
strategic office and industrial properties subject to long-term (longer than
five years) net lease agreements with high credit quality corporate tenants.
TriNet seeks high-quality, general-purpose real estate that should maintain
attractive residual values. The focus of this strategy is to produce consistent,
predictable income growth for its stockholders. Under a typical net lease
agreement, the tenant agrees to pay a base monthly rent and property operating
expenses (including taxes, maintenance and insurance) with future rent
increases.
TriNet invests in real estate markets that have a significant number of
large corporate users. TriNet's five largest markets in terms of lease revenue
are the Silicon Valley (21.1%), Boston (12.1%), Dallas (10.7%), Denver (5.4%),
and Atlanta (5.0%).
TriNet seeks tenants with the following characteristics:
- Established companies with stable core businesses.
- Market leaders in rapidly growing industries.
- Investment-grade credit rating or similar credit strength.
- Appropriate credit enhancements if tenant credit strength is not
sufficient.
- Commitment to the property as an important asset to their on-going
businesses.
As of June 30, 1999, TriNet had more than 175 tenants operating in more than
30 industries, including aerospace, automotive, finance, healthcare, high
technology and telecommunications. These tenants represent well-recognized
national and international companies, such as AlliedSignal, Federal Express,
IBM, Lucent, Microsoft, Nike and Nokia.
Relying on expertise from its real estate investment, market research, asset
management, accounting, capital markets and legal departments, TriNet undertakes
thorough research and analysis to evaluate the credit quality of its prospective
tenants, the quality of the real estate and the strength of the geographic
market where the asset is located. TriNet seeks to acquire general-purpose
properties that have the following characteristics:
- Net leased to single tenants with terms from five to 25 years, providing
the opportunity for both current income and future rent increases.
- Suburban offices and distribution warehouses suitable for both single
tenant and potential multi-tenant occupancy.
42
<PAGE>
- Location within attractive demographic areas with high visibility and easy
access to major thoroughfares.
PORTFOLIO AND ASSET MANAGEMENT STRATEGY. The diligent management of
TriNet's investment portfolio has been an essential component of TriNet's
long-term strategy. There are several ways to optimize the performance and
maximize the value of net leases. TriNet monitors its portfolio for changes that
could affect the performance of the markets, tenants and industries in which it
has invested. As part of this monitoring, TriNet's asset management group
reviews market, tenant and industry data and frequently inspects its properties.
In addition, TriNet attempts to develop strong relationships with its large
corporate tenants, which provide a source of information concerning the tenants'
real estate needs. These relationships allow TriNet to be proactive in obtaining
early lease renewals and in conducting early marketing of assets where the
tenant has decided not to renew. TriNet seeks to find a new tenant prior to the
expiration of the existing lease. Since its IPO in May 1993, TriNet has achieved
high tenant retention rates and significant increases in rental rates, and has
maintained low tenant improvement costs in connection with the releasing or
renewal of expiring leases.
By staying abreast of market trends and tenant needs, TriNet can quickly
identify those assets that it may consider selling either to generate higher
cash flows through reinvestment or to mitigate lease rollover risk.
PORTFOLIO DIVERSIFICATION. TriNet carefully manages the geographic, tenant
and property type diversification of its assets and leases. Geographic
diversification is important because the condition of the regional economies is
highly dependent upon the health of the industries located within those regions.
TriNet has historically attempted to minimize exposure to any one tenant,
minimize exposure to any single industry and reduce rental risk from cyclical
business fluctuations. TriNet's portfolio is diversified within three property
categories--office buildings, warehouse distribution facilities and research and
development facilities. TriNet's experience has been that these property types
are more fungible, easier to re-lease and have a lower risk of future value
impairment from obsolescence than retail or special-purpose properties, thereby
enhancing residual value at the end of the lease.
<TABLE>
<S> <C>
PROPERTY BY LOCATION PORTFOLIO BY PROPERTY TYPE
(percentage of portfolio net operating income as of June 30, 1999)
EDGAR REPRESENTATION OF DATA POINTS USED IN
PRINTED GRAPHIC
<CAPTION>
SOUTHEAST 13%
<S> <C>
Mid-Atlantic 8%
Northeast 15%
North Central 2%
Central 6%
South 17%
West 38%
Northwest 1%
</TABLE>
43
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
OFFICE 64%
<S> <C>
Industrial 16%
R&D 14%
Other 6%
</TABLE>
44
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Starwood Financial and TriNet are subject to the reporting requirements of
the Securities and Exchange Act of 1934, as amended, and each files annual,
quarterly and special reports, proxy statements and other information with the
SEC. You may read and copy any materials Starwood Financial or TriNet files at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Starwood Financial's and TriNet's SEC filings are
also available to the public at the SEC's web site at http://www.sec.gov.
Starwood Financial's shares are listed on the American Stock Exchange under the
symbol "APT" and all reports, proxy statements and other information filed by
Starwood Financial with the American Stock Exchange may be inspected at the
American Stock Exchange's office at 86 Trinity Place, New York, New York 10006.
TriNet's shares are listed on the New York Stock Exchange under the symbol "TRI"
and all reports, proxy statements and other information filed by TriNet with the
New York Stock Exchange may be inspected at the New York Stock Exchange's office
at 20 Broad Street, New York, New York 10005.
The SEC allows Starwood Financial and TriNet to "incorporate by reference"
some of the information Starwood Financial and TriNet file with them, which
means that Starwood Financial and TriNet can disclose important information to
you by referring you to those documents. The information incorporated by
reference is an important part of this joint proxy statement and prospectus, and
later information filed with the SEC will automatically update and supersede
this information. Starwood Financial and TriNet incorporate by reference any
future filings, as of the date of those filings, made by either of them with the
SEC under Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of
1934 after the date of this joint proxy statement and prospectus and prior to
the dates of the Starwood Financial special meeting and the TriNet special
meeting.
Any statement contained in a document incorporated or deemed to be
incorporated herein shall be deemed modified or superseded for purposes of this
joint proxy statement and prospectus to the extent that a statement contained
herein or in any other subsequently filed document that is deemed to be
incorporated herein modifies or supersedes that statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this joint proxy statement and prospectus.
Starwood Financial incorporates by reference the documents listed below:
(a) Annual Report on Form 10-K for the year ended December 31, 1998.
(b) Quarterly Reports on Form 10-Q for each of the quarters ended March 31,
1999 and June 30, 1999.
(c) Current Reports on Form 8-K dated June 16, 1999 and July 12, 1999.
(d) The description of Starwood Financial's Class A shares and Class B
shares contained in the Registration Statement on Form 8-A dated December
27, 1988.
You may request a copy of each of the above-listed Starwood Financial
documents at no cost by contacting Starwood Financial at:
Starwood Financial
1114 Avenue of the Americas, 27th Floor
New York, NY 10036
Attention: Investor Relations Department
Telephone: (212) 930-9400
Fax: (212) 930-9494
44
<PAGE>
TriNet incorporates by reference the documents listed below:
(a) Annual Report on Form 10-K for the year ended December 31, 1998.
(b) Quarterly Reports on Form 10-Q for each of the quarters ended March 31,
1999 and June 30, 1999.
(c) Current Reports on Form 8-K dated June 16, 1999 and July 12, 1999.
(d) The description of TriNet's common stock contained in the Registration
Statement on Form 8-A, filed on April 28, 1993.
(e) The descriptions of TriNet's Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock contained in the
Registration Statement on Form 8-A, filed on October 14, 1997.
(f) The information appearing under the captions "Information Regarding
Nominees, Directors and Executive Officers," "The Board of Directors and
its Committees," "Director Compensation," "Executive Compensation,"
"Compensation Committee Report on Executive Compensation," "Compensation
Committee Interlocks and Insider Participation," "Security Ownership of
Certain Beneficial Owners and Management" and "Agreements with Executive
Officers" in the Proxy Statement, dated April 5, 1999, relating to the
annual meeting of stockholders of TriNet held on May 26, 1999.
You may request a copy of each of the above-listed TriNet documents at no
cost by contacting TriNet at:
TriNet Corporate Realty Trust, Inc.
One Embarcadero Center, 33rd floor
San Francisco, CA 94111
Attention: Investor Relations Department
Telephone: (888) 335-3122
Fax: (415) 391-6259
E-mail: [email protected]
http://www.tricorp.com
Starwood Financial has also filed with the SEC a Registration Statement on
Form S-4 under the Securities Act of 1933 with respect to the common and
preferred shares of Starwood Financial being offered in the merger. This joint
proxy statement and prospectus, which constitutes a part of the registration
statement, does not contain all the information set forth in the registration
statement. Some items of information are contained in exhibits to the
registration statement, as permitted by the rules and regulations of the SEC.
Statements made in this joint proxy statement and prospectus as to the content
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each of those contracts, agreements or other documents
filed or incorporated by reference as an exhibit to the registration statement,
you should refer to the corresponding exhibit for a more complete description of
the matter involved and read all statements in this joint proxy statement and
prospectus in light of that exhibit.
45
<PAGE>
THE MEETINGS
This joint proxy statement and prospectus is furnished in connection with
the solicitation of proxies: (1) from the holders of TriNet common stock by the
TriNet Board of Directors for use at the TriNet special meeting of stockholders;
and (2) from the holders of Starwood Financial common shares by the Starwood
Financial Board of Trustees for use at the Starwood Financial special meeting of
shareholders. This joint proxy statement and prospectus and accompanying forms
of proxy are first being mailed to the respective stockholders of TriNet and
Starwood Financial on or about [Date], 1999. FOR APPROVAL OF THE MERGER AND THE
MERGER AGREEMENT, IF A STOCKHOLDER OF TRINET OR SHAREHOLDER OF STARWOOD
FINANCIAL DOES NOT RETURN A SIGNED PROXY CARD, ITS SHARES WILL NOT BE VOTED AND
THUS WILL HAVE THE EFFECT OF A VOTE "AGAINST" THE PROPOSALS. SIMILARLY, A BROKER
NON-VOTE OR AN ABSTENTION WILL HAVE THE EFFECT OF A VOTE "AGAINST" THE MERGER
PROPOSAL.
TIMES AND PLACES; PURPOSES
The TriNet special meeting will be held at [location], at [time], local
time, on [date], 1999. At the TriNet special meeting, the stockholders of TriNet
will be asked:
1. To consider and approve the merger proposal (See pages 46 and 50).
2. To transact any other business as may properly come before the meeting
and any adjournments of the meeting.
The Starwood Financial special meeting will be held at 1:00 p.m., local
time, on [date], 1999 at the Sheraton New York Hotel & Towers, 811 Seventh
Avenue, New York, New York 10019. At the Starwood Financial special meeting, the
shareholders of Starwood Financial will be asked:
1. To consider and approve the merger proposal (See pages 46 and 50).
2. To consider and approve the advisor transaction proposal (solely to
fulfill the requirements of the rules and regulations of the American
Stock Exchange) (See pages 46 and 86).
3. To consider and approve the incorporation merger proposal (See pages 46
and 84).
4. To transact any other business as may properly come before the meeting
and any adjournments of the meeting.
THE TRINET SPECIAL MEETING
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL. The TriNet Board has fixed the
close of business on [date], 1999, as the record date for the determination of
the TriNet stockholders entitled to notice of and to vote at the TriNet special
meeting. On [date close to effective date], 1999, there were [number] shares of
TriNet common stock, which were held of record by [number] holders. As of [date
close to effective date], 1999, TriNet's directors and executive officers
beneficially owned an aggregate of [number] shares of TriNet common stock
(excluding shares subject to options), or approximately [ ]% of the outstanding
shares of TriNet common stock entitled to vote on the merger proposal, which
requires the affirmative vote of the holders of two-thirds of TriNet's
outstanding shares of common stock.
The presence, either in person or by proxy, of the holders of a majority of
the outstanding shares of TriNet common stock is necessary to constitute a
quorum at the TriNet special meeting. Assuming the existence of a quorum, the
affirmative vote of the holders of at least two thirds of the issued and
outstanding shares of TriNet common stock is required to approve the merger
proposal and the merger agreement. Holders of record of TriNet common stock are
entitled to one vote per share of TriNet common stock at the TriNet special
meeting.
46
<PAGE>
If a stockholder attends the TriNet special meeting, that stockholder may
vote by ballot. However, since many stockholders may be unable to attend the
TriNet special meeting, those stockholders can ensure that their shares are
voted at the meeting by signing and dating the enclosed proxy and returning it
in the envelope provided. When a proxy card is returned properly signed and
dated, the TriNet shares represented by that proxy card will be voted in
accordance with the instructions on the proxy card. FOR APPROVAL OF THE MERGER
AND THE MERGER AGREEMENT, IF A STOCKHOLDER DOES NOT RETURN A SIGNED PROXY CARD,
THEIR TRINET SHARES WILL NOT BE VOTED AND THUS WILL HAVE THE EFFECT OF A VOTE
"AGAINST" THE PROPOSALS. SIMILARLY, A BROKER NON-VOTE OR AN ABSTENTION WILL HAVE
THE EFFECT OF A VOTE "AGAINST" THE PROPOSALS.
Stockholders are urged to mark the box on the proxy card to indicate how
their TriNet shares are to be voted. If a stockholder returns a signed proxy
card but does not indicate how their TriNet shares are to be voted, the TriNet
shares represented by the proxy card will be voted "FOR" the proposals. The
proxy card also confers discretionary authority on the individuals appointed by
the TriNet Board of Directors and named on the proxy card to vote the TriNet
shares represented thereby on any other matter that is properly presented for
action at the TriNet special meeting, including any adjournments of the special
meeting.
Any TriNet stockholder who executes and returns a proxy card may revoke the
proxy at any time before it is voted by:
- Notifying in writing Mr. Geoffrey M. Dugan of TriNet at One Embarcadero
Center, 33rd Floor, San Francisco, CA 94111.
- Granting a subsequent proxy.
- Appearing in person and voting at the TriNet special meeting.
Attendance at the TriNet special meeting will not in and of itself
constitute revocation of a proxy.
SOLICITATION OF PROXIES. TriNet will bear its own costs of solicitation of
proxies, except that the cost of preparing, printing and mailing this joint
proxy statement and prospectus will be borne equally by TriNet and Starwood
Financial. Brokerage houses, fiduciaries, nominees and others will, upon
request, be reimbursed for their out-of-pocket expenses in forwarding proxy
materials to owners of TriNet common and preferred shares held in their names.
In addition to the solicitation of proxies by use of the mails, proxies may be
solicited from TriNet stockholders by directors, officers and employees of
TriNet in person or by telephone, telegraph, facsimile or other appropriate
means of communication. No additional compensation, except for reimbursement of
reasonable out-of-pocket expenses, will be paid to these directors, officers and
employees of TriNet in connection with the solicitation. In addition, Innisfree
M&A Incorporated, a proxy solicitation firm, has been engaged by TriNet and
Starwood Financial to act as proxy solicitor and will receive fees estimated at
$[ ], plus reimbursement of out-of-pocket expenses. Any questions or
requests for assistance regarding this joint proxy statement and prospectus and
related proxy materials may be directed to:
Innisfree M&A Incorporated
(888) 750-4834
OTHER MATTERS. TriNet is not aware of any business or matter other than
those indicated above which may be properly presented at the TriNet special
meeting. If, however, any other matter properly comes before the TriNet special
meeting, the proxy holders will, in their discretion, vote thereon in accordance
with their best judgment. Any proposal by a stockholder intended to be presented
at the 2000 annual meeting of stockholders must have been received by TriNet at
the address listed above not later than December 1, 1999 for inclusion in
TriNet's proxy statement and form of proxy relating to TriNet's 2000 annual
meeting of stockholders. TriNet's Board of Directors will review any stockholder
proposals that are filed as required, and will determine whether those proposals
meet the criteria for
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inclusion in the proxy solicitation materials or for consideration at the 2000
annual meeting. Copies of TriNet's bylaws are available to stockholders free of
charge upon request to TriNet's Investor Relations Department. TriNet retains
discretion to vote proxies on matters of which it is not properly notified.
THE STARWOOD FINANCIAL SPECIAL MEETING
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL. The Starwood Financial Board
has fixed the close of business on [date], 1999, as the record date for the
determination of the Starwood Financial shareholders entitled to notice of and
to vote at the Starwood Financial special meeting. On [date close to effective
date], 1999, there were [ ] Starwood Financial Class A shares and [ ]
Starwood Financial Class B shares outstanding, which were held by approximately
[ ] and [ ] record holders, respectively. As of [date close to effective
date], 1999, Starwood Financial's trustees and executive officers beneficially
owned an aggregate of [ ] Starwood Financial Class A shares (excluding
shares subject to options) and all of the outstanding Class B shares, or
approximately [ ]% of the outstanding Starwood Financial shares entitled to
vote on the merger proposal, which requires the affirmative vote of two thirds
of Starwood Financial's outstanding Class A and Class B shares voting together
as a single class. The principal shareholders of Starwood Financial have agreed
in the shareholder agreement to vote all of their Class A and Class B shares of
beneficial interest, representing approximately 99% of the voting power of
Starwood Financial's outstanding common shares, in favor of the transactions and
against any transaction which would compete with the merger and have granted an
irrevocable proxy to TriNet to so vote. Please refer to the section of this
joint proxy statement and prospectus entitled "Certain Agreements Related to the
Merger--The Shareholder Agreement" for more information regarding the agreements
of the principal shareholders of Starwood Financial and a description of the
proxies granted to TriNet.
The presence, either in person or by proxy, of the holders of a majority of
the outstanding Starwood Financial Class A and Class B shares is necessary to
constitute a quorum at the Starwood Financial special meeting. Assuming the
existence of a quorum, the affirmative vote of the holders of at least two
thirds of the issued and outstanding Starwood Financial Class A and Class B
shares, voting together as a single class, is required to approve the merger
with TriNet and the incorporation merger. Solely to fulfill the requirements of
the rules and regulations of the American Stock Exchange, the affirmative vote
of at least a majority of the votes cast by the holders of Class A and Class B
shares at the meeting is required to approve the advisor transaction. Holders of
record of Starwood Financial Class A shares and Class B shares on the Starwood
Financial record date are entitled to one vote per share at the Starwood
Financial special meeting.
If a shareholder attends the Starwood Financial special meeting, that
shareholder may vote by ballot. However, since many shareholders may be unable
to attend the Starwood Financial special meeting, the Starwood Financial Board
is soliciting proxies so that each holder of Starwood Financial shares on the
Starwood Financial record date has the opportunity to vote on the proposals to
be considered at the Starwood Financial special meeting. The Starwood Financial
shares represented by a properly signed, dated and returned proxy card will be
voted in accordance with the instructions on the proxy card. FOR APPROVAL OF THE
MERGER WITH TRINET AND THE INCORPORATION MERGER, IF A SHAREHOLDER DOES NOT
RETURN A SIGNED PROXY CARD, THEIR STARWOOD FINANCIAL SHARES WILL NOT BE VOTED
AND THUS WILL HAVE THE EFFECT OF A VOTE "AGAINST" THE PROPOSALS. SIMILARLY, A
BROKER NON-VOTE OR AN ABSTENTION WILL HAVE THE EFFECT OF A VOTE "AGAINST" THE
PROPOSALS. FOR THE APPROVAL OF THE ADVISOR TRANSACTION, BROKER NON-VOTES AND
ABSTENTIONS WILL NOT BE COUNTED AS A VOTE FOR OR AGAINST THAT PROPOSAL.
Shareholders are urged to mark the box on the proxy card to indicate how
their Starwood Financial shares are to be voted. If a shareholder returns a
signed proxy card, but does not indicate how their Starwood Financial shares are
to be voted, the Starwood Financial shares represented by the proxy card will be
voted "FOR" the proposals. The proxy card also confers discretionary authority
on the individuals appointed by the Starwood Financial Board and named on the
proxy card to vote the
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Starwood Financial shares represented thereby on any other matter that is
properly presented for action at the Starwood Financial special meeting,
including any adjournments of the special meeting.
Any Starwood Financial shareholder who executes and returns a proxy card may
revoke the proxy at any time before it is voted by:
- Notifying in writing Mr. Spencer B. Haber of Starwood Financial at 1114
Avenue of the Americas, 27th Floor, New York, NY 10036.
- Granting a subsequent proxy.
- Appearing in person and voting at the Starwood Financial special meeting.
Attendance at the Starwood Financial special meeting will not in and of
itself constitute revocation of a proxy.
SOLICITATION OF PROXIES. Starwood Financial will bear its own costs of
solicitation of proxies, except that the cost of preparing, printing and mailing
this joint proxy statement and prospectus will be borne equally by Starwood
Financial and TriNet. Brokerage houses, fiduciaries, nominees and others will,
upon request, be reimbursed for their out-of-pocket expenses in forwarding proxy
materials to owners of Starwood Financial common and preferred stock held in
their names. In addition to the solicitation of proxies by use of the mails,
proxies may be solicited from Starwood Financial shareholders by directors,
officers and employees of Starwood Financial in person or by telephone,
telegraph, facsimile or other appropriate means of communication. No additional
compensation, except for reimbursement of reasonable out-of-pocket expenses,
will be paid to these directors, officers and employees of Starwood Financial in
connection with the solicitation. In addition, Innisfree M&A Incorporated, a
proxy solicitation firm, has been engaged by TriNet and Starwood Financial to
act as proxy solicitor and will receive fees estimated at $[ ], plus
reimbursement of out-of-pocket expenses. Any questions or requests for
assistance regarding this joint proxy statement and prospectus and related proxy
materials may be directed to:
Innisfree M&A Incorporated
(888) 750-4834
OTHER MATTERS. Starwood Financial is not aware of any business or matter
other than those indicated above which may be properly presented at the Starwood
Financial special meeting. If, however, any other matter properly comes before
the Starwood Financial special meeting, the proxy holders will, in their
discretion, vote thereon in accordance with their best judgment. Any proposal by
a shareholder intended to be presented at the 2000 annual meeting of
shareholders must be received by Starwood Financial at the address listed above
not later than January 1, 2000 for inclusion in Starwood Financial's proxy
statement and form of proxy relating to Starwood Financial's 2000 annual meeting
of shareholders. Starwood Financial's Board of Trustees will review any
shareholder proposals that are filed as required, and will determine whether
those proposals meet the criteria for inclusion in the proxy solicitation
materials or for consideration at the 2000 annual meeting. In addition, Starwood
Financial's bylaws provide that any shareholder wishing to nominate a candidate
for director or to propose other business at the 2000 annual meeting must give
Starwood Financial written notice at its principal executive offices no later
than January 1, 2000, and the notice must provide other information as described
in the bylaws. Copies of Starwood Financial's bylaws are available to
shareholders free of charge upon request to Starwood Financial's Investor
Relations Department. Starwood Financial retains discretion to vote proxies on
matters of which it is not properly notified.
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THE MERGER
BACKGROUND OF THE MERGER
TRINET'S DECISION TO REVIEW STRATEGIC ALTERNATIVES. During 1998, the Board
of Directors of TriNet spent considerable time reviewing the company's strategic
alternatives in light of:
- The underperformance of TriNet's stock price in relation to REIT indices,
companies focused on triple net leasing and TriNet's past levels of
performance.
- TriNet's significant constraints on creating value for stockholders and
the risk of further declines in TriNet's stock price.
- TriNet's status as a relatively small niche company and its lack of asset
diversity relative to larger real estate companies, and its related
exposure to lease rollover risks and risks associated with asset
concentration.
- The current lack of equity capital available in the public markets at an
attractive cost to net lease REITs generally and TriNet particularly.
- The limited growth prospects of TriNet, particularly because of the
increasing cost and limited availability of equity capital.
- The desire to dispose of some of TriNet's prior investments involving
multi-tenant properties and speculative development projects and, to some
extent, shorter-term leases, which are inconsistent with TriNet's
longer-term core credit tenant lease strategy.
During the fall of 1998, the TriNet Board determined to examine various
strategic alternatives designed to achieve several goals:
- Improved access to equity capital at a more attractive cost, increasing
TriNet's competitiveness and allowing it to increase its investment
activities, particularly in long-term credit leases and higher-quality
assets.
- Greater diversity of assets, reducing lease rollover risk and asset type
and geographic market concentration, providing a more secure return to
investors.
- A reorientation of TriNet's investment activities away from properties
involving speculative development and higher risk, multi-tenant properties
and shorter-term leases, toward a core strategy of long-term credit tenant
leasing, maximizing TriNet's competitive advantages and creating the
opportunity for TriNet to maximize stockholder value over the long term.
On October 5, 1998, in light of the conditions in the capital markets,
TriNet's increasing cost of capital and lack of accretive acquisition
opportunities, TriNet announced its intention to sell approximately $100 million
of assets to improve the quality of its portfolio and reduce leverage.
Notwithstanding this announcement, the company's stock price continued to
underperform both equity REITs and net lease REITs. From October 5, 1998 to
February 24, 1999, the date on which TriNet's Board authorized its financial
advisor to approach various parties regarding a business combination, the price
of TriNet's common stock declined 23.1%. Over the same period, the Standard &
Poor's REIT index declined by 4.0% and the stock prices of four triple net lease
REITs (Franchise Finance Corp., Lexington Corporate Partners, Commercial Net
Lease Realty and Realty Income Corp.) declined by a simple average of 15.0%.
BACKGROUND OF THE TRANSACTION WITH STARWOOD FINANCIAL. During the fourth
quarter of 1998, TriNet held discussions with several investment banking firms
regarding potential strategic alternatives in order to address the TriNet
Board's concerns outlined above.
As part of its continuing growth strategy, Starwood Financial's management
had for some time been considering opportunities for strategic business
combinations with companies engaged in complementary real estate credit
businesses. Starwood Financial consulted with its financial advisor, Bear
Stearns, and identified TriNet as a potential merger partner because of the
complementary nature
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of TriNet's and Starwood Financial's credit tenant lease businesses, as well as
Starwood Financial's recent success in structuring investments in the sector.
Starwood Financial's management, noting TriNet's leading franchise in credit
tenant leasing, its stock price underperformance and its limited access to
equity capital to fund new investments, believed that a business combination
with Starwood Financial would significantly improve TriNet's limited growth
prospects. Accordingly, Jay Sugarman, Starwood Financial's Chief Executive
Officer, requested that Bear Stearns contact Robert Holman, TriNet's Chairman
and Chief Executive Officer, to arrange a meeting between the two executives.
On October 15, 1998, Bear Stearns, on behalf of Starwood Financial, met with
Mr. Holman to arrange a meeting between Mr. Holman and Mr. Sugarman. From time
to time during October 1998, Mr. Holman and Mr. Sugarman had telephone
conversations to discuss their respective businesses generally.
On November 30, 1998, Mr. Holman met with Mr. Sugarman, and the two chief
executive officers discussed the complementary nature of the TriNet and Starwood
Financial businesses. Mr. Sugarman suggested the possibility of exploring a
business combination between Starwood Financial and TriNet.
On January 7, 1999, Messrs. Sugarman and Holman met, together with Spencer
B. Haber, Starwood Financial's Chief Financial Officer, representatives from
Bear Stearns and members of TriNet's senior management, and discussed the
parties' interest in pursuing a business combination transaction.
On January 11, 1999, TriNet engaged Greenhill & Co., LLC, a well-known
mergers and acquisitions advisory firm, to act as its financial advisor in
connection with a review of strategic alternatives, including raising capital
through private equity funds, insurance companies or other institutional
investors, participating in joint ventures or pursuing a sale of TriNet or its
assets or another business combination transaction.
Greenhill's initial discussions with TriNet's management and Board of
Directors focused generally on: the recent underperformance in the stock market
of equity REITs and net lease REITs generally and of TriNet in particular; the
limited availability of equity capital to equity REITs in the public markets;
the sluggish growth outlook for TriNet in the absence of additional equity
capital; the history of mergers among REITs, including prices paid and stock
market reaction to these transactions; and the heightened interest of private
real estate opportunity funds in acquiring publicly-traded REITs.
The initial discussions between Greenhill and TriNet also focused on the
limited growth potential inherent in net lease REITs when faced with an
inability to raise adequate equity capital, as well as the similarities of net
lease REITs to other kinds of finance companies. These discussions also focused
on the fact that a number of TriNet's recent acquisitions had leases with
relatively near-term expirations and that some company assets were, by their
terms and tenant profile, not within the TriNet's core credit tenant leasing
strategy.
On February 17, 1999, Messrs. Sugarman and Haber met with members of
TriNet's senior management and representatives from Bear Stearns and Greenhill.
The parties discussed Starwood Financial's continued interest in a combination
with TriNet and the process for making a formal proposal to the TriNet Board of
Directors.
On February 24, 1999, TriNet's Board of Directors authorized Greenhill, in
relation to a possible sale, merger or recapitalization of TriNet, to continue
discussions with Starwood Financial and, in addition, to approach three major
commercial finance companies, a major insurance and financial services company
and the four private real estate opportunity funds that Greenhill viewed as most
capable of completing a transaction of the proposed size. Upon Greenhill's
advice, TriNet's Board chose to approach this group of potential acquirors, as
opposed to equity REITs in the office and industrial sector, because the TriNet
Board believed that these potential acquirors were most capable of developing
TriNet's core credit tenant leasing strategy, which would maximize long-term
value for TriNet's stockholders. Greenhill made the authorized approaches
promptly following that date.
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On March 2, 1999, TriNet amended its engagement of Greenhill to authorize
Greenhill to pursue, on TriNet's behalf, a strategic transaction. This amended
engagement provided for a transaction fee to Greenhill based on the value of a
completed transaction. This engagement also provided that if TriNet completed a
transaction with Starwood Financial, because Starwood Financial had approached
TriNet prior to Greenhill's engagement, the transaction fee payable to Greenhill
would be 80% of the fee payable upon completion of any other transaction.
On March 17, 1999, the Starwood Financial Board of Trustees met to discuss
the status of the discussions with TriNet. In that meeting, Messrs. Sugarman and
Haber reviewed Starwood Financial's approach to underwriting TriNet's business
and assets, and discussed the financial and operational impact of a potential
merger with TriNet. Messrs. Sugarman and Haber also discussed with the Board the
potential terms of the merger and timing of next steps.
The Starwood Financial Board of Trustees met again on March 31, 1999
telephonically to discuss submitting a written proposal to TriNet. During that
meeting, Messrs. Sugarman and Haber updated the Board as to the progress of
Starwood Financial's due diligence on TriNet's business, assets, and financial
condition and presented Starwood Financial's preliminary underwriting
conclusions and due diligence findings. Messrs. Sugarman and Haber also reviewed
the detailed terms of a potential business combination with TriNet, which terms
would be reflected in a written proposal to TriNet in the ensuing weeks.
During March 1999, extensive information was provided by TriNet to, and
discussions were held with, Starwood Financial and the four private opportunity
funds. The other parties who were approached by Greenhill (as discussed above)
declined to pursue a transaction with TriNet. Starwood Financial and the private
opportunity funds then conducted a preliminary due diligence review of TriNet.
By early April, three proposals, each subject to further due diligence,
arrangement of financing and negotiation of other terms, were received from the
private opportunity funds. The fourth private opportunity fund declined to
submit a proposal. Starwood Financial also submitted a proposal during that
period.
One of the private opportunity fund proposals valued TriNet's common stock
at $27-$28 per share, one at $27.50 per share and one at a range of $28-$32 per
share, in each case subject to the various contingencies described above.
Greenhill made extensive efforts on TriNet's behalf, without success, to
persuade the first two parties to increase the value of their proposals. In the
case of the third party, extensive efforts were made to clarify where within its
proposed price range it was most likely to complete a transaction. Upon further
discussion, this third party was unwilling to confirm an indication of interest
at the midpoint of its range or higher, and ultimately declined to pursue
further due diligence or a transaction with TriNet.
The private opportunity funds communicated to Greenhill that the primary
factors that limited their ability to increase their indicated value, or in the
case of the last party to confirm any value, were the short-term nature of a
number of TriNet leases and the related lease rollover risk, the high debt
refinancing and other transaction costs associated with a cash transaction,
which approximated $3.50 per share (based on interest rates prevailing on or
about April 1, 1999), in addition to whatever financing costs would be incurred
by the private opportunity fund, as well as the number of assets that did not
fit the company's core business of net leasing office and industrial properties
to tenants of high credit quality.
The original Starwood Financial proposal, which was subject to the
contingencies described above, was for a stock-for-stock merger in which each
stockholder of TriNet would receive from Starwood Financial one Starwood
Financial common share, after giving effect to the advisor transaction, for each
share of TriNet common stock.
In mid-April 1999, following receipt of the various proposals, TriNet's
Board of Directors directed TriNet's management to prepare a report to the Board
setting forth alternatives available for growth
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and enhancement of stockholder value on a stand-alone basis, in the absence of a
change of control or strategic transaction involving a third party.
TriNet's Board of Directors met on April 21, 1999 to consider the
indications of interest from Starwood Financial and the private opportunity
funds and to hear presentations made by Messrs. Sugarman and Haber on behalf of
Starwood Financial regarding its proposal for a strategic combination, and by
TriNet's management setting forth alternatives available for a stand-alone
strategy. TriNet's management presented to the TriNet Board other opportunities
for raising capital to fund growth opportunities, including joint ventures
funded by pension funds or other private investors, securitizations to fund
longer-term leases, a stock buyback program and increased leverage through an
affiliated entity (so as not to affect TriNet's investment-grade rating). The
TriNet Board also considered the feasibility and timing of such alternatives,
the limitations they would impose on the operating and strategic flexibility of
TriNet, the balance sheet and credit implications of those alternatives and the
possible stockholder reactions to those alternatives. Greenhill presented to
TriNet's Board information regarding the Starwood Financial proposal and the
then current status of the private opportunity fund proposals.
Following the presentations, TriNet's Board of Directors considered the
various alternatives and determined that, subject to negotiation of a more
favorable exchange ratio and a number of other key terms, a merger with Starwood
Financial presented the best opportunity available to achieve the strategic
goals described above, and to maximize value for TriNet's stockholders. In
reaching this conclusion, the TriNet Board considered numerous factors regarding
each alternative, including the maximization of long-term stockholder value and
the likelihood of the successful completion of a transaction. For a discussion
of the particular factors considered by TriNet's Board with respect to a
transaction with Starwood Financial, please refer to the subsection of this
joint proxy statement entitled "The Merger--Recommendation of the Board of
Directors of TriNet; Reasons for the Merger."
At the conclusion of the April 21 meeting, the TriNet Board authorized
Greenhill and TriNet's legal counsel, Paul, Weiss, Rifkind, Wharton & Garrison,
to further negotiate the transaction terms with Starwood Financial and, in
particular, directed Greenhill to seek to improve upon Starwood Financial's
proposed exchange ratio of one Starwood Financial common share for each share of
common stock of TriNet.
A series of meetings were held on April 26, 27 and 28, 1999 at Starwood
Financial's offices in New York City between representatives of Greenhill and
Paul, Weiss, on TriNet's behalf, and senior management of Starwood Financial and
representatives of its financial advisor, Bear Stearns, and its legal counsel,
Rogers & Wells. During these meetings extensive efforts were made by the TriNet
advisors to improve the value of the Starwood Financial proposal, and ultimately
Starwood Financial indicated a willingness to improve its proposal to 1.15
Starwood Financial common shares per share of TriNet common stock. Other
material terms were preliminarily agreed to, but all terms were subject to
mutual due diligence investigations and negotiation of definitive documents.
On a telephonic meeting of TriNet's Board of Directors held April 27, 1999,
the TriNet Board authorized Greenhill and Paul, Weiss to commence additional due
diligence investigations and to negotiate definitive agreements on the basis of
the improved exchange ratio and other improved terms of Starwood Financial's
proposal.
On or about April 29, 1999, the parties commenced negotiation of definitive
documents and additional due diligence investigations. Data rooms containing
diligence materials for the two companies were established at the offices of
Starwood Financial and Paul, Weiss. Representatives from Starwood Financial also
visited a number of the properties in TriNet's portfolio. Representatives of
TriNet visited a number of the properties securing loans in Starwood Financial's
portfolio. There were numerous meetings and telephone conversations throughout
May among representatives of TriNet and Starwood Financial and their respective
legal and financial advisors regarding due diligence, financial analyses and the
terms of the transaction documents.
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The Starwood Financial Board met on May 3, 1999, during which Messrs.
Sugarman and Haber updated the Starwood Financial Board as to the status of
negotiations and reviewed with the Starwood Financial Board management's plans
for continued due diligence and visits to TriNet's properties.
At a series of meetings of TriNet's Board held on May 25 and 26, 1999, each
of Greenhill, Paul, Weiss, PricewaterhouseCoopers LLP and TriNet's management
presented the preliminary results of their respective due diligence reviews of
Starwood Financial. At the meeting, TriNet's Board also discussed various
aspects of the proposed transactions, including the fact that the combined
company's annualized dividend after the completion of the proposed transactions
was expected to be higher than TriNet's current annualized dividend. Paul, Weiss
also reviewed with the Board the status of the negotiations between the parties
and their respective counsel. At the May 26 meeting, Greenhill indicated to
TriNet's Board of Directors its willingness, subject to resolution of material
open issues, to deliver an opinion to the TriNet Board that the exchange ratio
of 1.15 common shares of Starwood Financial for each share of TriNet common
stock is fair to the holders of TriNet common stock from a financial point of
view. Based upon these reports, TriNet's directors authorized Greenhill and
representatives of Paul, Weiss, subject to continuing due diligence and
resolution of several open issues in the definitive documents, to pursue a
merger with Starwood Financial on the basis of 1.15 Starwood Financial shares
per share of TriNet common stock.
On June 1, 1999, the Starwood Financial Board met. Messrs. Sugarman and
Haber reviewed with the Board the status of negotiations regarding the merger.
The Board also discussed plans for integrating the two companies, assuming that
the parties entered into a definitive merger agreement.
On June 2, 1999, a further TriNet Board meeting was held by telephone to
review with Greenhill and Paul, Weiss additional due diligence on Starwood
Financial and its assets. At this meeting, Greenhill, subject to satisfactory
resolution of material open issues in the negotiations with Starwood Financial,
delivered its oral opinion to TriNet's Board that the exchange ratio of 1.15
common shares of Starwood Financial for each share of TriNet common stock is
fair to the holders of TriNet common stock from a financial point of view.
Representatives of Paul, Weiss discussed with the TriNet Board, among other
things, their fiduciary duties and the terms of the merger and reported on the
several open issues between the parties that then remained outstanding. TriNet's
Board reviewed and discussed information presented by management, Paul, Weiss
and Greenhill. The TriNet Board then unanimously approved the merger, subject to
the resolution of material open issues, determined to continue pursuing the
Starwood Financial transaction and appointed a committee of two directors to
give final approval of the transaction upon satisfactory resolution of these
outstanding material issues and delivery again by Greenhill of a fairness
opinion.
Between June 2, 1999 and June 14, 1999, due diligence and negotiation of
open issues between the parties continued.
On June 14, 1999, the TriNet Board committee met, and Greenhill delivered
its oral opinion that, as of that date, the exchange ratio in the merger
agreement is fair to the holders of TriNet common stock from a financial point
of view. Representatives of TriNet's legal counsel discussed with the Board
committee, among other things, their fiduciary duties and the terms of the
merger. The Board committee then unanimously approved the merger agreement and
the merger subject only to completion of satisfactory resolution of several
material issues between the parties.
On June 15, 1999, the Starwood Financial Board held a meeting to approve the
merger agreement and the merger. Representatives of Bear Stearns delivered their
oral opinion, which was subsequently confirmed in writing, that as of that date,
the exchange ratio in the merger agreement is fair, from a financial point of
view, to Starwood Financial and its shareholders. Representatives of Starwood
Financial's legal counsel discussed with the Starwood Financial Board, among
other things, their fiduciary duties and the terms of the merger.
Representatives of Starwood Financial's management reviewed with the Starwood
Financial Board the final results of its due diligence investigation regarding
TriNet's business, assets, operations and financial condition. Starwood
Financial's Board reviewed and
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discussed the information presented by management and Starwood Financial's legal
and financial advisors, together with the opinion of Bear Stearns. At the
conclusion of the discussion, Starwood Financial's Board unanimously approved
the merger and the merger agreement.
Also on June 15, 1999, Greenhill delivered to TriNet's Board its written
fairness opinion dated that day, that, as of that date, the exchange ratio in
the merger agreement is fair to the holders of TriNet common stock from a
financial point of view. On that day, all material open issues having been
resolved, documentation was completed and definitive agreements relating to the
merger and the other transactions were executed. The merger was announced
publicly on June 16, 1999.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF TRINET; REASONS FOR THE MERGER
The Board of Directors of TriNet has determined that the merger, including
the exchange ratio, is fair and in the best interests of the stockholders of
TriNet and has unanimously approved the merger, the merger agreement and all
related agreements and transactions to which TriNet is a party. ACCORDINGLY,
TRINET'S BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF TRINET VOTE
"FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND AUTHORIZATION OF THE
MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.
In considering the recommendation of the TriNet Board with respect to the
merger, TriNet stockholders should also consider that some of the members of the
TriNet Board have interests in the merger that may be different from, or in
addition to, the interests of the stockholders of TriNet generally. For more
information concerning the interests of these persons in the merger, please read
the part of this discussion of "The Merger" entitled "Interests of Certain
Parties in the Merger--TriNet Affiliates."
In reaching the determination that the merger agreement and the merger are
in the best interests of TriNet and its stockholders, TriNet's Board of
Directors consulted with TriNet's management, as well as its financial advisor,
legal counsel and accountants and considered the short-term and long-term
interests of TriNet and the other strategic alternatives available to TriNet.
The factors considered by TriNet's Board of Directors include those described
below. While all of these factors were considered by TriNet's Board of
Directors, TriNet's Board of Directors did not make determinations with respect
to each of the factors. Rather, TriNet's Board of Directors made its judgment
with respect to the merger and the merger agreement based on the total mix of
information available to it, and the judgments of individual directors may have
been influenced to a greater or lesser degree by their individual views with
respect to different factors.
POSITIVE FACTORS CONSIDERED BY TRINET'S BOARD OF DIRECTORS. In making its
determination with respect to the merger, the TriNet Board considered the
following material positive factors:
- UNDERPERFORMANCE OF TRINET'S COMMON STOCK PRICE. TriNet's common stock
has recently underperformed relative to REITs generally (as indicated by
the Standard & Poor's REIT Index) and four comparable REITs that focus on
triple net leasing (Franchise Finance Corp., Lexington Corporate
Properties, Commercial Net Lease Realty and Realty Income Corp.). The
Board of Directors also considered the advice of Greenhill that the
underperformance was, at least in part, related to the perceived lack of
funding and growth opportunities available to TriNet. TriNet, as an
independent company, faced significant constraints on creating value for
its stockholders and the risk of further declines in its stock price.
From January 1, 1998 to February 24, 1999 (the date on which the Board of
Directors authorized Greenhill to contact a list of potential acquirors and
merger partners) the price of TriNet's common stock declined by 36.0%, the
S&P REIT Index declined by 28.0% and the stock prices of the four
comparable net lease REITs declined by a simple average of 20.0%.
From October 5, 1998 (the date on which TriNet announced that it would sell
approximately $100 million of assets) to February 24, 1999, the price of
TriNet common stock declined by
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23.1%, the S&P REIT Index declined by 4.0% and the stock prices of the four
comparable net lease REITs declined by a simple average of 15.0%.
- LIMITED GROWTH OPPORTUNITIES AS INDEPENDENT COMPANY. The Board of
Directors considered the current lack of equity capital available in the
public capital markets to fund growth opportunities for TriNet. TriNet's
management presented to the Board of Directors other opportunities for
raising capital to fund growth opportunities, including joint ventures
with pension funds and other private investors, securitizations to fund
longer-term leases, increased leverage and asset sales. The TriNet Board
of Directors considered the feasibility and timing of such alternatives,
the limitations they would impose on TriNet's operating and strategic
flexibility, the balance sheet and credit implications of those
alternatives and the possible stockholder reaction to those alternatives.
The TriNet Board of Directors concluded that TriNet's growth strategy as
an independent company had been and would continue to be hampered by the
increasing cost and limited availability of capital, TriNet's status as a
relatively small niche company and its lack of asset diversity relative to
larger real estate companies, and its related exposure to lease rollover
risk and risks associated with asset concentration.
- REVIEW OF AVAILABLE STRATEGIC ALTERNATIVES. The merger reflects the
culmination of an extensive examination of strategic alternatives
conducted by TriNet's Board of Directors with the advice and assistance of
its financial advisor, Greenhill. From February 1999 to May 1999,
Greenhill, on behalf of TriNet, contacted and engaged in discussions with
nine potential acquirors, including Starwood Financial, regarding a
possible sale of or business combination transaction involving TriNet. For
more information regarding this examination of strategic alternatives and
the background of the merger, please read the portion of this discussion
of "The Merger" entitled "Background of the Merger." Five of the potential
acquirors, including Starwood Financial, indicated an interest in a
business combination, received significant information relating to TriNet,
had detailed discussions with Greenhill, and of those, four made proposals
for an acquisition of or business combination with TriNet. In evaluating
these transaction proposals, TriNet's Board of Directors considered both
the potential long-term value to TriNet stockholders and the likelihood of
completion of each proposed transaction. Based on this evaluation,
TriNet's Board of Directors concluded that the Starwood Financial merger
presented the best opportunity for TriNet to maximize long-term value for
its stockholders.
The Board of Directors of TriNet also considered the provisions of the
merger agreement which permit the directors to respond to unsolicited
written proposals for alternative transactions by furnishing non-public
information and negotiating with any entity making a proposal if that
proposal is determined by the TriNet Board of Directors to be more
favorable to the holders of TriNet common stock than the merger. The
merger agreement permits the Board of Directors of TriNet to withdraw its
recommendation of the merger and terminate the merger agreement by reason
of a superior alternative transaction or to recommend a superior
alternative transaction, upon reimbursement to Starwood Financial of up to
$3.5 million in transaction expenses and payment to Starwood Financial of
a termination fee of up to $50.0 million. For more detailed information
regarding the termination provisions of the merger agreement, you are
urged to read the merger agreement (which is attached to this joint proxy
statement and prospectus as Annex A) as well as the sections of this joint
proxy statement and prospectus entitled "The Merger
Agreement--Termination" and "--Termination Fees."
- SUPERIOR BUSINESS STRATEGY, CAPABILITY AND GROWTH PROSPECTS. The TriNet
Board concluded that pursuing the credit tenant lease business as a larger
company in combination with Starwood Financial's real estate finance
business was a more attractive alternative for maximizing and securing
stockholder value than pursuing that same business as an independent
company. The merger will create the preeminent publicly-traded finance
company in the United States focused exclusively on the commercial real
estate industry, with strong capabilities in structured mortgage and
mezzanine lending and credit lease financing. The diverse real estate
finance platform of the
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combined company pairs Starwood Financial's track record of earnings and
dividend growth, transaction origination capabilities, stable and growing
asset portfolio (more than 80% of which consists of secured loans and
credit tenant leases), structured financing experience and capital markets
capabilities with TriNet's strong corporate tenant relationships and
consistent lease revenues. The TriNet Board of Directors focused on the
combined company's finance company orientation, with funding capabilities,
management infrastructure and a diversified portfolio comparable to those
of the largest commercial finance companies, but with experience,
expertise and strategic focus entirely on commercial real estate. The
implementation of the credit lease finance tools developed by Starwood
Financial in TriNet's core business and asset base is expected to improve
returns on TriNet's existing net lease business. In addition, Starwood
Financial's transaction origination capability is expected to
substantially improve new business volume and growth prospects for the net
lease business of the combined company. In the TriNet Board's view, all of
these factors, particularly the combined company's greater access to
capital, provide the combined company with a growth outlook that is
superior to that of TriNet as an independent company.
- OPPORTUNITY TO REFOCUS TRINET ON ITS CORE CREDIT TENANT LEASE STRATEGY.
The TriNet Board of Directors found that TriNet's prior investments
involving multi-tenant properties and speculative development projects
and, to some extent, shorter-term leases, were inconsistent with its core
credit tenant lease strategy and concluded that TriNet should dispose of
some of these investments. The TriNet Board viewed the merger as an
opportunity to refocus TriNet on its core credit tenant lease strategy
because of the strong strategic fit between the credit tenant lease
business of TriNet and the structured finance business of Starwood
Financial.
- IMPROVED ACCESS TO CAPITAL. The merger improves access to capital for
both companies by increasing the size and diversity of the combined
company's assets, accessing Starwood Financial's innovative structured
financing strategies and capital markets relationships and providing
Starwood Financial with a rated financing platform in the combined
company's net lease subsidiary.
- ADVANTAGES OF A LARGER ENTERPRISE. By making TriNet part of a larger
company, TriNet's exposure to tenant vacancy and lease rollover risk is
reduced and its portfolio diversification is improved, providing the
combined company with a more diverse revenue base, with real estate assets
diversified across product type and geographic region.
- EXPECTED INCREASE IN DIVIDEND RATE. The Board of Directors considered
that TriNet shareholders would likely receive higher dividends from the
combined company than they currently receive from TriNet. The combined
company currently expects to pay dividends at an annualized rate of $2.76
per TriNet share (which is an annualized rate of $2.40 per combined
company share multiplied by the exchange ratio of 1.15:1 in the merger)
beginning with the first full quarter following the merger. For TriNet
shareholders, this would represent an increase of $0.16 over the current
annualized dividend rate of $2.60 per TriNet share.
- DYNAMIC LEADERSHIP WITH A SUCCESSFUL TRACK RECORD. The merger adds
Starwood Financial's opportunistic, entrepreneurial and innovative
management team with its track record of assets and earnings growth to
TriNet's established organizational infrastructure and its focus on credit
tenant leasing. The TriNet Board of Directors noted Starwood Financial
management's use of advanced techniques in leasing and other financing
structures. The combined company will be led by dynamic and highly capable
executives with substantial experience in all aspects of commercial real
estate financing.
- OPINION OF TRINET'S FINANCIAL ADVISOR. TriNet's financial advisor,
Greenhill, delivered its opinion to TriNet's Board of Directors to the
effect that, as of the date of the opinion, the exchange ratio of 1.15
Starwood Financial common shares for each share of TriNet common stock is
fair to the holders of TriNet common stock from a financial point of view.
The Board of Directors of
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TriNet also reviewed the methodologies used by Greenhill in rendering this
opinion and in valuing Starwood Financial. An opinion of Greenhill was
delivered orally to TriNet's Board of Directors on June 2, 1999 and again
on June 14, 1999 and was issued by Greenhill again in writing on June 15,
1999, prior to the execution of the merger agreement by TriNet. A copy of
Greenhill's written opinion is attached to this joint proxy statement and
prospectus as Annex C, and the stockholders of TriNet are urged to read
this opinion in its entirety. Please also see the section of this joint
proxy statement and prospectus entitled "The Merger--The Opinion of
Greenhill" for more detailed information regarding Greenhill's opinion.
NEGATIVE FACTORS CONSIDERED BY TRINET'S BOARD OF DIRECTORS. The TriNet
Board also considered the matters described in this joint proxy statement and
prospectus under the heading "Risk Factors" as well as the following potentially
negative factors in its deliberations concerning the merger with Starwood
Financial:
- The small number of common shares of Starwood Financial available for
trading in the public markets meant that Starwood Financial's historical
trading price was not necessarily an appropriate indicator of Starwood
Financial's value.
- Starwood Financial does not have an investment-grade credit rating, which
could increase the cost of funds to the combined company relative to
TriNet's stand-alone investment-grade ratings.
- The TriNet Board noted that lack of publicly-traded companies that are
comparable to Starwood Financial or the combined company in all material
respects, making it more difficult to use comparable companies as an
indicator of Starwood Financial's or the combined company's historical or
projected market value.
The Board of Directors of TriNet concluded that the potential negative
factors considered by it were not sufficient, either individually or
collectively, to outweigh the advantages of the merger.
RECOMMENDATION OF THE BOARD OF TRUSTEES OF STARWOOD FINANCIAL; REASONS FOR THE
MERGER
The Board of Trustees of Starwood Financial has determined that the merger,
including the exchange ratio, is fair and in the best interests of Starwood
Financial and has unanimously approved the merger, the merger agreement and all
related agreements and transactions to which Starwood Financial is a party.
ACCORDINGLY, STARWOOD FINANCIAL'S BOARD OF TRUSTEES RECOMMENDS THAT THE
SHAREHOLDERS OF STARWOOD FINANCIAL VOTE "FOR" APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND AUTHORIZATION OF THE MERGER AND THE OTHER TRANSACTIONS
CONTEMPLATED BY THE MERGER AGREEMENT.
In considering the recommendation of the Starwood Financial Board with
respect to the merger, Starwood Financial shareholders should also consider that
some of the members of the Starwood Financial Board may have interests in the
merger that are different from, or in addition to, the interests of the
shareholders of Starwood Financial generally. For more information concerning
the interests of these persons in the merger, please read the part of this
discussion of "The Merger" entitled "Interests of Certain Parties in the
Merger--Starwood Financial Affiliates."
In reaching the determination that the merger agreement and the merger are
in the best interests of Starwood Financial and its shareholders, the Starwood
Financial Board consulted with Starwood Financial's management, as well as its
financial advisor, legal counsel and accountants and considered the short-term
and long-term interests of Starwood Financial and the other strategic
alternatives available to Starwood Financial. The factors considered by the
Starwood Financial Board include those described below. While the Starwood
Financial Board considered all of these factors, it did not make determinations
with respect to each of the factors. Rather, the Starwood Financial Board made
its judgment with respect to the merger and the merger agreement based on the
total mix of information available to it, and the judgments of individual
trustees may have been influenced to a greater or lesser degree by their
individual views with respect to different factors.
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POSITIVE FACTORS CONSIDERED BY THE STARWOOD FINANCIAL BOARD OF TRUSTEES. In
making its determination with respect to the merger, the Starwood Financial
Board considered the following material positive factors:
- STRONG STRATEGIC FIT. The merger combines two complementary businesses
that are both focused on providing innovative financing alternatives to
the commercial real estate industry--in TriNet's case, by providing net
leases to creditworthy corporate tenants and, in Starwood Financial's
case, by providing mortgage and other structured financing to leading real
estate owners. Starwood Financial currently has approximately $250 million
invested in its credit tenant leasing business line and believes this
business provides Starwood Financial with a significant growth opportunity
using its creative investment and financing strategies. The merger will
significantly accelerate Starwood Financial's presence in the credit
tenant leasing business, and give Starwood Financial access to TriNet's
numerous corporate real estate relationships, thus providing an attractive
platform for actively pursuing its business plan with respect to the
credit tenant leasing business.
- CREATION OF INDUSTRY LEADER. The merger will create the largest
publicly-traded finance company in the United States focused exclusively
on the commercial real estate industry. The combined company is expected
to have a pro forma total market capitalization in excess of $4.0 billion.
Starwood Financial believes that the size of the combined company, the
expertise of its management and its relationships with more than 250
corporate tenants and borrowers should position the combined company as a
leader in its core financing businesses and provide the combined company
with more efficient debt financing alternatives and a lower cost of
capital.
- SUPERIOR ACCESS TO CAPITAL. The combined company is expected to have a
strong balance sheet. The combined company's pro forma book equity
capitalization at June 30, 1999 is approximately $1.9 billion. In
addition, the combined company should have access to a broad range of
capital resources, including secured and unsecured debt, approximately
$1.5 billion in total credit facilities and public and private equity.
- DIVERSIFICATION. The merger will provide Starwood Financial's
shareholders with a more diversified credit profile and asset base,
measured in terms of borrower/tenant concentration, property type, asset
type and geography. TriNet owned interests in 145 properties located in 25
states and which were leased to more than 175 tenants at June 30, 1999.
Approximately 53% of the tenants in TriNet's properties had an
investment-grade credit rating or an implied investment-grade credit
rating at June 30, 1999. The increased diversification should generally
reduce the risks to the combined company associated with any given loan or
lease, geographic region or property type. Improved diversification should
also benefit the combined company's credit quality.
- WEST COAST PRESENCE. The merger will give Starwood Financial a
significant presence on the West Coast and the ability to offer tenants
and borrowers a full range of expertise in loan structuring and
origination, lease financing and loan servicing across the United States.
- IMPROVED LIQUIDITY. The merger will improve liquidity for Starwood
Financial's shareholders.
- INCREASED DIVIDENDS. As a result of the merger, Starwood Financial
currently expects to increase its annual dividend payable to common
shareholders to $2.40 per share beginning with the first full quarter
after the merger.
- OPINION OF STARWOOD FINANCIAL'S FINANCIAL ADVISOR. Bear Stearns delivered
its opinion to the effect that, as of the date of the opinion, the
exchange ratio of 1.15 Starwood Financial common shares for each TriNet
common share is fair, from a financial point of view, to Starwood
Financial and its shareholders. The Board of Trustees of Starwood
Financial also reviewed the methodology used by Bear Stearns in rendering
this opinion and in valuing TriNet. The opinion of Bear Stearns was
delivered orally to the Starwood Financial Board on June 15, 1999, prior
to
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the execution of the merger agreement by Starwood Financial, and later
confirmed in writing. A copy of Bear Stearns' written opinion is attached
to this joint proxy statement and prospectus as Annex D, and the
shareholders of Starwood Financial are urged to read this opinion in its
entirety. Please also see the section of this joint proxy statement and
prospectus entitled "The Merger--The Opinion of Bear Stearns" for more
detailed information regarding Bear Stearns' opinion.
NEGATIVE FACTORS CONSIDERED BY THE STARWOOD FINANCIAL BOARD. The Starwood
Financial Board also considered the matters described in this joint proxy
statement and prospectus under the heading "Risk Factors" as well as the
following potentially negative factors in its deliberations concerning the
merger with TriNet:
- The recent and projected growth of TriNet's business is significantly
slower than that of Starwood Financial.
- The combined company may not be able to meet its property disposition
targets and may not be able to re-let space as leases expire on attractive
terms or at all.
- There may be significant tenant improvement costs and other expenditures
associated with replacing expiring leases.
- The combined company will be subject to the risks of tenant defaults and
bankruptcies. For example, one of TriNet's tenants, representing
approximately 1.6% of TriNet's net rental income for the year ended
December 31, 1998, has declared bankruptcy and disaffirmed its lease with
TriNet.
The Starwood Financial Board concluded that the potentially negative factors
considered by it were not sufficient, either individually or collectively, to
outweigh the advantages of the merger.
THE OPINION OF GREENHILL
Greenhill & Co., LLC, as part of its engagement as financial advisor to
TriNet, was asked to render an opinion to TriNet's Board of Directors with
respect to the fairness of the exchange ratio, from a financial point of view,
to the holders of TriNet common stock.
The following is a summary of the report by Greenhill to the TriNet Board in
connection with the rendering of its oral opinion presented to the Board of
Directors of TriNet on June 2, 1999 and again to a special committee of the
TriNet Board authorized to approve the merger on June 14, 1999, subsequently
confirmed by a written opinion addressed to the TriNet Board, dated June 15,
1999.
The full text of the written opinion of Greenhill with respect to the
exchange ratio setting forth the assumptions made, matters considered and the
limits on the review undertaken, is attached as Annex C to this joint proxy
statement and prospectus and is incorporated herein by reference. TriNet
stockholders are urged to read the opinion in its entirety. Greenhill's written
opinion is addressed to the TriNet Board, is directed only to the exchange
ratio, and does not constitute a recommendation to any stockholder of TriNet as
to how the stockholder should vote at the TriNet special meeting nor does it
constitute a recommendation to the TriNet Board as to whether it should approve
the merger. The summary of the opinion of Greenhill set forth in this joint
proxy statement and prospectus is qualified in its entirety by reference to the
full text of the opinion.
In arriving at its opinion, Greenhill:
- Reviewed the draft dated June 14, 1999 of the merger agreement and certain
ancillary agreements referred to in the merger agreement.
- Reviewed the structure of the merger.
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- Reviewed the draft dated June 14, 1999 of the advisor transaction
agreement.
- Analyzed the advisor transaction as it relates to the merger (which
included a review of the investment advisory agreement between Starwood
Financial and its external advisor and selected financial information
regarding this external advisor provided to Greenhill by the advisor).
- Reviewed Forms 10-K and related financial information for the three fiscal
years ended December 31, 1996, 1997 and 1998 for TriNet.
- Reviewed Forms 10-K and related financial information for the two fiscal
years ended December 31, 1997 and 1998 for Starwood Financial.
- Reviewed certain other filings with the Securities and Exchange Commission
made by TriNet and Starwood Financial, respectively, that Greenhill deemed
relevant.
- Reviewed certain information, including financial forecasts related to the
business, earnings, cash flow, assets, liabilities and prospects of TriNet
and Starwood Financial, furnished to Greenhill by TriNet, Starwood
Financial and Starwood Financial's advisor.
- Conducted discussions with members of senior management of TriNet,
Starwood Financial and Starwood Financial's advisor concerning their
respective businesses, strategic objectives, capital structures, recent
results and prospects.
- Conducted property tours of selected assets owned by Starwood Financial or
that represent the collateral for its debt investments.
- Reviewed the historical market prices and trading activity for the TriNet
common stock and the Starwood Financial common shares, as well as related
stock market indices that Greenhill deemed relevant.
- Analyzed the exchange ratio using the trading values of commercial finance
companies, specialty real estate finance companies, real estate investment
trusts and consumer finance companies that Greenhill deemed relevant.
- Compared the combined results of operations of TriNet and Starwood
Financial after giving effect to the advisor transaction with those of
certain companies that Greenhill deemed to be reasonably similar to the
combined company.
- Reviewed the financial terms, to the extent publicly available, of certain
other comparable transactions that Greenhill deemed relevant.
- Analyzed the pro forma effect of the merger on the earnings, cash flow,
consolidated capitalization, dividend policy and certain financial ratios
of the combined company.
- Participated in discussions and negotiations among representatives of
TriNet and Starwood Financial and Starwood Financial's advisor and their
financial and legal advisors.
- Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as Greenhill
deemed necessary or appropriate for purposes of its opinion.
In preparing its opinion, Greenhill assumed and relied upon, without
independent verification, the accuracy and completeness of the information
supplied or otherwise made available to it for purposes of its opinion.
Greenhill also relied upon the assurances of the representatives of TriNet,
Starwood Financial and Starwood Financial's advisor that they were not aware of
any facts or circumstances that would make such information inaccurate or
misleading. With respect to the financial projections provided by TriNet and
Starwood Financial, Greenhill assumed that these projections were reasonably
prepared on a basis reflecting the best currently available estimates and good
faith judgments of the
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management of TriNet, Starwood Financial and Starwood Financial's advisor as to
the future financial performance of TriNet and Starwood Financial. Greenhill
also assumed that the merger will be consummated in accordance with the terms of
the merger agreement. Greenhill did not make any independent appraisal of the
assets of TriNet or Starwood Financial.
Greenhill's opinion is necessarily based on the economic, market, financial
and other conditions as in effect on, and the information made available to
Greenhill as of, the date of the Greenhill opinion. Subsequent developments may
affect the conclusions contained in the written opinion dated June 15, 1999, and
Greenhill does not have any obligation to update, revise or reaffirm its
opinion. Greenhill expressed no opinion as to the price at which the Starwood
Financial common shares will trade at any future time.
In accordance with customary investment banking practice, Greenhill employed
generally accepted valuation methods in reaching its opinion. The following
summarizes certain of the analyses performed by Greenhill in connection with the
rendering of both its oral opinions of June 2 and June 14, 1999, and its written
opinion dated June 15, 1999. Some of the summaries below include information in
tabular format. The tables alone are not a complete description of the financial
analyses and should be read together with the text of each summary.
RELATIVE CONTRIBUTION ANALYSIS. Greenhill analyzed the pro forma
contribution of each of TriNet and Starwood Financial to the pro forma combined
company. The analysis showed that, among other things, Starwood Financial and
TriNet, respectively, would have contributed the portion of the combined
company's earnings before interest expense, taxes, depreciation and amortization
(also known as EBITDA), net income, funds from operations (also known as FFO)
and adjusted earnings (which represents net income plus depreciation and
amortization, less preferred dividends) for the pro forma projected fiscal years
ending December 31, 1999 and December 31, 2000 as set forth in the following
table.
<TABLE>
<CAPTION>
FISCAL 1999 FISCAL 2000
-------------------------- --------------------------
STARWOOD STARWOOD
FINANCIAL TRINET FINANCIAL TRINET
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
EBITDA........................................................... 61% 39% 66% 34%
Net Income....................................................... 66% 34% 69% 31%
FFO.............................................................. 57% 43% 62% 38%
Adjusted Earnings................................................ 59% 41% 63% 37%
</TABLE>
Greenhill observed that an exchange ratio of 1.15:1 implies pro forma
ownership of the combined company of: (1) 66.9% by a combination of current
holders of Starwood Financial common shares and owners of interests in its
external advisor who will receive Starwood Financial common shares in the
advisor transaction; and (2) 33.1% by TriNet common stockholders (after taking
into account the exercise of outstanding stock options and other outstanding
securities that are convertible into or exchangeable for, the common equity of
Starwood Financial or TriNet).
In performing the comparison, Greenhill relied upon projections of fiscal
year 1999 and 2000 revenue, EBITDA, FFO and adjusted earnings estimates and
projections prepared by the management of both TriNet and Starwood Financial.
ANALYSIS OF SELECTED COMPARABLE PUBLICLY-TRADED COMPANIES. Greenhill
observed that only approximately 1% of Starwood Financial's common shares is
available for trading in the public markets and, therefore, trading in Starwood
Financial's common shares is illiquid and highly volatile. Greenhill further
observed that no securities firms provide research on the value of Starwood
Financial's common shares. In light of the foregoing, Greenhill did not rely on
the public trading prices of Starwood Financial's common shares to determine the
value of Starwood Financial's common shares for purposes of its opinion.
Instead, Greenhill relied, as it would in evaluating a private company,
principally on an
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analysis of selected comparable publicly-traded companies to determine the value
of Starwood Financial's common shares. From January 1, 1999 to the date of the
announcement of the merger, Starwood Financial common shares, based on closing
prices, traded in the range of $34.125 to $66.50 per share.
Because of the lack of publicly-traded companies that are directly
comparable to Starwood Financial, Greenhill analyzed four different groups of
companies that Greenhill deemed shared characteristics relevant to Greenhill's
analysis of Starwood Financial. The four groups and the companies within each
group are as follows:
1. COMMERCIAL FINANCE COMPANIES
Allied Capital Corporation
The CIT Group, Inc.
The FINOVA Group Inc.
Heller Financial, Inc.
2. SPECIALTY REAL ESTATE FINANCE COMPANIES
Capital Trust, Inc.
Carey Diversified LLC
LNR Property Corporation
3. CONSUMER FINANCE COMPANIES
Associates First Capital Corporation
Household International, Inc.
4. REITS:
TRIPLE NET LEASE REITS
Commercial Net Lease Realty, Inc.
Franchise Finance Corporation of America
Lexington Corporate Properties Trust
Realty Income Corporation
OFFICE REITS
Boston Properties, Inc.
CarrAmerica Realty Corporation
Cornerstone Properties Inc.
Equity Office Properties Trust
OFFICE/INDUSTRIAL REITS
Duke Realty Investments, Inc.
Liberty Property Trust
Prentiss Properties Trust
Spieker Properties, Inc.
INDUSTRIAL REITS
First Industrial Realty Trust, Inc.
ProLogis Trust
OPPORTUNITY REITS
Crescent Real Estate Equities Company
Vornado Realty Trust
In analyzing the three groups of finance companies, Greenhill reviewed the
ratio (also known as
P/E) of price to projected fiscal 1999 and fiscal 2000 earnings per share (EPS)
(based on consensus security analyst estimates as reported by First Call), the
ratio of fiscal 2000 P/E to First Call projected five-year earnings growth
rates, and the ratio of price to book value as of March 31, 1999.
In analyzing the REIT group, Greenhill reviewed the ratio of price to
projected fiscal 1999 and fiscal 2000 FFO (based on consensus security analyst
estimates as reported by First Call), fiscal 1999 dividend yields, and the ratio
of price to book value as of March 31, 1999.
In evaluating the selected comparable companies, Greenhill made judgments
and assumptions concerning industry performance, general business, economic,
market and financial conditions and other matters. Greenhill also made judgments
as to the relative comparability of each group to Starwood Financial and
judgments as to the relative applicability to Starwood Financial of the various
valuation parameters with respect to each group. Based upon these judgments and
the valuation ranges discussed below, Greenhill determined a valuation range for
Starwood Financial as of May 19, 1999 of approximately $27.00 to $30.00 per
share. However, Greenhill expressed no opinion as to the price at which Starwood
Financial common shares will trade at any time.
Based upon a 1.15:1 exchange ratio, this valuation range for Starwood
Financial implies a transaction value for TriNet of between $31.05 and $34.50
per share. The per share value range for
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Starwood Financial, based upon Starwood Financial's book value as of March 31,
1999 and its management projections, implies multiple ranges of 14.3x-15.9x
1999E EPS, 11.0x-12.2x 2000E EPS, 0.73x-0.81x 2000E P/E to projected five-year
earnings growth rates, 13.5x-15.0x 1999E FFO, 10.6x-11.8x 2000E FFO and
1.36x-1.51x price to book value.
With respect to Commercial Finance Companies, Greenhill noted that Starwood
Financial's asset size, business model and growth prospects were similar to
these companies. Accordingly, Greenhill determined that Starwood Financial has a
size, asset diversity, track record and growth prospects that should ultimately
lead it to be viewed, for valuation purposes, as most comparable to the
Commercial Finance Companies. However, Greenhill also noted that Starwood
Financial, in contrast to the companies in this group, was focused entirely on
real estate finance, had lower leverage and historically paid a higher dividend.
Based on closing stock prices as of May 19, 1999, Greenhill noted that the
Commercial Finance Companies traded at multiple ranges of 11.4x-15.4x price to
1999E EPS, 9.5x-12.8x price to 2000E EPS, 0.54x-0.80x 2000E P/E to projected
five-year growth rates and 1.66x-2.11x price to book value.
With respect to Specialty Real Estate Finance Companies, Greenhill noted
that, while Starwood Financial's business model was in many ways similar to
these companies, this group represents an emerging industry niche where there
are few publicly-traded companies, all of which are substantially smaller than
Starwood Financial. Based on closing stock prices as of May 19, 1999, Greenhill
noted that the Specialty Real Estate Finance Companies traded at multiple ranges
of 8.4x-10.4x price to 1999E EPS, 7.1x-7.9x price to 2000E EPS, 0.30x-0.81x
2000E P/E to projected five-year growth rates and 0.86x-1.10x price to book
value.
With respect to Consumer Finance Companies, Greenhill observed that these
companies were much larger in terms of assets and market capitalization and had
higher perceived asset base diversification and growth prospects than Starwood
Financial. Based on closing stock prices as of May 19, 1999, Greenhill noted
that the Consumer Finance Companies traded at multiple ranges of 15.0x-19.6x
price to 1999E EPS, 12.9x-16.8x price to 2000E EPS, 0.83x-0.99x 2000E P/E to
projected five-year growth rates and 3.29x-3.52x price to book value.
With respect to REITs, Greenhill noted that Starwood Financial has a similar
capital structure and dividend policy to most equity REITs, but also noted that
Starwood Financial is fundamentally different in that it does not generally own
real estate as equity REITs do. With respect to mortgage REITs, Greenhill
observed that Starwood Financial is significantly larger and has a substantially
different business model, more diversified asset base, stronger financial
history and significantly lower leverage than publicly-traded mortgage REITs.
Greenhill therefore concluded that publicly-traded mortgage REITs did not
provide relevant benchmarks for determining the value of Starwood Financial
common shares. For this reason, the REIT companies selected by Greenhill for its
analysis constitute equity REITs, not mortgage REITs, although Starwood
Financial is fundamentally different from both groups of REITs in many respects.
Based on closing stock prices as of May 19, 1999, Greenhill noted that the REITs
traded at multiple ranges of 7.0x-12.9x price to 1999E FFO, 6.9x-11.8x price to
2000E FFO, and 1.01x-3.49x price to book value and had 1999 estimated dividend
yields of 4.5%-10.6%.
COMPARABLE TRANSACTION ANALYSIS AND TRANSACTION PREMIUM ANALYSIS. Using
publicly-available information, Greenhill examined selected merger and
acquisition transactions with respect to industry characteristics, growth
prospects and other traits deemed relevant. Specifically, Greenhill reviewed the
following transactions which were announced or took place from March 1996 to
April 1999 (listed in reverse chronological order beginning with the most recent
transaction):
- Krupp/Blackstone/Whitehall's proposed acquisition of Berkshire Realty Inc.
- Robert Alter/Westbrook's proposed acquisition of Sunstone Hotel Investors
- Irwin Jacobs' proposed acquisition of Cornerstone Realty Income Trust,
Inc.
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- Duke Realty Investments' acquisition of Weeks Corp.
- Reckson Associates/Crescent Properties' acquisition of Tower Realty Trust
- Irvine Co.'s acquisition of Irvine Apartment Communities
- ProLogis Trust's acquisition of Meridian Industrial Trust
- Equity Residential Properties' acquisition of Merry Land & Investment Co.
- Healthcare Realty Trust's acquisition of Capstone Capital Corp.
- Excel Realty Trust's acquisition of New Plan Realty Trust
- Equity Inns, Inc.'s acquisition of RFS Hotel Investors
- Bay Apartment Communities' acquisition of Avalon Properties Inc.
- Kimco Realty Corp.'s acquisition of Price REIT Inc.
- Apartment Inv. and Mgmt.'s acquisition of Ambassador Apartments Inc.
- Prime Retail Inc.'s acquisition of Horizon Group
- Equity Office Properties Trust's acquisition of Beacon Properties
Corporation
- Equity Residential Properties' acquisition of Evans Withycombe Residential
- Camden Property Trust's acquisition of Paragon Group Inc.
- United Dominion Realty's acquisition of South West Property Trust Inc.
- Highwoods Property Trust's acquisition of Crocker Realty Trust Inc.
- Simon Property Group's acquisition of DeBartolo Realty Corp.
The range of projected calendar year FFO paid in the comparable transactions
was 6.6x-16.2x. Based upon the Greenhill valuation for Starwood Financial as of
May 19, 1999 of approximately $27.00 to $30.00 per share, a 1.15:1 exchange
ratio implies a transaction value for TriNet of between $31.05-$34.50 per share.
This TriNet per share value range implies a multiple range for TriNet of
8.7x-9.6x 1999E FFO per share (based on TriNet management projections).
The range of implied premiums paid by the acquiror in the comparable
transactions based on the closing price of the relevant stock one week prior to
the announcement of the relevant transactions was -2.2% to 34.5%. Based upon the
Greenhill valuation for Starwood Financial as of May 19, 1999 of approximately
$27.00 to $30.00 per share, a 1.15:1 exchange ratio implies a transaction value
for TriNet of between $31.05-$34.50 per share. Based upon a TriNet closing stock
price of $28.25 as of May 12, 1999, this implies a premium paid range of between
9.9%-22.1%. Based upon a TriNet closing stock price of $24.75 on February 24,
1999, the date that the TriNet Board authorized Greenhill to contact a number of
parties with respect to exploring strategic alternatives for TriNet, this
implies a premium paid range of between 25.5%-39.4%.
No company utilized in the selected precedent transaction analysis is
identical to either TriNet or Starwood Financial nor is any transaction
identical to the contemplated transaction between TriNet and Starwood Financial.
An analysis of the results therefore requires complex considerations and
judgments regarding the financial and operating characteristics of TriNet and
Starwood Financial and the companies involved in the comparable transactions, as
well as other factors that could affect their publicly-traded and/or transaction
value. The numerical results are not in themselves meaningful in analyzing the
contemplated transaction as compared to comparable transactions.
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The summary set forth above does not purport to be a complete description of
the analyses or data presented by Greenhill. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. Greenhill believes that selecting any portion
of its analyses, without considering all analyses, would create an incomplete
view of the process underlying its opinion. In arriving at its opinion,
Greenhill may have given various analyses and factors more or less weight than
other analyses and factors and may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting from
any particular analysis described above should not be taken to be Greenhill's
view of the actual value of TriNet or Starwood Financial.
In performing its analyses, Greenhill made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of TriNet, Starwood Financial or
Greenhill. Any estimates contained in these analyses are not necessarily
indicative of future results or actual values, which may be significantly more
or less favorable than those suggested by these estimates. Because this analysis
is inherently subject to uncertainty, being based upon numerous factors or
events beyond the control of TriNet or Starwood Financial, none of Greenhill,
TriNet or Starwood Financial assumes responsibility if future results or actual
values are materially different from these forecasts or assumptions. The
analyses do not purport to be appraisals or to reflect the prices at which
TriNet or Starwood Financial might actually be sold.
The TriNet Board selected Greenhill to be its financial advisor in
connection with the merger because Greenhill is a prominent investment banking
and financial advisory firm with relevant qualifications, experience and
expertise. For services rendered in connection with the merger and the delivery
of its opinion, TriNet has agreed to pay Greenhill a fee of between $5.7 and
$5.9 million (which amount is based upon the Greenhill implied transaction
valuation range for TriNet as of May 19, 1999 of between $31.05-$34.50 per share
and equals 80% of the fee that would be owed to Greenhill if TriNet consummated
the same transaction with any party other than Starwood Financial). TriNet will
also indemnify Greenhill against certain liabilities in connection with its
engagement. In addition, TriNet has agreed to reimburse Greenhill for its
reasonable out-of-pocket expenses incurred in connection with rendering
financial advisory services, including fees and disbursements of its legal
counsel. In the past, Greenhill has provided investment banking services to
TriNet and has received customary fees for rendering these services.
THE OPINION OF BEAR STEARNS
Starwood Financial engaged Bear Stearns as its financial advisor based on
Bear Stearns' experience and expertise in similar transactions. Bear Stearns is
an internationally recognized investment banking firm. Bear Stearns, as part of
its investment banking business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
At the June 15, 1999 meeting of the Starwood Financial Board, Bear Stearns
delivered its oral opinion (subsequently confirmed in writing) to the effect
that, as of the date thereof, and subject to the assumptions, qualifications and
limitations set forth in the opinion, the exchange ratio in the merger of
Starwood Financial and TriNet was fair, from a financial point of view, to
Starwood Financial and its shareholders.
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Annex D to this document is the full text of Bear Stearns' written opinion
and we urge you to carefully read the opinion in its entirety. The opinion sets
forth the assumptions made, matters considered and qualifications and
limitations on the review undertaken by Bear Stearns and is incorporated in this
proxy in its entirety by this reference. THE SUMMARY OF THE BEAR STEARNS OPINION
SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THE OPINION. In reading the discussion of the fairness opinion set forth below,
Starwood Financial shareholders should be aware that Bear Stearns' opinion:
- Was provided to the Starwood Financial Board of Trustees solely for its
benefit and use in connection with its consideration as to whether the
exchange ratio in the merger of Starwood Financial and TriNet was fair,
from a financial point of view, to Starwood Financial and its
shareholders.
- Did not constitute a recommendation to the Starwood Financial Board of
Trustees in connection with the merger.
- Did not constitute a recommendation to any Starwood Financial shareholder
as to how to vote in connection with the merger proposal.
- Did not express any opinion as to the price or range of prices at which
shares of common stock of the pro forma combined company would trade
subsequent to the consummation of the merger.
- Did not address Starwood Financial's underlying business decision to
effect the merger.
- Did not address any other transactions that may occur at the time of, or
near the time of, the merger of Starwood Financial and TriNet or the
effect of any of these transactions on the merger of Starwood Financial
and TriNet.
Although Bear Stearns evaluated the fairness to Starwood Financial and its
shareholders, from a financial point of view, of the exchange ratio in the
merger of Starwood Financial and TriNet, the exchange ratio itself was
determined by Starwood Financial and TriNet through arms' length negotiations.
Bear Stearns provided advice to Starwood Financial during the course of such
negotiations. Starwood Financial did not provide specific instructions to, or
place any limitations on, Bear Stearns with respect to the procedures to be
followed or factors to be considered by it in performing its analyses or
providing its opinion.
In arriving at its opinion, Bear Stearns, among other things:
- Reviewed the merger agreement.
- Reviewed each of Starwood Financial's and TriNet's Annual Reports on Form
10-K for the fiscal years ended December 31, 1997 and 1998, and their
respective Quarterly Reports on Form 10-Q for the period ended March 31,
1999.
- Reviewed selected operating and financial information, including
projections related to the business and prospects of Starwood Financial
and TriNet, provided to Bear Stearns by the managements of Starwood
Financial and TriNet, as applicable, and reviewed selected operating and
financial information, including projections related to the business and
prospects of the pro forma combined company provided to Bear Stearns by
the managements of Starwood Financial and TriNet.
- Met with members of Starwood Financial's and TriNet's senior managements
to discuss their respective company's operations, historical financial
statements and future prospects.
- Reviewed the historical prices and trading volumes of the common shares of
Starwood Financial and TriNet.
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- Reviewed and analyzed the pro forma financial impact of the merger of
Starwood Financial and TriNet.
- Reviewed publicly-available financial data, stock market performance data
and valuation parameters of companies which it deemed generally comparable
to Starwood Financial and TriNet.
- Reviewed the terms of recent mergers and acquisitions which it deemed
generally comparable to the merger.
- Conducted such other studies, analyses, inquiries and investigations as it
deemed appropriate.
In preparing its opinion, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information including, without limitation, the projections provided to it
by Starwood Financial and TriNet. With respect to Starwood Financial's, TriNet's
and the pro forma combined company's projected financial results, Bear Stearns
assumed that they had been reasonably prepared on bases reflecting the best
available estimates and judgments of the senior managements of Starwood
Financial and TriNet as to the expected future performance of Starwood
Financial, TriNet and the pro forma combined company, as applicable. Bear
Stearns did not assume any responsibility for the independent verification of
any such information or of the projections provided to it, and relied upon the
assurances of the senior managements of Starwood Financial and TriNet that they
were unaware of any facts that would make the information or projections
provided to Bear Stearns incomplete or misleading. In arriving at its opinion,
Bear Stearns did not perform or obtain any independent appraisal of the assets
or liabilities of Starwood Financial and TriNet, nor was it furnished with any
such appraisals. Bear Stearns' opinion was necessarily based on economic, market
and other conditions, and the information made available to Bear Stearns, as of
the date of its opinion, and Bear Stearns undertook no obligation to update its
opinion to reflect any developments occurring after that date. Bear Stearns
assumed that the merger would qualify as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code.
The following is a brief summary of the material valuation and financial and
comparative analyses considered by Bear Stearns in connection with the rendering
of its opinion. This summary does not purport to be a complete description of
the analyses underlying the Bear Stearns opinion and is qualified in its
entirety by reference to the full text of the Bear Stearns opinion.
In performing its analysis, Bear Stearns made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Bear Stearns, Starwood Financial and TriNet. Any estimates contained in the
analysis performed by Bear Stearns are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analysis. In addition, as described above, the Bear Stearns
opinion was among several factors taken into consideration by the Starwood
Financial Board of Trustees in making its determination to approve the merger
and the merger agreement.
HISTORICAL STOCK PRICE PERFORMANCE OF TRINET. Bear Stearns reviewed the
trading volume and price history of TriNet common stock on the New York Stock
Exchange for the period from December 15, 1996 through June 11, 1999 and the
relationship between movements in the closing prices of TriNet common stock, the
Russell 2000 Index, the Morgan Stanley REIT Index and an index of net lease
REITs for the period from June 11, 1998 through June 11, 1999. Bear Stearns
noted that, since December 15, 1996, the closing price of TriNet common stock
had reached a high of $40 1/8 on February 9, 1998 and had fallen to a low of
$24 1/2 on March 24, 1999. Bear Stearns also noted that TriNet common stock had
underperformed the Russell 2000 Index, the Morgan Stanley REIT Index and the
index of the net lease REITs between June 11, 1998 and June 11, 1999.
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PRO FORMA EARNINGS IMPACT. Bear Stearns reviewed the pro forma impact of
the merger on Starwood Financial shareholders across various estimated per share
performance measures, including basic earnings per share, basic adjusted
earnings per share and basic funds from operations per share for the years 2000
through 2002. In the analysis, basic adjusted earnings per share was calculated
as basic earnings per share (after payment of preferred dividends) plus per
share depreciation and amortization. Bear Stearns reviewed the pro forma
earnings impact under two alternative sets of financial projections: the
independent stand-alone business plans combined with pro forma adjustments for
the merger, and the combined management's business plan. The primary differences
between the two cases reflected updated assumptions about the amount of external
financing for Starwood Financial and for the pro forma combined company,
different uses of the proceeds from the external financing and the types of
leasing and lending originations that would be made. The two sets of projections
were based on different assumptions of the managements of Starwood Financial and
TriNet. Set forth below are the pro forma percentage changes to certain
estimated per share performance measures of Starwood Financial for the years
2000 through 2002 that are assumed as a result of the merger with TriNet. The
following table shows the percentage changes between the stand-alone business
plan of Starwood Financial and the combined independent stand-alone business
plans of Starwood Financial and TriNet:
<TABLE>
<CAPTION>
PERCENTAGE CHANGE VERSUS
STARWOOD FINANCIAL STAND-ALONE
2000E 2001E 2002E
--------- --------- ---------
<S> <C> <C> <C>
COMBINATION OF INDEPENDENT STAND-ALONE BUSINESS PLANS:
Basic earnings per share.............................. (6.3%) (10.8%) (12.0%)
Basic adjusted earnings per share..................... 9.1% 3.2% (0.3%)
Basic funds from operations per share................. 10.6% 4.3% 1.1%
</TABLE>
The following table shows the percentage changes between the updated
stand-alone business plan of Starwood Financial versus the combined management's
business plan (i.e., the combination of the updated stand-alone business plan of
Starwood Financial and the independent stand-alone business plan of TriNet, with
certain pro forma adjustments for the merger relating to new business
acquisitions and funding for the combined company and certain merger acounting
adjustments):
<TABLE>
<CAPTION>
PERCENTAGE CHANGE VERSUS
STARWOOD FINANCIAL STAND-ALONE
2000E 2001E 2002E
--------- --------- ---------
<S> <C> <C> <C>
COMBINED MANAGEMENT'S BUSINESS PLAN:
Basic earnings per share.............................. (3.1%) (1.9%) (5.2%)
Basic adjusted earnings per share..................... 13.9% 16.4% 13.5%
Basic funds from operations per share................. 17.2% 19.7% 16.3%
</TABLE>
RELATIVE CONTRIBUTION ANALYSIS. Bear Stearns reviewed the relative
contribution of each of Starwood Financial and TriNet to selected income
statement categories of the pro forma combined company, including estimated
funds from operations, cash available for distribution and adjusted net income
for the years 2000 through 2002 based on the independent stand-alone business
plans. In the analysis, adjusted net income was calculated as net income (after
payment of preferred dividends) plus depreciation and amortization. Bear Stearns
then compared these contribution percentages to the pro forma equity ownership
percentages of Starwood Financial and TriNet stockholders implied by the 1.15
exchange ratio. Bear Stearns observed that Starwood Financial's equity ownership
of the pro forma combined company as of the consummation of the merger
(including the shares issued in the advisor transaction and the special stock
dividend) would be approximately 66.9% at the exchange ratio of 1.15.
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Set forth below is the relative contribution of each of Starwood Financial and
TriNet to selected estimated earnings figures for the pro forma combined company
for the years 2000 through 2002:
<TABLE>
<CAPTION>
2000E 2001E 2002E
----------- ----------- -----------
<S> <C> <C> <C>
FUNDS FROM OPERATIONS:
Starwood Financial................................................ 61.9% 67.6% 72.5%
TriNet............................................................ 38.1% 32.4% 27.5%
CASH AVAILABLE FOR DISTRIBUTION:
Starwood Financial................................................ 65.9% 73.7% 77.4%
TriNet............................................................ 34.1% 26.3% 22.6%
ADJUSTED NET INCOME:
Starwood Financial................................................ 63.3% 68.8% 73.6%
TriNet............................................................ 36.7% 31.2% 26.4%
</TABLE>
The preparation of a fairness opinion is a complex process and involves
various judgments and determinations as to the most appropriate and relevant
assumptions and financial analyses and the application of these methods to the
particular circumstances involved. Bear Stearns' opinion is therefore not
readily susceptible to partial analysis or summary description, and taking
portions of the analyses set out above, without considering the analysis as a
whole, would, in the view of Bear Stearns, create an incomplete and misleading
picture of the processes underlying the analyses considered in rendering its
opinion. Bear Stearns did not form an opinion as to whether any individual
analysis or factor (positive or negative), considered in isolation, supported or
failed to support the Bear Stearns opinion. In arriving at its opinion, Bear
Stearns considered the results of its separate analyses and did not attribute
particular weight to any one analysis or factor. The analyses performed by Bear
Stearns, particularly those based on estimates and projections, are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by these analyses. These
analyses were prepared solely as part of the Bear Stearns analysis of the
fairness, from a financial point of view, of the exchange ratio for the merger
of Starwood Financial and TriNet to Starwood Financial and its shareholders.
Pursuant to the terms of its engagement letter with Bear Stearns, Starwood
Financial has agreed to pay Bear Stearns a total fee of $9.0 million, $500,000
of which became payable to Bear Stearns upon the delivery of its opinion and the
balance of which will become payable upon consummation of the merger. In
addition, Starwood Financial has agreed to reimburse Bear Stearns for all
reasonable out-of-pocket expenses incurred by it in connection with the merger,
including reasonable fees and disbursements of its legal counsel. Starwood
Financial has also agreed to indemnify Bear Stearns against some liabilities in
connection with its engagement, including liabilities under the federal
securities laws.
Bear Stearns has been previously engaged by Starwood Financial and some of
its affiliates to provide investment banking and financial advisory services for
which it received customary compensation. In the ordinary course of business,
Bear Stearns may actively trade the equity and debt securities of Starwood
Financial and/or TriNet for its own account and for the account of its customers
and, accordingly, may at any time hold a long or short position in such
securities.
INTERESTS OF CERTAIN PARTIES IN THE MERGER--TRINET AFFILIATES
CHANGE OF CONTROL AGREEMENTS AND RELATED MERGER AGREEMENT
PROVISIONS. During 1997, TriNet entered into agreements with several senior
executives which entitle each to payments and other benefits in the event his or
her employment is terminated or constructively terminated following a change in
control of TriNet. At this time, the following officers are parties to change of
control agreements: Ms. Elisa DiTommaso (Senior Vice President, Chief Financial
Officer and Treasurer),
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Ms. Jo Ann Chitty (Senior Vice President, Asset Management), Mr. James H. Ida
(Senior Vice President, Acquisitions) and Mr. Geoffrey M. Dugan (Vice President,
Administration, General Counsel and Secretary). The merger is a change of
control for purposes of these agreements.
These agreements generally provide that, in the event of termination or
constructive termination following a change in control, the officer would
receive the following:
1. An amount equal to the greater of:
(a) the officer's annual base salary plus the largest bonus paid to the
officer over the previous five years; and
(b) his or her greatest amount of annual compensation (salary and bonus)
over the previous five years.
2. A prorated amount of unpaid incentive bonus for the year in which
termination occurs.
3. Continuation of employee group benefits coverage for one year.
4. At the officer's election, accelerated payment of outstanding dividend
equivalent right awards, at TriNet's then current dividend rate.
5. Immediate vesting of outstanding stock options and dividend equivalent right
awards.
6. An amount equal to TriNet's maximum contributions under its 401(k) plan for
one year.
7. An amount equal to the contributions previously made by TriNet to the
individual's account under its 401(k) plan which are forfeited due to
termination of employment.
The agreements also provide that TriNet will pay the covered executives
certain additional amounts equal to the excise taxes payable (if any) by the
executives, including income or other taxes with respect to the additional
excise tax payment itself.
The merger agreement provides that the remaining unvested options held by
Ms. DiTommaso, Ms. Chitty, Mr. Ida and Mr. Dugan will immediately vest at the
closing of the merger, and each executive will have a choice to either: (1)
receive the cash value of all their options (based on the difference between the
option exercise price and the combined company's stock price during a specified
period after the closing of the merger); or (2) have their options converted at
the exchange ratio into options to purchase shares of the common stock of the
combined company. Furthermore, those officers will also receive immediate
payment of all outstanding dividend equivalent rights.
On July 26, 1999, Mr. A. William Stein, former President and Chief Operating
Officer of TriNet, and TriNet entered into a consulting and separation agreement
in connection with Mr. Stein's resignation as of August 1, 1999 from his
employment with TriNet. Under the terms of the consulting and separation
agreement, Mr. Stein received a payment of $320,000 upon his separation from
TriNet on August 1, 1999 and an amount equal to the contributions previously
made by TriNet to Mr. Stein's account under its 401(k) plan that were forfeited
by Mr. Stein due to his termination of employment and continued coverage under
TriNet's employee group benefit plans. He will also receive an additional
payment of $320,000 on October 1, 1999 if the merger or an "alternative
transaction," as defined in the agreement, involving a change of control of
TriNet has not been completed by October 1, 1999. Mr. Stein was a party to a
change of control agreement with TriNet which he entered into in 1998 and which
was later amended. The consulting and separation agreement extinguishes Mr.
Stein's change of control agreement, as amended, and provides for the payment to
Mr. Stein of compensation if the merger or an alternative transaction, as
defined, is consummated. This compensation is substantially identical to what
Mr. Stein would have received under his pre-existing change of control agreement
in the event of his termination upon a change of control of TriNet. In
particular, the consulting and separation agreement provides that on the date
the merger or an alternative transaction, as defined, is
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completed, Mr. Stein will receive (less the cash payment or payments described
in the previous sentences) the amounts and other benefits described above that
would be payable to TriNet's senior executives in the case of a termination
after a change of control under their change of control agreements, except that,
in the case of Mr. Stein, he will receive an amount equal to 200% of the greater
of: (1) his annual base salary plus largest bonus over the previous five years;
and (2) his greatest amount of annual compensation over the previous five years;
continuation of employee group benefits coverage, at a minimum through August 1,
2001; and an amount equal to TriNet's matching contributions under its 401(k)
plan for a period of two years. Mr. Stein will also have the choice provided to
TriNet's senior executives by the merger agreement either to: (1) receive the
cash value of all of his options (based on the difference between the option
exercise price and the combined company's stock price during a specified period
after the closing of the merger); or (2) have his options converted at the
exchange ratio in the merger into options to purchase shares of common stock of
the combined company. Mr. Stein will also receive other benefits, including
continuation of his salary until the merger or an alternative transaction, as
defined, is completed or the agreement with regard to any such transaction
terminates. Mr. Stein has also agreed to be bound by confidentiality provisions,
to provide cooperation and assistance to TriNet, if requested, and to be bound
by other covenants.
Please refer to the section of this joint proxy statement and prospectus
entitled "The Merger Agreement--Treatment of TriNet and Starwood Financial Stock
Options" for more information regarding the terms of the merger agreement
relating to TriNet executive compensation.
MERGER AGREEMENT AND SHAREHOLDER AGREEMENT TERMS GOVERNING THE COMPOSITION
OF THE BOARD OF DIRECTORS OF STARWOOD FINANCIAL AFTER THE MERGER. The merger
agreement provides that Messrs. Willis Andersen, Jr., Robert W. Holman, Jr.,
John G. McDonald, Stephen B. Oresman and George W. Puskar (the current members
of TriNet's Board of Directors) will be members of the Board of Directors of
Starwood Financial after the merger. The shareholder agreement prohibits
Starwood Financial's principal shareholders (SOFI-IV SMT and Starwood Mezzanine)
from removing any of the above-listed directors prior to the expiration of their
respective initial terms or amending Starwood Financial's charter documents to
shorten their initial terms.
MERGER AGREEMENT TERMS GOVERNING THE OPTIONS OF THE TRINET BOARD MEMBERS AND
THE OPTION STANDSTILL AGREEMENTS. The merger agreement provides that all
options to purchase TriNet common stock held by the current members of TriNet's
Board of Directors (Messrs. Andersen, Holman, McDonald, Oresman and Puskar) will
be converted at the exchange ratio at the completion of the merger into options
to purchase common stock of the combined company. The current members of
TriNet's Board have agreed to restrict the exercise and transfer of their
options pursuant to option standstill agreements, which are described in more
detail in the section of this joint proxy statement and prospectus entitled
"Certain Agreements Relating to the Merger--The Option Standstill Agreements."
MERGER AGREEMENT TERMS GOVERNING THE COMPOSITION OF STARWOOD FINANCIAL'S
MANAGEMENT. The merger agreement provides that some current officers of TriNet
will become officers of Starwood Financial after the merger. For more
information regarding the officers of the combined company, please read the
section of this joint proxy statement and prospectus entitled "Management of the
Combined Company."
INTERESTS OF CERTAIN PARTIES IN THE MERGER--STARWOOD FINANCIAL AFFILIATES
Pursuant to the pre-existing employment arrangement between Mr. Spencer B.
Haber, Starwood Financial's Chief Financial Officer, and Starwood Financial,
250,000 of Mr. Haber's options to purchase Class A shares of Starwood Financial
will vest and become exercisable upon completion of the merger.
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ACCOUNTING TREATMENT
The merger will be accounted for as a purchase by Starwood Financial of
TriNet. For more information regarding the accounting treatment of the merger,
please refer to the unaudited pro forma financial data of Starwood Financial in
the section of this joint proxy statement and prospectus entitled "Unaudited Pro
Forma Financial Data."
NO APPRAISAL RIGHTS
No dissenters' appraisal rights are available to stockholders of TriNet or
shareholders of Starwood Financial in connection with the merger.
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THE MERGER AGREEMENT
The following is a brief summary of the significant provisions of the merger
agreement. A copy of the merger agreement is attached as Annex A to and
incorporated by reference into this joint proxy statement and prospectus. WE
ENCOURAGE YOU TO READ THE MERGER AGREEMENT CAREFULLY AND IN ITS ENTIRETY.
GENERAL
The merger agreement provides for the merger of a newly-formed Starwood
Financial subsidiary into TriNet. TriNet will survive the merger and become a
wholly-owned subsidiary of Starwood Financial.
In the merger:
- Each issued and outstanding share of common stock, par value $0.01 per
share, of TriNet will be exchanged for 1.15 shares of Starwood
Financial common stock.
- Each issued and outstanding share of 9 3/8% Series A Cumulative
Redeemable Preferred Stock, par value $0.01 per share, of TriNet will
be converted into one 9 3/8% Series B Cumulative Redeemable Preferred
Share, par value $0.001 per share, of Starwood Financial.
- Each issued and outstanding share of 9.2% Series B Cumulative
Redeemable Preferred Stock, par value $0.01 per share, of TriNet will
be converted into one 9.2% Series C Cumulative Redeemable Preferred
Share, par value $0.001 per share, of Starwood Financial.
- Each issued and outstanding share of 8% Series C Cumulative Redeemable
Preferred Shares, par value $0.01 per share, of TriNet will be
converted into one 8% Series D Cumulative Redeemable Preferred Share,
par value $0.001 per share, of Starwood Financial.
Following the merger, the new Starwood Financial preferred stock will have
rights and preferences substantially identical to the old TriNet preferred
stock, except that in addition to the existing voting rights of TriNet Preferred
Stock, the new Starwood Financial Preferred Stock will have 0.25 of a vote per
share and will vote together with Starwood Financial common stock and all other
series of Starwood Financial Preferred Stock entitled to vote.
No certificates or scrip representing fractional shares of Starwood
Financial common shares will be issued upon surrender for exchange of TriNet
certificates. Cash will be issued instead of fractional shares of Starwood
Financial common shares upon surrender of that certificate, and any dividends or
other distributions to which the holder is entitled, in each case without
interest and less any required withholding taxes.
The merger is intended to qualify as a tax-free reorganization for federal
income tax purposes.
There are no dissenters' rights of appraisal available to TriNet's
stockholders or Starwood Financial's shareholders in connection with the merger.
The merger agreement is governed by New York law except to the extent that
the merger is required to be governed by Maryland law.
Except as otherwise specified in the merger agreement or agreed by the
parties, each party will pay all expenses it incurs in the merger.
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EFFECTIVE TIME OF THE MERGER
The merger will be completed upon acceptance of the Articles of Merger by
the State Department of Assessments and Taxation of Maryland. The parties
believe this acceptance will occur at the same time as the closing under the
merger agreement which, unless the parties otherwise agree, will occur on the
fifth business day after the satisfaction or waiver of the conditions in the
merger agreement.
EXCHANGE OF CERTIFICATES
Once the merger is complete, Starwood Financial will deposit with the
exchange agent for the merger the certificates representing the shares of
Starwood Financial common stock, preferred stock, and any related dividends or
distributions, issuable pursuant to the merger in exchange for outstanding
shares of TriNet common and preferred stock. TriNet may declare and pay to its
common stockholders on a record date immediately prior to the completion of the
merger, a final dividend in an amount necessary to satisfy the REIT requirements
of the Internal Revenue Code and to avoid the imposition of federal income taxes
for the taxable year of TriNet during which the effective time of the merger
occurs. If TriNet declares a final dividend, Starwood Financial will declare and
pay to its common shareholders on a record date immediately prior to the
completion of the merger, a final dividend in an amount per share equal to
TriNet final dividend per share divided by the exchange ratio.
As soon as possible after the merger, the exchange agent will mail a letter
of transmittal and instructions to TriNet stockholders explaining how to
surrender TriNet shares to the exchange agent. Upon surrender of TriNet
certificate(s) to the exchange agent, TriNet stockholders will be entitled to
receive a certificate representing that number of whole shares of Starwood
Financial common shares, and cash instead of any fractional share.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various customary representations and
warranties by both Starwood Financial and TriNet relating to:
- Organization, standing and corporate power.
- Subsidiaries and interests in other persons.
- Capital structure.
- Authority, noncontravention and consents.
- SEC documents, financial statements and undisclosed liabilities.
- Absence of material changes or events.
- Litigation.
- Absence of changes in benefit plans and ERISA compliance.
- Taxes.
- Compliance with laws.
- Contracts and debt instruments.
- Environmental matters.
- Properties.
- Receipt of opinion of financial advisor.
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- No loans or payments to employees, officers or directors.
- Brokers, schedule of fees and expenses.
- Investment Company Act of 1940.
- Proxy statement and registration statement.
- Vote required.
- Year 2000 issues.
- Anti-takeover matters.
The merger agreement also contains representations and warranties made by
Starwood Financial and its merger subsidiary relating to, among other things:
- Operations of Starwood Financial and ST Merger Sub, Inc.
- No ownership of TriNet stock at closing.
COVENANTS
Each of Starwood Financial and TriNet has agreed to carry on its business in
the usual and ordinary course, consistent with past practice, and will seek to
preserve its goodwill, ongoing businesses and status as a REIT. Without the
consent of the other, Starwood Financial and TriNet will not:
- Declare any dividends or make any other distributions, with
exceptions.
- Amend any organizational documents.
- Change any methods of accounting except as may be required by the SEC,
applicable law or GAAP.
- Adopt any new employee benefit plan, incentive plan, severance plan,
bonus plan, stock option or similar plan, or amend any employment
agreement or, except in the ordinary course consistent with past
practice, grant any increase in the compensation of officers or
employees.
- Enter into agreements with affiliates.
- Expend more than $3.0 million for capital expenditures, with
exceptions.
TriNet has further agreed that, without Starwood Financial's consent, it
will not:
- Issue any equity security, except as permitted under TriNet option
plans or dividend reinvestment plans.
- Merge, consolidate or enter into any other business combination
transaction with any other person or entity.
- Acquire an interest in any business or subject to any lien, or sell,
lease or otherwise dispose of any of its material properties other
than the lease of material properties in the ordinary course of its
business, or assign the right to receive income, dividends,
distributions and the like, incur indebtedness or guarantee any
indebtedness other than a TriNet subsidiary.
- Settle any lawsuit relating to the merger.
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Starwood Financial has further agreed that, without TriNet's consent, it
will not:
- Issue any equity security, except: (1) pursuant to the advisor
transaction, the incorporation merger or the stock dividend of one
million shares of Starwood Financial common stock to Starwood
Financial's shareholders; (2) in an amount totaling less than 20% of
the total issued and outstanding shares of Starwood Financial; or (3)
for issuances of Starwood Financial Class B shares upon the exercise
of Starwood Financial stock options.
- Merge, consolidate or enter into any other business combination
transaction with any person, except for any merger in which Starwood
Financial is the surviving or successor entity, or in which no change
of control of Starwood Financial occurs.
- Make acquisitions in unrelated businesses totaling more than $250.0
million; otherwise dispose of any of its material properties or
assign the right to receive income, dividends, distributions except
in the ordinary course or in connection with securitization of
Starwood Financial loans or existing debt; incur indebtedness or
guarantee any indebtedness that would cause its debt-to-equity ratio
to exceed 2:1.
- Settle any lawsuit relating to the merger without consulting with
TriNet.
Each of Starwood Financial and TriNet have agreed, among other things:
- Not to take any action that would result in any of the representations
and warranties becoming untrue or any of the conditions not being
satisfied.
- To cooperate in preparing and filing this joint proxy statement and
prospectus.
- As soon as practicable following the date of the merger agreement to
hold a special meeting of its shareholders or stockholders (as the
case may be).
- To recommend to its shareholders or stockholders (as the case may be)
approval of the merger.
- To use commercially reasonable efforts to do all things necessary to
fulfill all conditions of the merger agreement.
- To notify the other if any representation or warranty becomes untrue
or it fails to comply with any covenant, condition or agreement under
the merger agreement, the advisor transaction agreement or the
incorporation merger agreement.
- To use commercially reasonable efforts to cause the merger to qualify
as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code.
- Starwood Financial will provide to former employees of TriNet and its
subsidiaries at least the same level of benefits as those provided to
similarly situated employees of Starwood Financial with respect to
any Starwood Financial employee benefit plan. For purposes of
determining eligibility to participate, vesting and entitlement to
benefits, but not for purposes of accrual of pension benefits,
service with TriNet, Starwood Financial or any of their respective
subsidiaries will be treated as service with Starwood Financial.
- Starwood Financial will assume TriNet's obligations under its change
of control agreements with certain of its officers and TriNet
employee severance policy.
- Starwood Financial and TriNet will coordinate with each other so that
any holder of TriNet common stock shall not receive two dividends, or
fail to receive one dividend, for any single calendar quarter.
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- Starwood Financial will deliver Phase I environmental assessments of
selected properties securing loans made by Starwood Financial.
- TriNet will have taken all steps necessary to ensure that the merger
will not result in the grant of any rights under TriNet's rights
agreement (by amending its rights agreement to provide that
acquisition by Starwood Financial is not a triggering event).
NO SOLICITATION OF TRANSACTIONS
Starwood Financial has agreed that it will not, either directly or
indirectly through another person, solicit, initiate or encourage, or knowingly
take any other action designed to facilitate:
- Any merger or similar transaction involving Starwood Financial which
is required to be submitted to Starwood Financial's shareholders for
approval.
- Any sale, lease or other transfer of 20% or more of the assets of
Starwood Financial and its subsidiaries (excluding financing
transactions).
- Any tender offer or exchange offer for 20% or more of Starwood
Financial equity securities.
TriNet has agreed that it will not, either directly or indirectly through
another person, solicit, initiate or encourage, or knowingly take any other
action designed to facilitate:
- Any merger or similar transaction involving TriNet.
- Any sale, lease or other transfer of 20% or more of the assets of
TriNet and its subsidiaries (excluding financing transactions).
- Any tender offer or exchange offer for 20% or more of TriNet's equity
securities.
However, this provision does not prohibit TriNet from:
- Disclosing to its stockholders any information required to be
disclosed under applicable law.
- Participating in discussions or furnishing information in connection
with a transaction that is more favorable for TriNet stockholders
than this merger, provided that TriNet notify Starwood Financial of
those communications.
- Approving or negotiating a transaction that is more favorable for
TriNet stockholders than this merger.
TREATMENT OF TRINET AND STARWOOD FINANCIAL STOCK OPTIONS
Each holder of a TriNet stock option, with exceptions described below, may
elect to receive one of the following for each TriNet stock option: (1) cash
equal to the difference between the market price and the exercise price of the
stock option, whether vested or unvested; or (2) a number of options to purchase
Starwood Financial common stock on substantially the same terms, determined by
applying the exchange ratio, but unvested TriNet options will be exchanged for
unvested Starwood Financial options.
The Directors of TriNet do not have the option to receive cash in exchange
for their TriNet options, but will be able to exchange their TriNet options for
Starwood Financial options on terms described in clause (2) of the preceding
paragraph and on a fully-vested basis. The TriNet directors' options are being
treated in this manner because each TriNet director has entered into an option
standstill agreement which requires each director to refrain from exercising
their options for one year following the completion of the merger. For more
information regarding the option standstill
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agreements, please read the section of this joint proxy statement and prospectus
entitled "Certain Agreements Related to the Merger--The Option Standstill
Agreements."
TriNet stock options held by certain senior executives of TriNet may elect
to receive one of the following for each TriNet stock option: (1) cash equal to
the difference between the market price and the exercise price of the stock
option, whether vested or unvested; or (2) a number of options to purchase
Starwood Financial common stock on substantially the same terms, determined by
applying the exchange ratio, except that both vested and unvested TriNet stock
options will be exchanged for vested Starwood Financial options. These
executives have been given this choice with respect to their TriNet stock
options because it is required by change-of-control agreements they have each
entered into with TriNet. For more information regarding the stock options of
TriNet's officers and directors, please read the section of this joint proxy
statement and prospectus entitled "The Merger--Interests of Certain Parties in
the Merger--TriNet Affiliates."
Options to acquire Starwood Financial shares will continue unaffected in
accordance with their terms and conditions, except as described in this joint
proxy statement and prospectus under the caption, "The Merger--Interests of
Certain Parties in the Merger--Starwood Financial Affiliates."
INDEMNIFICATION OF OFFICERS AND DIRECTORS
TriNet has agreed to indemnify and hold harmless the directors and officers
of TriNet against any losses or claims arising out of the fact that the person
is or was a director or officer of TriNet. TriNet has also agreed to purchase
"run-off" or "tail" directors and officers liability insurance coverage for a
period of six years after the merger.
CONDITIONS TO THE MERGER
The obligations of Starwood Financial and TriNet to complete the merger and
the other transactions contemplated by the merger agreement depend on the
following conditions being fulfilled:
- Approval of the merger by the shareholders of Starwood Financial and
the stockholders of TriNet.
- The New York Stock Exchange or American Stock Exchange approval for
listing of the shares of the combined company's common stock and the
Series B, C and D preferred stock.
- The registration statement with respect to the Starwood Financial
shares to be issued in the merger becoming effective.
- Absence of any injunctions or restraint preventing the merger.
- Prior occurrence of the incorporation merger and simultaneous
occurrence of the advisor transaction.
- Representations and warranties made by the other party being true and
correct in all material respects, in most cases, as of the closing
date the merger is completed.
- All obligations of each party required under the merger agreement
having been performed.
The obligations of Starwood Financial to complete the merger and the other
transactions contemplated by the merger agreement depend on the following
conditions being fulfilled:
- Absence of any material adverse effect on TriNet; this condition will
be deemed not satisfied if there are defaulted TriNet leases, other
than those in default at the date of the
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merger agreement, representing more than 5% of the consolidated
rental income of TriNet for the most recent fiscal quarter.
- Delivery of legal opinions relating to TriNet's and the combined
company's REIT status.
- Delivery of a legal opinion relating to the merger being treated as a
tax-free reorganization.
- Material required consents having been obtained.
The obligations of TriNet to complete the merger and the other transactions
contemplated by the merger agreement depend on the following conditions being
fulfilled:
- Absence of any material adverse effect on Starwood Financial.
- Delivery of legal opinions relating to Starwood Financial's and the
combined company's REIT and partnership status.
- Delivery of a legal opinion relating to the merger being treated as a
tax-free reorganization.
- Necessary consents are obtained.
- Incorporation merger agreement representations being true.
- Advisor transaction agreement representations being true.
- Starwood Financial having elected to be taxed as a REIT for 1998.
TERMINATION
The merger agreement may be terminated at any time prior to the completion
of the merger, whether before or after approval by the shareholders of Starwood
Financial and the stockholders of TriNet, under the following circumstances:
(a) By Starwood Financial's and TriNet's mutual written consent.
(b) By Starwood Financial, upon a breach of any representation, warranty,
covenant or agreement on the part of TriNet set forth in the merger
agreement.
(c) By Starwood Financial, upon a material adverse effect on TriNet.
(d) By TriNet, upon a breach of any representation, warranty, covenant or
agreement on the part of Starwood Financial set forth in the merger
agreement.
(e) By TriNet, upon a material adverse effect on Starwood Financial.
(f) By either Starwood Financial or TriNet, if any governmental entity or
competent authority has taken action to prevent the consummation of the
merger.
(g) By either Starwood Financial or TriNet, if the merger is not complete by
December 31, 1999.
(h) By Starwood Financial or TriNet, if two thirds of TriNet's stockholders
do not approve the merger.
(i) By Starwood Financial, if: (1) the Board of Directors of TriNet
withdraws its approval of the merger; or (2) TriNet enters into a
competing transaction.
(j) By TriNet, if TriNet agrees to a superior competing transaction.
(k) By TriNet, upon a termination of the advisor transaction agreement.
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(l) By TriNet, if a lender obtains voting rights to Starwood Financial
shares pledged to it by one of Starwood Financial's principal
shareholders and has not agreed to vote in favor of the merger and less
than two thirds of the aggregate number of then outstanding Starwood
Financial Class A common shares and Starwood Financial Class B common
shares are held by Starwood Financial affiliates.
(m) By Starwood Financial or TriNet, if two thirds of Starwood Financial's
shareholders do not approve this merger, unless TriNet fails to exercise
its rights under its irrevocable proxy.
TERMINATION FEES
TriNet will be obligated to reimburse Starwood Financial for documented
expenses incurred by Starwood Financial in connection with the merger up to a
maximum amount of $3.5 million if the merger agreement is terminated under
circumstances described in paragraphs (b), (h), (i), or (j) above.
TriNet will be obligated to pay Starwood Financial a break-up fee up to a
maximum amount of $50.0 million if the merger agreement is terminated under any
of the following circumstances:
- Paragraph (b) above, by reason of a breach by TriNet of any
representation or warranty in the merger agreement and TriNet agrees
to a change of control transaction within 12 months of termination.
- Paragraph (c) above, and TriNet agrees to a superior competing
transaction within 12 months of termination.
- Paragraph (h) above, and TriNet agrees to a change of control
transaction within nine months of termination.
- Paragraphs (i) or (j) above.
- Paragraph (b) above, by reason of a breach by TriNet of any covenant
in the merger agreement.
Starwood Financial will be obligated to reimburse TriNet for documented
expenses incurred by TriNet in connection with the merger up to a maximum amount
of $3.5 million if the merger agreement is terminated under circumstances
described in paragraphs (d), (k), (l), or (m) above.
Starwood Financial will be obligated to pay TriNet a break-up fee up to a
maximum amount of $50.0 million if the merger agreement is terminated under any
of the following circumstances:
- Paragraph (d) above, by reason of a breach by Starwood Financial of
any representation or warranty in the merger agreement and Starwood
Financial agrees to a change of control transaction within 12 months.
- Paragraph (e) above, and Starwood Financial agrees to a superior
competing transaction within 12 months.
- Paragraph (d) above, by reason of a breach by Starwood Financial of
any covenant in the merger agreement.
- Paragraph (k) above.
Starwood Financial will be obligated to pay TriNet a break-up fee up to a
maximum amount of $60.0 million if the merger agreement is terminated under the
circumstances described in paragraphs (l) or (m) above.
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CERTAIN AGREEMENTS RELATED TO THE MERGER
THE SHAREHOLDER AGREEMENT
In connection with the merger, the principal shareholders of Starwood
Financial, (SOFI-IV SMT Holdings, L.L.C., Starwood Mezzanine Investors, L.P. and
B Holdings, L.L.C.), who together hold approximately 99% of the voting power of
Starwood Financial's outstanding common shares, executed a shareholder agreement
with TriNet, dated as of June 15, 1999 and amended as of July 12, 1999.
In the shareholder agreement, the principal shareholders of Starwood
Financial agreed:
- To vote their shares in favor of the transactions and against any
competing proposal to the merger at any shareholder meetings of Starwood
Financial.
- To execute an irrevocable proxy to TriNet to vote their shares as required
by the shareholder agreement.
- Not to vote their shares in favor of the removal (other than for cause) of
Messrs. Willis Andersen, Jr., Robert W. Holman, Jr., John G. McDonald,
Stephen B. Oresman and George W. Puskar as directors of Starwood Financial
prior to the expiration of their respective initial terms.
- Not to vote their shares in favor of changing the classification or
shortening the initial terms of office of the above-listed directors.
- Prior to the closing of the merger, not to transfer or encumber their
shares or grant other proxies with respect to their shares, except for an
existing pledge of SOFI-IV SMT's shares and future transfers and pledges
of the principal shareholders' shares in connection with bona-fide
financing transactions; if those future transfers and pledges are made,
the transferees and pledgees must agree to become parties to the
shareholder agreement and execute an irrevocable proxy as required by the
shareholder agreement.
SOFI-IV SMT currently holds approximately 52.6% of the voting power of
Starwood Financial's common shares. SOFI-IV SMT is party to a credit agreement
with an institutional lender and has pledged its common shares to that lender to
secure its borrowings under the credit agreement. The lender is able to
foreclose upon and exercise voting and consensual rights with respect to the
pledged shares upon the occurrence of an event of default or acceleration event
under the credit agreement. In the event the lender exercises any of those
rights and does not agree to vote in favor of the merger and the advisor
transaction, TriNet will be entitled to terminate the merger agreement and
receive a termination fee of up to $60.0 million plus expenses of up to $3.5
million. For more information regarding the termination provisions of the merger
agreement, please refer to the section of this joint proxy statement and
prospectus entitled "The Merger Agreement--Termination."
The shareholder agreement terminates upon the termination of the merger
agreement or by written consent of the parties.
THE STARWOOD FINANCIAL AFFILIATE LOCK-UP AGREEMENTS
On June 15, 1999, the principal shareholders of Starwood Financial and the
owners of interests in Starwood Financial's external advisor who will receive
shares of combined company common stock in connection with the advisor
transaction executed lock-up agreements with Greenhill pertaining to the period
following completion of the advisor transaction.
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In their lock-up agreements, each of the principal shareholders of Starwood
Financial (SOFI-IV SMT, Starwood Mezzanine and B Holdings) agreed, subject to
customary exceptions (including pledges to lenders):
- Not to transfer or encumber any of its shares of combined company common
stock during the first six months after the closing of the merger, other
than 5% of its holdings that may be transferred in any manner, 20% that
may be transferred in connection with public offerings by Starwood
Financial and 30% that may be transferred in off-market transactions (all
shares transferred under any exemption also counting against the amount
transferrable under the other two exemptions).
- Not to transfer or encumber any of its shares in the combined company
during the second six months after the closing of the merger, other than
one third of the shares it held as of the six-month anniversary of the
closing of the merger.
- Not to transfer or encumber any of its shares in the combined company
during the third six months after the closing of the merger, other than
two thirds of the shares it held as of the six-month anniversary of the
closing of the merger.
- Not to liquidate, dissolve or make distributions of shares of the combined
company in respect of its equity interests unless all persons or entities
receiving the shares execute deeds of adherence to its lock-up agreement.
In their lock-up agreements, each of the owners of interests in the advisor,
including Mr. Barry Sternlicht (the Chairman of Starwood Financial and the
combined company), Mr. Jay Sugarman (the President and Chief Executive Officer
of Starwood Financial and the combined company) and Mr. Spencer B. Haber (the
Chief Financial Officer of Starwood Financial and the combined company) and
Starwood Capital Group, L.L.C., agreed, subject to customary exceptions:
- Not to transfer or encumber any of the shares in the combined company
which they receive in the advisor transaction during the 12 months after
the closing of the merger.
- Not to liquidate, dissolve or make distributions of the shares in the
combined company in respect of their equity interests unless all persons
or entities receiving the shares execute deeds of adherence to its lock-up
agreement.
Greenhill and all stockholders of the combined company holding 100 or more
shares in the combined company are entitled to enforce each of the lock-up
agreements. Greenhill is also permitted to waive any of the terms and provisions
of the Starwood Financial affiliate lock-up agreements on behalf of those
stockholders. If an action brought by a stockholder to enforce a lock-up
agreement is successful, the losing party or parties will pay the costs incurred
by the successful stockholder in the action. If an action brought by a
stockholder to enforce a lock-up agreement is not successful and is determined
by an independent firm of legal counsel to be non-frivolous, each losing
stockholder will pay its pro-rata share (based on the percentage of outstanding
shares in the combined company held by it) of the costs incurred by the winning
party or parties in the action. If an action brought by a stockholder is not
successful and determined to be frivolous by an independent firm of legal
counsel, the losing stockholder or stockholders will pay the entirety of the
costs incurred by the winning party or parties in the action.
THE OPTION STANDSTILL AGREEMENTS
In connection with the merger, each of the current members of TriNet's Board
of Directors (Messrs. Willis Andersen, Jr., Robert W. Holman, Jr., John G.
McDonald, Stephen B. Oresman and George W. Puskar) will exchange their options
to purchase TriNet common stock for options to purchase combined company common
stock. On June 15, 1999, each of these directors entered into an
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option standstill agreement, agreeing not to exercise or transfer his options to
purchase combined company common stock (subject to customary exceptions) during
the 12 months after the closing of the merger.
If an action brought by the combined company to enforce an option standstill
agreement is successful, each losing party will pay his pro-rata share (based on
the percentage of outstanding shares in the combined company held by him) of the
costs incurred by the combined company in the action. If an action brought by
the combined company to enforce a lock-up agreement is not successful, the
combined company will pay all of the costs incurred by the winning party or
parties in the action.
THE TRINET SUBSIDIARY STOCK PURCHASE AGREEMENT
Mr. Robert Holman, Jr. is the holder of common stock of TriNet Management
Operating Company, Inc. representing 95% of the voting power and 5% of the
economic interests in that company. TriNet holds the balance of the common stock
of that company. Messrs. Jay Sugarman (the President and Chief Executive Officer
of Starwood Financial and the combined company) and Spencer B. Haber (the Chief
Financial Officer of Starwood Financial and the combined company) have entered
into a stock purchase agreement with Mr. Holman by which Mr. Holman agreed to
sell, and Messrs. Sugarman and Haber agreed to purchase, all of Mr. Holman's
interest in the subsidiary for an aggregate purchase price of $6,000. The stock
purchase agreement will terminate if the merger agreement is terminated.
THE INCORPORATION MERGER AGREEMENT
GENERAL. The incorporation merger agreement provides for the merger of
Starwood Financial Trust with and into a newly-formed Maryland corporation,
Starwood Financial Inc. The sole purposes of the incorporation merger are: (1)
to change Starwood Financial Trust's form from a Maryland trust to a Maryland
corporation; and (2) to provide a mechanism for eliminating Starwood Financial
Trust's dual-class share structure. The incorporation merger will occur prior to
the completion of the merger and the advisor transaction.
In the incorporation merger, each issued and outstanding Class A share of
beneficial interest of Starwood Financial Trust, will be converted into one
share of common stock of Starwood Financial Inc. Every 49 issued and outstanding
Class B shares of Starwood Financial Trust will be converted into one share of
common stock of Starwood Financial Inc. (the conversion ratio being derived from
the number of Class A shares into which each Class B share is currently
convertible). Each issued and outstanding 9.5% Series A Preferred Share of
Starwood Financial Trust will be converted into one share of 9.5% Series A
Cumulative Redeemable Preferred Stock of Starwood Financial Inc. The voting
powers, rights and preferences of the Series A Preferred Stock are intended to
be substantially identical to the powers, rights and preferences of the Starwood
Financial Trust Series A Preferred Shares. As a result of the incorporation
merger, Starwood Financial's two existing classes of common shares of beneficial
interest will be replaced with one class of common stock of Starwood Financial
Inc.
EFFECTIVE TIME OF THE INCORPORATION MERGER. The incorporation merger will
become effective at the time of acceptance for filing by the State Department of
Assessments and Taxation of Maryland of the articles of merger. The
incorporation merger is not a condition to the merger with TriNet or the advisor
transaction.
EXCHANGE OF STARWOOD FINANCIAL SHARES. At the effective time of the
incorporation merger, certificates representing the shares of beneficial
interest in Starwood Financial Trust will represent the corresponding shares of
common stock or preferred stock (as the case may be) of Starwood Financial Inc.
into which those shares of Starwood Financial Trust were converted, and under
Maryland law, it will not be necessary for shareholders of Starwood Financial
Trust to surrender or exchange their existing share certificates for new stock
certificates. In the event the number of shares of the
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common stock to be issued to a shareholder includes a fraction, the surviving
company will pay to the shareholder a cash payment in lieu of fractional shares
equal to the same fractional proportion of the arithmetic mean of the closing
sales price per share of the common stock on the principal stock exchange on
which the surviving company's common stock is then listed on each of the three
trading days immediately after the effective time.
REPRESENTATIONS AND WARRANTIES. The incorporation merger agreement contains
various customary representations and warranties relating to, among other
things:
- Due organization, power, authority and standing of each party.
- Capital structure of each party.
- Authorization of the incorporation merger agreement by each party.
- The absence of pending or threatened material litigation.
TERMINATION. The incorporation merger agreement may be terminated and
abandoned by either company prior to the effective time.
APPROVAL OF THE INCORPORATION MERGER. The respective obligations of each
party to effect the incorporation merger agreement are subject to adoption by
the requisite vote of the shareholders of Starwood Financial Trust.
ACCOUNTING TREATMENT. For financial accounting purposes, the incorporation
merger will be treated as a transfer of assets and liabilities which are under
common control. Accordingly, the assets and liabilities transferred from
Starwood Financial Trust to Starwood Financial Inc. will be reflected at their
predecessor basis and no gain or loss will be recognized. Please refer to the
unaudited pro forma financial data of Starwood Financial in the section of this
joint proxy statement and prospectus entitled "Unaudited Pro Forma Financial
Data."
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THE ADVISOR TRANSACTION
THE ADVISOR
Since March 1998, Starwood Financial Advisors, L.L.C. has been Starwood
Financial's external advisor. The advisor is indirectly owned by certain
trustees and executive officers of Starwood Financial, as well as principals of
entities affiliated with Starwood Financial. For more information regarding
these relationships, please read the section of this joint proxy statement and
prospectus entitled "The Advisor Transaction--Interests of Certain Parties in
the Advisor Transaction." Under the direction of the Starwood Financial Board,
the external advisor has responsibility for: (1) identifying financing
opportunities for Starwood Financial; (2) advising Starwood Financial with
respect to and effecting acquisitions and dispositions of Starwood Financial's
assets; (3) monitoring, managing and servicing Starwood Financial's asset
portfolio; and (4) arranging debt financing for Starwood Financial. The
advisor's principal executive offices are located at 591 West Putnam, Greenwich,
Connecticut 06830, and its telephone number is (203) 422-7700.
Under an investment advisory agreement between Starwood Financial and the
advisor, Starwood Financial pays the advisor the following fees:
- A quarterly base management fee of 0.3125% (1.25% annually) of the book
equity value of Starwood Financial.
- A quarterly incentive fee in an amount equal to 5.0% of Starwood
Financial's adjusted net income, payable only during those quarters in
which the adjusted net income meets certain thresholds.
The advisor pays the salaries, wages, bonuses and other employee benefits of
persons in its organization who render services to Starwood Financial, as well
as occupancy, equipment and other overhead expenses.
If the advisor transaction is approved, the combined company will no longer
pay any of the advisory fees, but will be responsible for the salaries and other
overhead necessary to provide the services that the advisor currently provides
to Starwood Financial under the advisory agreement.
BACKGROUND OF THE ADVISOR TRANSACTION
RECOMMENDATION OF THE BOARD OF STARWOOD FINANCIAL AND THE SPECIAL COMMITTEE OF
INDEPENDENT TRUSTEES
The Board of Trustees of Starwood Financial and the special committee of
independent trustees of Starwood Financial has each determined that the advisor
transaction is fair and in the best interests of Starwood Financial, and has
unanimously approved the advisor transaction and the advisor transaction
agreement. ACCORDINGLY, STARWOOD FINANCIAL'S BOARD OF TRUSTEES RECOMMENDS THAT
THE SHAREHOLDERS OF STARWOOD FINANCIAL VOTE "FOR" APPROVAL AND ADOPTION OF THE
ADVISOR TRANSACTION AGREEMENT AND AUTHORIZATION OF THE ADVISOR TRANSACTION AND
THE OTHER TRANSACTIONS CONTEMPLATED BY THE ADVISOR TRANSACTION AGREEMENT.
In considering the recommendation of the Starwood Financial Board with
respect to the advisor transaction, Starwood Financial shareholders should also
consider that some of the trustees and officers of Starwood Financial own
interests in the advisor or may be subject to other conflicts of interest, and
may therefore have interests in the advisor transaction that are different than,
or in addition to, the interests of the shareholders of Starwood Financial who
have no interest in the advisor. For more information concerning the interests
of these persons in the merger, please read the part of this discussion of "The
Advisor Transaction" entitled "Interests of Certain Parties in the Advisor
Transaction." In order to ensure that these interests would not result in any
actual or perceived conflicts with the duties of Starwood Financial's trustees,
the Starwood Financial Board appointed a special committee of independent
trustees consisting of all of the independent trustees of Starwood Financial
(Ms. Robin Josephs and Messrs. William Matthes and Kneeland Youngblood) to
consider and evaluate the advisor transaction. The Starwood Financial Board
authorized the special committee to
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retain outside counsel and financial advisors to assist in its assignment. The
proceedings of the special committee are described below.
In reaching the determination that the advisor transaction agreement and the
advisor transaction are in the best interests of Starwood Financial and its
shareholders, the Starwood Financial Board consulted with Starwood Financial's
management, as well as its financial advisor, legal counsel and accountants and
considered the short-term and long-term interests of Starwood Financial. The
factors considered by Starwood Financial's Board of Trustees include those
described below. While the Starwood Financial Board considered all of these
factors, it did not make determinations with respect to each of the factors.
Rather, the Starwood Financial Board made its judgment with respect to the
advisor transaction and the advisor transaction agreement based on the total mix
of information available to it, and the judgments of individual trustees may
have been influenced to a greater or lesser degree by their individual views
with respect to different factors.
FACTORS CONSIDERED BY STARWOOD FINANCIAL'S BOARD OF TRUSTEES:
- The analyses and conclusions of the special committee described below
(which were adopted by the Starwood Financial Board as its own).
- The business reasons for the advisor transaction set forth below,
including the benefits to be realized by Starwood Financial from the
merger.
- The extensive negotiations of the representatives of Starwood Financial's
principal shareholders with representatives of the external advisor.
- The opinion of Houlihan Lokey delivered to the special committee stating
that, as of its date, the consideration to be paid to those shareholders
of Starwood Financial who hold ownership interests in the external advisor
is fair, from a financial point of view, to the shareholders of Starwood
Financial who do not own any ownership interests in the external advisor.
The Starwood Financial Board did not find it practical to, and did not,
quantify or otherwise attempt to assign relative weights to the specific factors
considered in making its determination.
REASONS FOR THE ADVISOR TRANSACTION
Starwood Financial and TriNet believed that the integration of the advisor
with the combined company would have substantial benefits for the combined
company and permit it to take advantage of economies of scale as it expands its
business for the benefit of the shareholders of the combined company.
Additionally, the advisor transaction will be accretive to the combined company.
The advisor's primary source of income is the base and incentive advisory fees
earned from Starwood Financial. Based on this fee stream, the advisor expects to
earn approximately $20 million in total revenues for the 12 months ending
December 31, 1999, and have operating expenses for that period of approximately
$5 million. As a result, by acquiring the advisor, the incremental impact on the
combined company's earnings before interest, taxes, depreciation and
amortization is an increase of approximately $15 million. This increase is
determined without giving effect to increased fees arising from growth in the
equity capital base of Starwood Financial or in the earnings of Starwood
Financial as an externally-advised company.
Assuming a combined company stock price of $30.00 per share, the four
million shares issued to the owners of the advisor would be valued at $120.0
million. At that figure, the advisor's estimated 1999 EBITDA of $15.0 million
would provide the combined company with a 12.5% yield on its acquisition of the
advisor. In addition, the four million shares received by the owners of
interests in the advisor are restricted from resale following the closing. For
more information on the lock-up arrangement, please read the section of this
joint proxy statement and prospectus entitled "Certain Agreements related to the
Merger--The Starwood Financial Affiliate Lock-Up Agreements."
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Moreover, the advisor transaction facilitates Starwood Financial's long-term
strategy by creating a fully-integrated organization with the in-house
capability to satisfy all of the structured financing needs of corporate tenants
and borrowers. While it is not possible to quantify the competitive advantages
obtained through self-administration, Starwood Financial believes that
establishing these capabilities in-house will improve the combined company's
performance through its increased control and ownership of the resources that
are critical to the growth of its business.
In addition, Starwood Financial and TriNet believe that research analysts
and equity investors have emphasized a strong preference for self-administered
companies, in part because of the belief that externally-advised companies are
susceptible to potential conflicts of interest, most of which can be avoided
through self-administration. Accordingly, Starwood Financial and TriNet believe
that equity investors and analysts will view the combined company's
internally-managed structure more favorably then were it to remain
externally-advised.
PROCEEDINGS OF THE SPECIAL COMMITTEE OF INDEPENDENT TRUSTEES. A special
committee of the Board of Trustees of Starwood Financial was formed on April 29,
1999. The charge given to the special committee was to determine whether the
proposed consideration to be paid to the owners of interests in the advisor in
connection with the advisor transaction was fair to the shareholders of Starwood
Financial who did not hold any ownership interest in the advisor. Each of the
members of the special committee has substantial relevant financial and real
estate experience, and no member of the special committee holds or has held any
ownership interest in the advisor or any of its affiliates.
The special committee retained the law firm of Sullivan & Cromwell on April
29 and began promptly to carry out its mandate. On April 30, the special
committee retained as its financial advisor the firm of Houlihan Lokey Howard &
Zukin. The special committee chose that firm among a number of candidates,
taking account of, among other things: (1) its expertise in financial valuations
and in particular financial valuations of companies in the real estate business
and in the business of managing real estate investments; (2) the firm's
familiarity, from a prior engagement, with Starwood Financial's business; and
(3) the lack of any current business engagement between Houlihan Lokey and any
of Starwood Financial, Starwood Capital Group or any other related entities.
Houlihan Lokey was given prompt and full access to information about the
advisor transaction as it was then structured, including the proposed
consideration to be delivered to the owners of the advisor. This access included
documents, financial data and other information related to Starwood Financial,
the advisor, TriNet and the proposed merger, as well as multiple discussions
with Starwood Financial personnel.
On May 5, 1999, Houlihan Lokey reported preliminarily that it had arrived at
the conclusion that the delivery of the proposed consideration to the owners of
the advisor as a part of the advisor transaction (which was initially five
million shares in the combined company) was fair from a financial point of view
to the shareholders of Starwood Financial who did not hold any ownership
interest in the advisor. Houlihan Lokey continued to work with Starwood
Financial personnel to pursue and develop its analysis. On May 20, 1999, the
special committee expressed its view, based on the financial advice it had
received from Houlihan Lokey and on other relevant advice and considerations,
that the delivery of five million shares of the combined company's common stock
to the owners of interests in the advisor, as part of the transaction as it was
then structured, was fair to the shareholders of Starwood Financial who did not
hold any ownership interest in the advisor.
Following the delivery of that report from the special committee and
following the unanimous vote of the Board of Trustees of Starwood Financial in
favor of the transaction as it was then structured, there were substantial
discussions between the management of the advisor and investors representing a
majority in interest of Starwood Financial's principal shareholders, who
collectively own 99% of Starwood Financial's Class A shares. None of those
investors holds any ownership interest in the advisor. In that connection,
Houlihan Lokey and members of the special committee participated in
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discussions with those investors and their advisors. Following those
discussions, the number of shares to be delivered was reduced from five million
to four million.
The special committee reconsidered the terms of the transaction in relevant
respects, and solicited financial advice from Houlihan Lokey on the terms of the
revised proposal. The revised proposal conveyed less in the way of consideration
to those who held ownership interests in the entities that control the advisor,
so that in relative terms it was more advantageous than the original proposal
for five million shares. By a letter dated June 13, with effect as of June 15,
1999, Houlihan Lokey rendered its opinion that the consideration to be delivered
to the owners of the advisor, as a part of the advisor transaction, was fair
from a financial point of view to the Starwood Financial shareholders who did
not hold any ownership interest in the advisor. The special committee
unanimously reported to the Board of Trustees on June 15, 1999 its view that the
acquisition of the advisor was fair to the shareholders of Starwood Financial
who did not hold any ownership interest in the advisor. Based on the report of
the special committee, the Starwood Financial Board unanimously approved the
advisor transaction at a meeting on June 15, 1999.
THE OPINION OF HOULIHAN LOKEY
The special committee of the Board of Trustees of Starwood Financial engaged
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. to render an opinion, in
connection with Starwood Financial's purchase of the ownership interests in its
external advisor, Starwood Financial Advisors, L.L.C. (such transaction being
referred to herein as the advisor transaction), as to the fairness of the
consideration to be paid to the shareholders of Starwood Financial who hold
ownership interests in the advisor, from a financial point of view, to the
shareholders of Starwood Financial who do not hold any ownership interest in the
advisor.
Houlihan Lokey is a nationally recognized investment banking firm that
provides financial advisory services in connection with mergers and
acquisitions, leveraged buyouts, business valuations for a variety of regulatory
and planning purposes, recapitalizations, financial restructurings, and private
placements of debt and equity securities. Houlihan Lokey has performed financial
advisory services for Starwood Financial in the past, including rendering a
fairness opinion to the non-affiliated shareholders of Angeles Participating
Mortgage Trust (Starwood Financial's predecessor) in connection with the
contribution of certain assets into that predecessor in exchange for shares of
Starwood Financial, for which Houlihan Lokey received a fee of $450,000.
Houlihan Lokey has in the past provided and expects in the future to provide
financial advisory services to, and/or enter into joint ventures with, entities
affiliated with Starwood Financial. However, Houlihan Lokey is not currently
engaged to provide financial advisory services to any entities affiliated with
Starwood Financial.
Starwood Financial agreed to pay Houlihan Lokey a fee of $750,000 for its
preparation and delivery of the fairness opinion in the advisor transaction. No
portion of Houlihan Lokey's fee is contingent upon the successful completion of
the advisor transaction, the merger with TriNet or any other related
transaction. The special committee retained Houlihan Lokey solely to deliver its
fairness opinion. Starwood Financial agreed to indemnify Houlihan Lokey and its
affiliates against certain liabilities, including liabilities under federal
securities laws that arise out of the engagement of Houlihan Lokey. The full
text of Houlihan Lokey's opinion, which sets forth the assumptions made, general
procedures followed, factors considered and limitations on the review undertaken
by Houlihan Lokey in rendering its opinion is attached to this joint proxy
statement and prospectus and is incorporated in it by reference. You are urged
to read Houlihan Lokey's opinion in its entirety.
Houlihan Lokey has not been requested and does not intend to update, revise
or reaffirm its fairness opinion in connection with the advisor transaction
unless requested to do so by the special committee. Events that could affect the
fairness of the advisor transaction, from a financial point of view, include
adverse changes in industry performance or market conditions and changes to the
business, financial condition and results of operations of Starwood Financial,
TriNet or the advisor.
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Houlihan Lokey did not, and was not requested by Starwood Financial to, make
any recommendations as to the form or amount of consideration to be received by
Starwood Financial in connection with the advisor transaction or the merger.
Houlihan Lokey's opinion also does not address Starwood Financial's underlying
business decision to effect the advisor transaction. Houlihan Lokey was not
asked to opine on and does not express any opinion as to the tax consequences of
the advisor transaction, the merger, the public market values or realizable
value of Starwood Financial's common shares given as consideration in the
advisor transaction, the prices at which Starwood Financial's common shares may
trade in the future following the advisor transaction and the merger, or the
fairness of any aspect of the advisor transaction or the merger not expressly
addressed in its fairness opinion.
In arriving at its fairness opinion, Houlihan Lokey completed the following
tasks, among others:
- Held discussions with the advisor's senior management to discuss the
advisor transaction and the operations, financial condition, future
prospects, projected operations and performance of the advisor, Starwood
Financial and the combined company after the merger of Starwood Financial
and TriNet (assuming an internal advisor structure).
- Held discussions with Starwood Financial's investment bankers regarding
the advisor transaction, the merger and the projected operations and
performance of the advisor and the combined company.
- Reviewed certain materials presented by management to Starwood Financial's
Board of Trustees.
- Reviewed Starwood Financial's annual financial statements for the year
ended December 31, 1998 as filed on Form 10-K.
- Reviewed financial statements prepared by Starwood Financial for the three
months ended March 31, 1999 and March 31, 1998, respectively.
- Reviewed the investment advisory agreement between Starwood Financial and
the advisor dated March 13, 1998.
- Reviewed certain summary information for Starwood Financial as prepared by
Starwood Financial's management as of April 1999.
- Reviewed TriNet's annual financial statements for the year ended December
31, 1998 as filed on Form 10-K, and TriNet's public stock price and
related information.
- Reviewed certain pro forma merger analyses prepared by management of
Starwood Financial.
- Reviewed the 1999 budget for the advisor prepared by the management of the
advisor as of May 1, 1999.
- Reviewed certain publicly-available information regarding companies and
transactions that Houlihan Lokey, in its sole discretion, deemed
comparable to Starwood Financial, the advisor and the advisor transaction.
- Conducted such other analyses, studies and investigations as Houlihan
Lokey, in its sole discretion, deemed appropriate under the circumstances
for rendering the opinion expressed therein.
In order to determine the fairness to the shareholders of Starwood Financial,
from a financial point of view, of the consideration to be paid by Starwood
Financial for the interests in the advisor, Houlihan Lokey conducted several
analyses, including the following: (1) an accretion analysis whereby the
potential valuation of the combined company with the advisor internalized was
compared to the potential valuation of the combined company without the advisor
internalized; (2) a relative value analysis whereby the valuation of the advisor
was compared to the consideration paid for the advisor; and (3) various other
analyses.
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ACCRETION ANALYSIS
Houlihan Lokey primarily utilized a market capitalization approach to
estimate the potential valuation on a pro forma basis of the combined company
after the merger, assuming that the advisor was not internalized, as well as
after the merger, assuming that the advisor became internalized through the
advisor transaction. As a secondary analysis, Houlihan Lokey also used a yield
approach. The results of the accretion analysis indicated a higher aggregate
equity valuation for the combined company with the advisor internalized.
Furthermore, the results of the accretion analysis indicated the advisor
transaction was accretive to the combined company's equity capitalization as
well as its earnings per share.
1. Equity Market Capitalization Approach. Houlihan Lokey reviewed certain
financial information for comparable public companies selected solely by
Houlihan Lokey. The primary comparable companies selected solely by Houlihan
Lokey included the following four publicly-traded finance companies: Allied
Capital Corp., Franchise Finance Corporation of America, The FINOVA Group Inc.
and Heller Financial, Inc. Houlihan Lokey also considered a group of real estate
investment trusts including: Capsted Mortgage Corporation, Dynex Capital, Inc.,
Indymac Mortgage Holdings, Inc., Redwood Trust, Inc., Thornburg Mortgage Asset
Corp. and BRT Realty Trust. However, Houlihan Lokey considered the group of real
estate investment trusts to be less relevant for purposes of comparison because
Houlihan Lokey observed that among other factors, Starwood Financial has a
different business strategy, a larger equity and asset base, and lower leverage
than the real estate investment trusts.
Houlihan Lokey calculated certain financial ratios for the primary set of
comparables based on the most recent publicly-available information. The
following table presents the range of multiples selected by Houlihan Lokey for
the combined company compared to the range of multiples observed for the primary
comparables.
<TABLE>
<CAPTION>
ENTERPRISE VALUE
TO PRICE TO
EBITDA EARNINGS
(EV/EBITDA) (P/E)
------------------ ----------------
<S> <C> <C>
Combined Company (range of selected multiples).............................. 10.0x -- 12.5x 11.0x -- 14.0x
Primary Comparables......................................................... 6.0x -- 17.6x 8.1x -- 13.7x
</TABLE>
Houlihan Lokey calculated an indicative pro forma equity market
capitalization for the combined company both with and without the advisor
internalized, by applying the multiples selected for the combined company to the
pro forma representative EBITDA and earnings levels derived from management's
projections for the combined company, both with and without the advisor
internalized as follows:
- Houlihan Lokey applied the combined company EBITDA multiples to the pro
forma 1999 and 2000 representative EBITDA levels for the combined company
(both with and without the advisor internalized), adding cash balances as
of December 31, 1999 and 2000, and subtracting interest-bearing debt as of
December 31, 1999 and 2000 and preferred stock at its liquidation value as
of December 31, 1999 and 2000. The resulting indications of the equity
market capitalization for the combined company ranged from approximately
$1.6 to $2.9 billion with the advisor internalized and $1.3 to $2.6
billion without the advisor internalized.
- By applying the combined company P/E multiples to the representative pro
forma 1999 and 2000 net income levels for the combined company (both with
and without the advisor internalized), the resulting indications of the
equity market capitalization for the combined company ranged from
approximately $2.1 to $2.8 billion with the advisor internalized and $1.8
to $2.5 billion without the advisor internalized.
2. Other Analysis. Houlihan Lokey also considered a yield approach as an
additional indication of the equity market capitalization for the combined
company both with and without the advisor
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internalized. This yield approach was predicated upon the yields exhibited by
the real estate investment trusts. This approach resulted in valuation
indications which were materially similar to those of the market capitalization
approach; however, because this approach was based upon the real estate
investment trusts, the yield approach was considered a secondary analysis.
The result of the aforementioned accretion analyses indicated that, due to
the higher EBITDA and earnings which result from the advisor transaction, the
combined company has a higher valuation with the advisor internalized than
without the advisor internalized. Based on the terms of the advisor transaction,
the combined company with the advisor internalized will have four million
additional outstanding shares. Houlihan Lokey considered both the equity market
valuation per share and the earnings per share based upon the valuation
indications of the combined company described above, both with and without the
advisor internalized. Based on this analysis, Houlihan Lokey determined that
despite having a greater number of shares outstanding, the combined company with
the advisor internalized exhibited a higher equity market valuation per share
and earnings per share.
RELATIVE VALUE ANALYSIS
Houlihan Lokey primarily used a market capitalization, a comparable
transaction and a discounted cash flow approach to determine the estimated value
of the advisor. Houlihan Lokey compared such valuation with the valuation
indicated from the accretion analyses set forth above. Houlihan Lokey also used
an additional methodology to verify the reasonableness of their results. The
analyses required studies of the overall market, economic and industry
conditions in which the advisor operates, and the historical and projected
operating results of the advisor.
1. Market Capitalization Approach. Houlihan Lokey reviewed certain financial
information for two tiers of comparable public companies selected solely by
Houlihan Lokey. The first tier of comparable companies included the following
seven publicly-traded real estate management companies selected solely by
Houlihan Lokey: CB Richard Ellis Services, Inc., Grubb & Ellis Company, Insignia
Financial Group, Inc., The Intergroup Corporation, Jones Lang LaSalle
Incorporated, Trammell Crow Company and The DeWolfe Companies, Inc. The second
tier of comparable companies included the following nine publicly-traded asset
management companies selected solely by Houlihan Lokey: Affiliated Managers
Group, Inc., Alliance Capital Management L.P., Atalanta/Sosnoff Capital
Corporation, Conning Corporation, Eaton Vance Corp., Lexington Global Asset
Managers, Inc., Phoenix Investment Partners, Ltd., PIMCO Advisors L.P. and
United Asset Management Corporation.
Houlihan Lokey calculated certain financial ratios for the two tiers of
comparable companies based on the most recent publicly-available information.
The following table presents the range of multiples selected by Houlihan Lokey
for the advisor compared to the range of multiples observed for the real estate
management comparable companies and the asset management comparable companies.
<TABLE>
<CAPTION>
ENTERPRISE VALUE TO EBITDA
(EV/EBITDA)
--------------------------
<S> <C>
The Advisor (range of selected multiples)............................................. 6.0x -- 8.0x
Real Estate Management Comparables.................................................... 3.6x -- 9.2x
Asset Management Comparables.......................................................... 4.6x -- 17.1x
</TABLE>
Houlihan Lokey determined an indication of the range of market values for
the advisor's equity by applying the advisor EBITDA multiples to the advisor's
representative EBITDA (after considering certain cost adjustments in connection
with the merger) for the first quarter of 1999 as annualized, the forecast for
fiscal year end 1999 based on management's projections, and the forecast for
fiscal year 2000 based on management's projections. These analyses resulted in
indications of a range of enterprise values and market values of equity for the
advisor of between $125.4 and $172.8 million.
2. Comparable Transaction Analysis. Houlihan Lokey reviewed the
consideration paid in selected acquisitions of real estate advisory and
management companies by publicly-traded real estate
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investment trusts, as well as selected acquisitions of publicly-traded real
estate management companies. These analyses yielded mean multiples of 10.3x
EBITDA and 22.1x EBIT (i.e., earnings before interest and taxes). In performing
its analysis, Houlihan Lokey considered that the merger and acquisition
transaction environment varies over time because of, among other things,
interest rate and equity market fluctuations and industry results and growth
expectations.
No company or transaction used in the analysis described above was directly
comparable to the advisor, Starwood Financial, TriNet, the combined company or
the advisor transaction. Accordingly, Houlihan Lokey reviewed the comparable
transactions to understand the range of multiples of EBITDA and EBIT paid for
companies in the real estate advisory and management industry. Based upon the
advisor's projected EBITDA for the fiscal year 1999 and based upon the lowest
and highest multiples of EBITDA determined under the comparable transaction
analysis, Houlihan Lokey calculated indications of the range of enterprise
values and market values of equity for the advisor of between $169.2 and $190.4
million.
3. Discounted Cash Flow Approach. Houlihan Lokey utilized management's cash
flow projections for the advisor for the fiscal years 1999, 2000, 2001 and 2002.
After calculating the net present value of cash flows for the applicable periods
using discount rates of 17.0% to 21.0%, a terminal value was calculated based
upon exit EBITDA multiples of 4.0x to 7.0x. Based on management's projections
and this analysis, Houlihan Lokey calculated indications of the range of
enterprise values and market values of the equity for the advisor of between
$167.6 and $196.5 million.
Based upon the aforementioned analyses, the indicated market value of the
advisor ranged from a low of approximately $125.4 million to a high of $196.5
million. This valuation is greater than the implied value of the four million
shares which will be paid as consideration for the advisor based on the
valuation of the combined company shown in the accretion analyses set forth
above.
OTHER ANALYSIS
Houlihan Lokey reviewed the consideration in certain acquisitions of
affiliated real estate advisory and management companies by publicly-traded real
estate companies selected solely by Houlihan Lokey in terms of the percentage of
the acquiror's total shares outstanding provided to the acquired company as
consideration for the acquisition. This analysis yielded average consideration
of 9.2% of total shares outstanding paid to the advisors acquired in
transactions since 1995. The transactions produced a range of between 3.4% and
15.3% of total shares outstanding paid as consideration. Based on the projected
total shares outstanding for the combined company following the merger and
advisor transaction, the consideration paid to the owners of interests in the
advisor is approximately 4.6% of the total shares outstanding for the combined
company.
In conclusion, Houlihan Lokey's analyses indicated that the consideration to
be paid to the shareholders of Starwood Financial who hold ownership interests
in the advisor in connection with the advisor transaction is fair, from a
financial point of view, to the shareholders of Starwood Financial who do not
hold any ownership interest in the advisor.
As a matter of course, neither Starwood Financial, TriNet, nor the advisor
publicly discloses forward-looking financial information. Nevertheless, in
connection with its review, Houlihan Lokey considered financial projections for
the years ending December 31, 1999 through December 31, 2002. These financial
projections were prepared by the management of Starwood Financial and the
advisor under market conditions as they existed as of approximately May 1, 1999.
Management does not intend to provide Houlihan Lokey with any updated or revised
projections in connection with the advisor transaction. The projections do not
take into account any circumstances or events occurring after the date they were
prepared. In addition, factors such as industry performance, general business,
economic, regulatory, market and financial conditions, as well as changes to the
business, financial condition or results of operation of Starwood Financial,
TriNet or the advisor may cause management's projections or the underlying
assumptions to be inaccurate. As a result, projections should not be relied upon
as
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necessarily indicative of future results, and readers of this joint proxy
statement and prospectus are cautioned not to place undue reliance on those
projections.
In arriving at its fairness opinion, Houlihan Lokey reviewed certain key
economic and market indicators including, but not limited to, growth in gross
domestic product, inflation rates, interest rates, consumer spending levels,
manufacturing productivity levels, unemployment rates and general stock market
conditions. Houlihan Lokey's opinion is based on the business, economic, market
and other conditions as they existed as of May 27, 1999 and on the projected
financial information provided to Houlihan Lokey as of that date. In rendering
its opinion, Houlihan Lokey has relied upon and assumed, without independent
verification, that the historical and projected financial information provided
to Houlihan Lokey by the management of Starwood Financial and the advisor has
been reasonably and accurately prepared based upon the best current available
estimates of the financial results and condition of Starwood Financial, TriNet
and the advisor, respectively. Houlihan Lokey did not independently verify the
accuracy or completeness of the information supplied to it with respect to
Starwood Financial, TriNet or the advisor and does not assume responsibility for
it. Except as set forth above, Houlihan Lokey did not make any independent
appraisal of the specific properties or assets of Starwood Financial, TriNet or
the advisor.
The summary set forth above describes the material points of more detailed
analyses performed by Houlihan Lokey in arriving at its fairness opinion. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to summary description.
In arriving at its opinion, Houlihan Lokey made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Houlihan
Lokey believes that its analyses and summary set forth above must be considered
as a whole and that selecting portions of its analyses, without considering all
analyses and factors, or portions of this summary, could create an incomplete
view of the processes underlying the analyses set forth in Houlihan Lokey's
fairness opinion. In its analysis, Houlihan Lokey made numerous assumptions with
respect to Starwood Financial, TriNet, the combined company, the advisor,
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of the
respective entities. The estimates contained in such analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be more or less favorable than suggested by such analyses.
However, there were no specific factors reviewed by Houlihan Lokey that did not
support its opinion. Additionally, analyses relating to the value of businesses
or securities are not appraisals. Accordingly, those analyses and estimates are
inherently subject to substantial uncertainty.
INTERESTS OF CERTAIN PARTIES IN THE ADVISOR TRANSACTION
Messrs. Sternlicht, Sugarman, Haber, Dishner, Eilian and Kleeman, each of
whom is a trustee or executive officer of Starwood Financial, own shares of
stock in the parent company of Starwood Financial's external advisor. They will
receive a total of 3,507,638 shares of common stock in the combined company in
the advisor transaction in exchange for their interests in the advisor. Each of
Messrs. Sternlicht, Sugarman, Haber, Dishner, Eilian and Kleeman has agreed that
he will not sell any of the shares of common stock of the combined company which
he receives in the advisor transaction for a period of 12 months after the
effective time of the advisor transaction. For more information concerning the
lock-up agreements entered into by the shareholders of the advisor, please read
the section of this joint proxy statement and prospectus entitled "Certain
Agreements Related to the Merger--The Starwood Financial Affiliate Lock-Up
Agreements." In addition, Mr. Sternlicht, Chairman of the Starwood Financial
Board, is also Chairman of the advisor and Mr. Sugarman, Chief Executive
Officer, President and a trustee of Starwood Financial, is also Chief Executive
Officer and President of the advisor.
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ACCOUNTING TREATMENT
For accounting purposes, the advisor transaction will not be considered the
acquisition of a "business" for purposes of applying Accounting Principles Board
Opinion No. 16, "Business Combinations," and, therefore, the market value of the
common shares issued in excess of the fair value of the net tangible assets
acquired will be charged to operating income rather than capitalized as
goodwill. Please refer to the section of this joint proxy statement and
prospectus entitled "Unaudited Pro forma Financial Data" for more information
regarding the accounting treatment of the advisor transaction.
NO APPRAISAL RIGHTS
The advisor transaction was unanimously approved by the owners of interests
in the advisor; accordingly, no dissenters' appraisal rights are available in
connection with the advisor transaction.
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THE ADVISOR TRANSACTION AGREEMENT
The following is a brief summary of the significant provisions of the
advisor transaction agreement. A copy of the advisor transaction agreement is
attached as Annex B to and incorporated by reference into this joint proxy
statement and prospectus. WE ENCOURAGE YOU TO READ THE ADVISOR TRANSACTION
AGREEMENT CAREFULLY AND IN ITS ENTIRETY.
GENERAL
The advisor transaction agreement provides: (1) for the merger of a
newly-formed, wholly-owned subsidiary of Starwood Financial with and into the
corporation that owns approximately 99.9% of the interests in the advisor, with
the advisor being the surviving entity; and (2) a concurrent assignment by
Starwood Capital Group, L.L.C. of its 0.1% interest in the advisor to Starwood
Financial in exchange for a total of four million shares of common stock of
Starwood Financial. As a result of the advisor transaction, Starwood Financial
will, directly or through its subsidiaries, own 100% of the advisor.
The representations, warranties and covenants of the parties to the advisor
transaction agreement inure to the benefit of TriNet as an intended third-party
beneficiary of the advisor transaction agreement.
EFFECTIVE TIME OF THE ADVISOR TRANSACTION
Completion of the advisor transaction and the merger with TriNet are
conditions to each other. The advisor transaction shall become effective at the
effective time of the merger.
REPRESENTATIONS AND WARRANTIES
The advisor transaction agreement contains various customary representations
and warranties from the advisor and its stockholders relating to, among other
things:
- Due organization, standing, power and authority and similar corporate
matters.
- Capital structure.
- The authorization of the advisor transaction agreement.
- Absence of litigation.
- Tax matters.
- Employee matters.
- Compliance with applicable laws.
- The absence of undisclosed liabilities.
- Valid title to assets.
- The accuracy of books and records.
- Year 2000 issues.
- The receipt of a fairness opinion from Houlihan Lokey.
COVENANTS
Except as contemplated by the terms of the advisor transaction agreement,
the advisor has agreed that it will, and will cause each of its subsidiaries to,
carry on its businesses in the usual, regular and ordinary course consistent
with past practice, and use commercially reasonable efforts to preserve intact
its present business organization, good will and ongoing businesses. In
addition, except as contemplated
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by the advisor transaction agreement, the advisor has agreed that it will not,
and will not permit any of its subsidiaries, to take specified actions without
the prior consent of Starwood Financial. Starwood Financial's activities are not
limited in any way under the advisor transaction agreement.
The advisor has agreed to indemnify and hold harmless the directors and
officers of the advisor against any losses or claims arising out of the fact
that the person is or was a director or officer of the advisor. The advisor has
also agreed to purchase a "run-off" or "tail" directors and officers liability
insurance coverage for a period of six years after the merger.
CONDITIONS TO THE ADVISOR TRANSACTION
The respective obligations of the parties to the advisor transaction
agreement to effect the advisor transaction are subject to the satisfaction or
waiver on or prior to the effective time of the advisor transaction of the
following conditions:
- The shareholders of Starwood Financial will have approved the advisor
transaction and the advisor transaction agreement.
- The New York Stock Exchange or the American Stock Exchange shall have
approved for listing the common stock to be issued in the advisor
transaction.
- No temporary restraining order, preliminary or permanent conjunction or
other order issued by any court of competent jurisdiction or other
legal restraint for prohibition preventing the consummation of the
advisor transaction shall be in effect.
- The representations and warranties of each of the parties shall be true
and correct in all material respects on and as of the date made and the
date of the closing of the advisor transaction.
- Since the date of the advisor transaction agreement, no event shall
have occurred or circumstance shall have arisen that, individually or
taken together with all other facts, circumstances or events, it is
reasonably likely to cause a material adverse effect on the business,
properties, financial condition or results of operations of, the
advisor.
TERMINATION
The advisor transaction agreement may be terminated at any time prior to the
filing of a certificate of merger with the Secretary of State of the State of
Delaware, whether before or after the requisite approval of Starwood Financial's
shareholders is obtained:
- By mutual consent of the parties to the agreement and TriNet.
- By Starwood Financial, with the consent of TriNet, upon a breach of any
representation, warranty, covenant or agreement on the part of the
advisor set forth in the advisor transaction agreement, or if any
representation or warranty of the advisor shall become untrue, in
either case, such that the conditions to the advisor transaction would
be incapable of being satisfied by December 31, 1999 (as otherwise
extended).
- By the advisor or Starwood Capital Group, upon a breach of any
representation, warranty, covenant or agreement on the part of Starwood
Financial set forth in the advisor transaction agreement, or if any
representation or warranty of Starwood Financial shall become untrue,
in either case, such that the conditions to the advisor transaction
would be incapable of being satisfied by December 31, 1999 (as
otherwise extended).
- By Starwood Financial, the advisor or Starwood Capital Group, if any
judgment, injunction, order, decree or action by any governmental
entity of competent authority preventing the consummation of the
advisor transaction shall become final and nonappealable.
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- By Starwood Financial, with the consent of TriNet, the advisor or
Starwood Capital Group, if the merger shall not have been completed
before December 31, 1999.
- By Starwood Financial, with the consent of TriNet, the advisor or
Starwood Capital Group, if the requisite approval of Starwood
Financial's shareholders shall not have been obtained.
In the event of termination of the advisor transaction agreement by any
party, the advisor transaction agreement will become void and have no effect
except to the extent that the termination results from a willful breach by a
party of any of its representations, warranties, covenants or agreements set
forth in the advisor transaction agreement.
If the merger agreement with TriNet is terminated because the advisor
transaction agreement is terminated, Starwood Financial will be obligated to pay
TriNet a termination fee of up to $50.0 million and reimburse TriNet's out of
pocket expenses up to a maximum amount of $3.5 million.
Starwood Financial has agreed that, without TriNet's consent, it will not
consent to any amendment or other modification, waive any material right or
condition under the advisor transaction agreement or terminate the advisor
transaction agreement.
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MANAGEMENT OF THE COMBINED COMPANY
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED COMPANY
The post-merger Board of Directors will be divided into two classes of equal
size. Members of each class will serve for two years and until their successors
are elected and qualified. The following table sets forth information with
respect to the combined company's Board of Directors.
<TABLE>
<CAPTION>
TERM
NAME AGE TITLE EXPIRES
- ------------------------------------------------ --- ------------------------------------------------ -----------
<S> <C> <C> <C>
Barry S. Sternlicht............................. 37 Chairman 2001
Jay Sugarman.................................... 37 Chief Executive Officer, President and Director 2001
Spencer B. Haber................................ 31 Executive Vice President--Finance, Chief 2001
Financial Officer and Director
Willis Andersen, Jr............................. 67 Director 2001
Jeffrey G. Dishner.............................. 34 Director 2000
Jonathan D. Eilian.............................. 31 Director 2000
Madison F. Grose................................ 45 Director 2000
Robert W. Holman, Jr............................ 55 Director 2000
Robin Josephs................................... 39 Director 2000
Merrick R. Kleeman.............................. 34 Director 2000
William M. Matthes.............................. 39 Director 2001
John G. McDonald................................ 62 Director 2001
Stephen B. Oresman.............................. 67 Director 2001
George R. Puskar................................ 55 Director 2000
Kneeland C. Youngblood.......................... 43 Director 2001
</TABLE>
The combined company will have approximately 115 employees which will be led
by a highly-experienced management team that represents executives from both
Starwood Financial and TriNet. The following table sets forth information with
respect to the executives of the combined company.
<TABLE>
<CAPTION>
TITLE NAME AGE
- --------------------------------------------------- ------------------------------------------------------ ---
<S> <C> <C>
Chief Executive Officer and President.............. Jay Sugarman 37
Executive Vice President--Finance and Chief
Financial Officer................................ Spencer B. Haber 31
Executive Vice President and General Counsel....... Nina B. Matis 52
Senior Vice President and Chief Operating
Officer.......................................... Timothy J. O'Connor 44
Senior Vice President--Asset Management............ Jo Ann Chitty 37
</TABLE>
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<TABLE>
<CAPTION>
TITLE NAME AGE
- --------------------------------------------------- ------------------------------------------------------ ---
<S> <C> <C>
Senior Vice President--Finance and Treasurer....... Elisa F. DiTommaso 36
Senior Vice President--Loan Servicing.............. Barbara Rubin 46
Senior Vice President--Investments................. Steven Blomquist 42
Senior Vice President--Investments................. Roger M. Cozzi 29
Senior Vice President--Investments................. Jeffrey R. Digel 43
Senior Vice President--Investments................. James H. Ida 53
Senior Vice President--Investments................. Thomas M. Mulroy 36
</TABLE>
BARRY S. STERNLICHT became a Trustee of Starwood Financial in March 1994 and
was elected Chairman in September 1996. Mr. Sternlicht was Chief Executive
Officer of Starwood Financial from September 1996 to November 1997. Mr.
Sternlicht was Chairman of the Audit and Compensation Committee of Starwood
Financial 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 directors of Starwood Hotels &
Resorts Worldwide, Inc. and is a director of U.S. Franchise Systems. Mr.
Sternlicht is on the board of governors of the National Association of Real
Estate Investment Trusts and is a member of the Urban Land Institute and of the
National Multifamily 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 is President and Chief Executive Officer of Starwood Financial,
with primary responsibility for formulating, implementing and guiding Starwood
Financial's investment strategy. Mr. Sugarman became Chief Executive Officer of
Starwood Financial in 1997 and President and Trustee of Starwood Financial in
1996. Previously, Mr. Sugarman was senior managing director of Starwood Capital
Group and president of Starwood Mezzanine Investors, where he was responsible
for all fixed income investments and led the origination or purchase of over $1
billion in structured commercial real estate loans. Prior to forming Starwood
Mezzanine, Mr. Sugarman managed diversified investment funds on behalf of the
Burden family, a branch of the Vanderbilts, and the Ziff family. While in that
position, he was jointly responsible for the formation of Starwood Capital and
the formation of HBK Investments, one of the nation's largest convertible
arbitrage trading operations. In addition, Mr. Sugarman was responsible for
investments in a variety of asset classes and investment strategies, including
distressed and high yield securities, corporate buyouts and venture capital
investments. Earlier in his career, Mr. Sugarman worked at First Boston
Corporation and Goldman, Sachs & Co. He received his undergraduate degree SUMMA
CUM LAUDE from Princeton University, where he was nominated for valedictorian
and received the Paul Volcker Award in Economics, and his M.B.A. with high
distinction from Harvard Business School, graduating as a Baker Scholar and
recipient of the school's academic prizes for both finance and marketing. Mr.
Sugarman is a director of Commercial Guaranty Assurance, a financial insurance
company and Watermark Communities, Inc., a residential developer in South
Florida.
SPENCER B. HABER became Chief Financial Officer of Starwood Financial in
June 1998, and will become a Director of the combined company concurrently with
the completion of the merger. Mr. Haber maintains primary responsibility for all
of Starwood Financial's capital-raising initiatives and merger and acquisition
activities. Mr. Haber sits on the Starwood Financial's Investment Committee and
also oversees all finance, hedging, treasury and accounting functions. Prior to
joining Starwood
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Financial, Mr. Haber was a senior vice president in Lehman Brothers' global real
estate group and was responsible for that firm's real estate mergers and
acquisitions business. In addition to his M&A role, Mr. Haber maintained primary
client coverage responsibilities in raising equity and debt capital for a wide
range of public and private companies, participating in more than $10 billion of
transactions. Before Lehman Brothers, Mr. Haber was a member of Salomon
Brothers' real estate investment banking unit. At Salomon Brothers, Mr. Haber
participated in that firm's principal and advisory real estate activities. Prior
to Salomon Brothers, Mr. Haber worked for MIG Capital Management, a joint
venture of MIG Companies, a domestic real estate pension fund advisor, and
Charterhouse Inc., a British merchant bank. Mr. Haber holds a B.S. degree in
economics SUMMA CUM LAUDE and an M.B.A. from the Wharton School, where he
graduated a Palmer Scholar. He is a member of the National Association of Real
Estate Investment Trusts and the Urban Land Institute.
WILLIS ANDERSEN, JR., CRE became a Director of TriNet on June 7, 1993. He is
a real estate and REIT industry consultant with over 35 years of experience as
an advisor, financial consultant and principal in the real estate industry. Mr.
Andersen currently specializes in advisory work for publicly-traded real estate
companies, focusing specifically on REITs. Mr. Andersen's real estate career has
involved work with Allied Properties Inc. of San Francisco; Bankoh Advisory
Corp. of Honolulu; RAMPAC and ICM Property Investors, Inc., which formerly were
NYSE-listed REITs; and Bedford Properties, Inc., a commercial property
investment and development firm. He is an active member of the American Society
of Real Estate Counselors and the National Association of Real Estate Investment
Trusts, and is a former governor and past president (1980-81) of this
organization. He received his B.A. in 1954 from the University of California at
Berkeley.
JEFFREY G. DISHNER was elected a Trustee of Starwood Financial in March
1998. Mr. Dishner has been a managing director or 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. and by JMB Realty Corporation from 1987 through 1991. Mr. Dishner received a
B.S. degree from the Wharton School and an M.B.A. from the Amos Tuck School at
Dartmouth College.
JONATHAN D. EILIAN was elected a Trustee of Starwood Financial in March
1997. Mr. Eilian has been a senior managing director or executive officer of
Starwood Capital since its formation in September 1991. Additionally, Mr. Eilian
serves on the board of directors of Starwood Hotels. Prior to being a founding
member of Starwood Capital, Mr. Eilian served as an Associate for JMB Realty
Corporation, a real estate investment firm, and for The Palmer Group, L.P., a
private investment firm specializing in corporate acquisitions. Mr. Eilian is
also a member of the advisory board of the Wharton Real Estate Center. Mr.
Eilian received his undergraduate degree from the University of Pennsylvania and
an M.B.A. from the Wharton School.
MADISON F. GROSE is a senior managing director and co-general counsel for
Starwood Capital Group. Mr. Grose has had general oversight responsibilities for
Starwood Capital's legal-related issues since 1992. Mr. Grose led the legal
negotiations resulting in Starwood Capital's contribution of its multifamily
portfolio to Equity Residential Properties Trust and had principal
responsibilities for structuring the firm's investment in Starwood Hotels and in
Starwood Financial. Mr. Grose has been a trustee or director of Starwood Hotels
since December, 1994 and previously served on the Board of Starwood Financial.
Mr. Grose received a B.A. degree from Stanford University and a J.D. degree from
UCLA School of Law.
ROBERT W. HOLMAN, JR. is the co-founder of TriNet. He served as Chief
Executive Officer and Co-Chairman of the Board of Directors from its formation
until May 22, 1996, when he became Chairman of the Board. Mr. Holman was
reappointed Chief Executive Officer of TriNet on September 3, 1998. He is the
co-founder of TriNet's predecessor, Holman/Shidler Corporate Capital, Inc. and
for ten years was its chief executive officer and chairman. Additionally, Mr.
Holman
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has served as a Director or board advisor for numerous companies in the United
States, Great Britain and Mexico in the finance, construction, building
materials, real estate, internet commerce, golf, printing, and travel
industries. An economics graduate of the University of California at Berkeley,
Mr. Holman received his M.A. degree with honors in economics and planning from
Lancaster University in England and was a Loeb Fellow at Harvard University.
ROBIN JOSEPHS was elected a Trustee of Starwood Financial in March 1998. Ms.
Josephs currently advises private 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 degree in
economics from the Wharton School in 1982 and an M.B.A. from Columbia University
in 1986.
MERRICK R. KLEEMAN was elected a Trustee of Starwood Financial in March
1998. Mr. Kleeman is a senior managing director of Starwood Capital. Prior to
joining Starwood Capital in August 1992, Mr. Kleeman was 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.
WILLIAM M. MATTHES was elected a Trustee of Starwood Financial in March
1998. 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. Mr.
Matthes received an A.B. from Stanford University and an M.B.A. from the Harvard
Business School.
JOHN G. MCDONALD became a Director of TriNet on June 7, 1993. He is a
Professor of Finance in the Graduate School of Business at Stanford University,
where he has taught since 1968. Professor McDonald has taught M.B.A. courses and
executive programs in two broad subject areas, investment management and
corporate financial management, both with a global perspective. He currently
serves on the board of directors of Scholastic Corporation, Varian, Inc., Plum
Creek Timber Co., Inc., Golden State Vintners, Inc. and eight investment
companies managed by Capital Research & Management Company and affiliates.
Professor McDonald received his B.S. in engineering in 1960, his M.B.A. in 1962
and his Ph.D. in 1967 from Stanford University.
STEPHEN B. ORESMAN became a Director of TriNet on June 7, 1993. He has been
the owner and president of Saltash, Ltd., a management consulting firm, since
1991. He was a partner and vice president of The Canaan Group consulting firm
from 1988 to 1991. Mr. Oresman's early career included 10 years in the
manufacturing sector, first with Bausch & Lomb, Inc. in Rochester, New York, and
later with Interlake Steel Corp. in Chicago. Subsequently, Mr. Oresman joined
Booz Allen & Hamilton Inc., where he spent 19 years, including 10 years as
managing officer of the firm's eastern region and five years as chairman of Booz
Allen & Hamilton International, guiding the firm's activities outside of the
U.S. Mr. Oresman later joined the advertising agency BBDO International, as
president of the firm's independent marketing companies. Mr. Oresman is a member
of the boards of directors of Cleveland Cliffs, Inc., Angram, Inc. and
Technology Solutions Company. Mr. Oresman is a graduate and trustee emeritus of
Amherst College and is a graduate of the Harvard Business School.
GEORGE R. PUSKAR became a Director of TriNet on January 1, 1998. Since June
1997, Mr. Puskar has served as chairman of the board of Lend Lease Real Estate
Investments (formerly known as ERE Yarmouth), the U.S. real estate unit of Lend
Lease Corporation, an international financial services and real estate company
based in Sydney, Australia. From 1988 until June 1997, Mr. Puskar was chairman
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and chief executive officer of Equitable Real Estate Investment Management,
Inc., where he was responsible for directing the business operations of a full
service commercial real estate investment management company with approximately
$30 billion in assets under management. Prior to its acquisition by Lend Lease
Corporation in June 1997, Equitable Real Estate Investment Management, Inc.
operated as a subsidiary of The Equitable Life Assurance Society of the United
States. Mr. Puskar is a member of the Counselors of Real Estate. Mr. Puskar has
served as a member of the board of directors of Carr Real Estate Investment
Trust, a NYSE-listed REIT, from 1993 to 1997 and on an advisory board at Georgia
State University. Mr. Puskar has also served on the boards of the Urban Land
Institute, the International Council of Shopping Centers, the National Council
of Real Estate Fiduciaries and the National Realty Committee, and as chairman of
a campaign to endow a real estate chair at Clark Atlanta University/Morehouse
College. Mr. Puskar received a B.A. degree from Duquesne University.
KNEELAND C. YOUNGBLOOD was elected as a Trustee of Starwood Financial in
March 1998. Mr. Youngblood is general partner of Pharos Capital Group, L.L.C., a
private equity fund focused in service companies, health care and public-private
initiatives. He was a director of The United States Enrichment Corporation, a
government-owned uranium enrichment company which was privatized in 1998. He is
a fiduciary trustee for the $85 billion Teacher Retirement System of Texas. He
has served as chairman of Teacher Retirement System's Real Estate Committee,
during the restructuring of its $1.4 billion real estate portfolio. He is a
director of the American Advantage Funds, a $6.5 billion mutual fund company
managed by AMR Investments, a $20 billion Investment affiliate of American
Airlines. He is a member of the Council on Foreign Relations and is a graduate
of Princeton University and the University of Texas, Southwestern Medical
School.
NINA B. MATIS became General Counsel of Starwood Financial in 1998. Ms.
Matis is responsible for legal, tax, structuring and regulatory aspects of
Starwood Financial's operations and investment and financing transactions. Ms.
Matis also is a partner of the law firm of Katten Muchin & Zavis and is a member
of the firm's executive committee, board of directors and national compensation
committee, and has represented Starwood Financial and its principal shareholders
for more than five years. In addition, from 1984 through 1987, Ms. Matis was an
adjunct professor at Northwestern University School of Law where she taught real
estate transactions. In addition, Ms. Matis is a director for Burnham Pacific,
Inc. and a member of the American College of Real Estate Lawyers, Ely Chapter of
Lambda Alpha International, the Chicago Finance Exchange, the Urban Land
Institute, REFF, the Chicago Real Estate Executive Women, The Chicago Network
and The Economic Club of Chicago, and she is listed in both the Best Lawyers of
America and Sterling's Who's Who. Ms. Matis received a B.A. degree, with honors,
from Smith College and a J.D. degree from New York University School of Law.
TIMOTHY B. O'CONNOR became Senior Vice President--Asset Management and Chief
Operating Officer in March 1998. Mr. O'Connor is responsible for developing and
managing Starwood Financial's asset management and due diligence operations,
participating in the evaluation and approval of new investments and coordinating
Starwood Financial's information systems. Previously, Mr. O'Connor was a vice
president of Morgan Stanley & Co. responsible for the performance of more than
$2 billion of assets acquired by the Morgan Stanley Real Estate Funds. Prior to
joining Morgan Stanley, Mr. O'Connor was a vice president of Greystone Realty
Corporation involved in the firm's acquisition and asset management operations.
Previously, Mr. O'Connor was employed by Exxon Co. USA in its real estate and
engineering group. Mr. O'Connor is a member of the International Council of
Shopping Centers, the Institute of Real Estate Management and the Buildings
Owners and Managers Association, and is a former vice president of the New York
City/Fairfield County chapter of the National Association of Industrial and
Office Parks. Mr. O'Connor received a B.S. degree from the United States
Military Academy at West Point and an M.B.A. from the Wharton School.
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JO ANN CHITTY has been Senior Vice President, Asset Management of TriNet
since its formation. She is responsible for asset management functions,
including property dispositions, lease compliance and acquisition underwriting.
Ms. Chitty also serves as President of TriNet Property Management, Inc., a
wholly-owned subsidiary of TriNet formed in May 1997. Prior to her employment
with TriNet, Ms. Chitty was the vice president, asset management for a
predecessor of TriNet. Ms. Chitty holds an M.B.A. from Jacksonville University.
ELISA F. DITOMMASO was named Senior Vice President, Finance and Chief
Financial Officer of TriNet effective December 1, 1998. Prior to this
appointment, Ms. DiTommaso had been TriNet's Senior Vice President, Capital
Markets since June 1998, Treasurer since February 1997, and Vice President,
Capital Markets since June 1996. She is responsible for financial management and
policies, corporate development, compliance, credit policy, investor relations,
and information systems. Prior to joining TriNet, Ms. DiTommaso was responsible
for capital markets activities for Westinghouse Electric Corporation and held
several positions with Westinghouse Financial Services in real estate, capital
markets, and structured finance. Ms. DiTommaso also has five years experience
with the accounting firm of Price Waterhouse and is a C.P.A. She received her
Bachelor of Science degree from The Pennsylvania State University.
BARBARA RUBIN became Senior Vice President--Servicing in September 1998. Ms.
Rubin is responsible for managing Starwood Financial's Hartford-based loan
servicing operation, which services loans for Starwood Financial as well as
third-party institutional clients. Previously, Ms. Rubin was head of real estate
securities (including mortgage loan investments and real estate equity
securities) for Phoenix Realty Securities, Inc., an affiliate of Phoenix Home
Life Mutual Insurance Company. Prior to Phoenix Realty Securities, Ms. Rubin was
an investment officer at Connecticut Mutual Life Insurance Company, where her
responsibilities included loan and equity investment origination and asset
management. She has extensive background in capital markets activities as well
as traditional real estate investment operations. Ms. Rubin is a member of the
board of CSSA and the Board of Governors of the Mortgage Bankers Association.
She holds a B.A. from Williams College and an M.B.A. from the University of
Connecticut.
STEVEN BLOMQUIST became Senior Vice President--Investments in September
1998. Mr. Blomquist is responsible for the origination and acquisition of new
financings with borrowers in the Phoenix Home Life-serviced mortgage loan
portfolio and related loan correspondents. He also shares responsibility in
managing several of Starwood Financial's relationships with financial
institutions and other non-Phoenix loan correspondents. Mr. Blomquist has over
16 years of loan origination and investment management experience. Previously,
Mr. Blomquist was executive vice president and chief investment officer of
Phoenix Realty Securities, a Phoenix Home Life subsidiary specializing in
providing real estate securities investment advisory services. He was
responsible for co-developing and implementing the mortgage loan investment
programs of Phoenix Realty Securities and its clients. He was additionally
responsible for national mortgage loan origination and managing the investment
activities of Phoenix Realty Securities with its mortgage correspondent network.
Mr. Blomquist directed the origination of over $1.5 billion of mortgage loans
and maintains strong correspondent and borrower relations. Prior to his current
position, Mr. Blomquist was responsible for the debt and equity management of a
$750 million Phoenix Home Life portfolio in the Western United States. Prior to
that position, he was a region head with Phoenix responsible for mortgage loan
origination in the majority of its East and West Coast markets. Mr. Blomquist is
a member of the Mortgage Bankers Association, the Urban Land Institute and the
International Council of Shopping Centers. He received both his bachelors and
M.B.A. from the University of Connecticut.
ROGER M. COZZI became Senior Vice President--Investments in 1999, and served
as Vice President--Investments since 1997. Mr. Cozzi is responsible for the
origination, structuring and underwriting of new financing transactions at
Starwood Financial. Previously, Mr. Cozzi was an assistant vice president at
Starwood Capital Group directly involved with the origination of Starwood
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<PAGE>
Capital's debt investments in Starwood Mezzanine Investors and Starwood
Opportunity Fund IV. Prior to joining Starwood Capital, Mr. Cozzi worked at
Goldman Sachs & Co. in its real estate department and mutual fund industry
resource group. Mr. Cozzi received a B.S. degree, MAGNA CUM LAUDE, from the
Wharton School.
JEFFREY R. DIGEL became Senior Vice President--Investments in March 1998.
Mr. Digel is responsible for the origination of new financing transactions,
focusing on Starwood Financial's financial institution and loan correspondent
relationships. Previously, Mr. Digel was a vice president--mortgage finance at
Aetna Life Insurance Company responsible for commercial mortgage
securitizations, management of Aetna's mortgage correspondent network,
management of a $750 million real estate equity portfolio for Aetna's pension
clients and origination of new equity investments. Prior to joining Aetna, Mr.
Digel was a member of Hart Advisors, responsible for the development and
supervision of the portfolio, asset management and client communications
functions for Hart's real estate pension advisory business. In addition, Mr.
Digel is a member of the Mortgage Bankers Association and the International
Council of Shopping Centers, Mr. Digel received a B.A. degree from Middlebury
College and an M.M. from Northwestern University.
JAMES H. IDA has served as Senior Vice President, Acquisitions of TriNet
since April 1996. He was named TriNet's Chief Acquisitions Officer in September
1998. He oversees the evaluation, structuring and closing of TriNet's
acquisitions nationwide and oversees selective property dispositions and has
direct responsibility for the Western United States. Prior to joining TriNet,
Mr. Ida was a director in GE Capital Investment Advisors' investment group and
was responsible for originating, negotiating and underwriting real estate equity
and debt investments on behalf of pension fund clients throughout the United
States. Mr. Ida also served with three predecessor companies of GE Capital:
MacFarlane Partners, Mellon/McMahan Real Estate Advisors and McMahan Real Estate
Advisors. Before that, Mr. Ida was senior vice president for Krupp Realty and
Development, senior vice president of acquisitions for Essex Property
Corporation and managing director and director of acquisitions for Landsing
Property Corporation. Mr. Ida holds a B.S. degree in economics and an M.B.A.,
with an emphasis in finance and real estate, both from the University of
California at Berkeley.
THOMAS M. MULROY became Senior Vice President--Investments in March 1998.
Mr. Mulroy is responsible for the origination, negotiation, structuring and
closing of new financing transactions at Starwood Financial. Previously, Mr.
Mulroy was a senior vice president at Lazard Freres & Co. responsible for more
than $1.8 billion of senior debt, mezzanine and equity financings, and the
development, structure and implementation of marketing strategies for
capital-raising, investor relations and deal origination. Prior to joining
Lazard, Mr. Mulroy was a client executive at the Chase Manhattan Bank
responsible for the marketing, structuring and implementation of complex
financings and the workout, restructuring and foreclosure of Chase's distressed
real estate portfolio. Prior to joining Chase, Mr. Mulroy worked as a revenue
analyst at Citicorp Investment Bank and as a certified public accountant at KPMG
Peat Marwick. In addition, Mr. Mulroy is a member of the International Counsel
of Shopping Centers, the Mortgage Bankers Association, the Urban Land Institute,
the American Institute of Certified Public Accountants. Mr. Mulroy received a
B.S. degree from Villanova University and an M.B.A. from New York University.
Each of Messrs. Dishner, Eilian, Grose and Kleeman has agreed to resign as a
trustee or director at the request of Starwood Capital Group, L.L.C. or Barry S.
Sternlicht.
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PRINCIPAL SHAREHOLDERS OF STARWOOD FINANCIAL
The following table sets forth the number and percentage of common shares of
Starwood Financial which will be beneficially owned upon the completion of the
merger, the advisor transaction and the incorporation merger (but excluding
payment of the stock dividend) by: (1) each current trustee and executive
officer of Starwood Financial; (2) all current trustees and executive officers
of Starwood Financial, as a group; and (3) each person known by Starwood
Financial to be a beneficial owner of 5% or more of any class of Starwood
Financial voting securities:
<TABLE>
<CAPTION>
COMMON SHARES
NAME AND ADDRESS BENEFICIALLY
OF BENEFICIAL OWNER(1) OWNED
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Starwood Mezzanine Investors, L.P. (2)......................................................... 10,759,890
Starwood Mezzanine Holdings, L.P. (2).......................................................... 10,759,890(3)
Starwood Capital Group I, L.P. (2)............................................................. 10,759,890(4)
BSS Capital Partners, L.P. (2)................................................................. 10,759,890(5)
Sternlicht Holdings II, Inc. (2)............................................................... 10,759,890(6)
SOFI-IV SMT Holdings, L.L.C. (2)............................................................... 41,079,912
Starwood Opportunity Fund IV, L.P. (2)......................................................... 41,079,912(7)
SOFI IV Management, L.L.C. (2)................................................................. 41,079,912(8)
Starwood Capital Group, L.L.C. (2)............................................................. 41,623,329(9),(18)
Barry S. Sternlicht (10)....................................................................... 53,920,066(11),(20)
Jay Sugarman (17).............................................................................. 765,176
Spencer B. Haber (17).......................................................................... 409,680(21)
Robin Josephs (12)............................................................................. 5,298(13)
William Matthes (14)........................................................................... 4,998(15)
Kneeland C. Youngblood (16).................................................................... 4,998(15)
Jeffrey G. Dishner (2)......................................................................... 260,822
Merrick R. Kleeman (2)......................................................................... 356,675
Jonathan Eilian (2)............................................................................ 432,216
B Holdings, L.L.C. (2)......................................................................... 535,417
Starwood Opportunity Fund II, L.P. (2)......................................................... 535,417(19)
All Executive officers, trustees and nominees
for trustee as a group (nine persons)........................................................ 56,159,929(22)
</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. 591 West Putnam, Greenwich, CT 06830.
3. Starwood Mezzanine Holdings, L.P. is a general partner of Starwood Mezzanine
Investors, L.P., and as such shares voting and dispositive power of the
common shares owned by Starwood Mezzanine Investors, L.P. Starwood Mezzanine
Holdings, L.P. disclaims beneficial ownership of such shares except to the
extent of its applicable pecuniary interest therein.
4. Starwood Capital Group I, L.P. is: (i) a general partner of Starwood
Mezzanine Investors, L.P.; and (ii) the general partner of Starwood
Mezzanine Holdings, L.P., which is the other general partner of Starwood
Mezzanine Investors, L.P., and as such shares voting and dispositive power
of the common shares owned by Starwood Mezzanine. Starwood Capital Group I,
L.P. disclaims beneficial ownership of such Shares except to the extent of
its pecuniary interest therein.
5. BSS Capital Partners, L.P. is the general partner of Starwood Capital Group
I, L.P., which is: (1) a general partner of Starwood Mezzanine Investors,
L.P.; and (2) the general partner of Starwood Mezzanine Holdings. L.P.,
which is the other general partner of Starwood Mezzanine Investors,
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<PAGE>
L.P.; as such BSS Capital Partners, L.P. shares voting and dispositive power
of the common shares owned by Starwood Mezzanine Investors, L.P. BSS Capital
Partners, L.P. disclaims beneficial ownership of such shares except to the
extent of its pecuniary interest therein.
6. Sternlicht Holdings II, Inc. is the general partner of BSS Capital Partners,
L.P., which is the general partner of Starwood Capital Group I, L.P., which
is: (1) a general partner of Starwood Mezzanine Investors, L.P.; and (2) the
general partner of Starwood Mezzanine Holdings L.P., which is the other
general partner of Starwood Mezzanine Investors, L.P.; as such Sternlicht
Holdings II, Inc. shares voting and dispositive power of the common shares
owned by Starwood Mezzanine Holdings, L.P. Sternlicht Holdings II, Inc.
disclaims beneficial ownership of such shares except to the extent of its
pecuniary interest therein.
7. Starwood Opportunity Fund IV, L.P. is the sole member and manager of SOFI-IV
SMT Holdings, L.L.C. and as such shares voting and dispositive power of the
common shares owned by SOFI-IV, SMT Holdings, L.L.C. Starwood Opportunity
Fund IV, L.P. disclaims beneficial ownership of such shares except to the
extent of its pecuniary interest therein.
8. SOFI-IV Management, L.L.C. is the general partner of Starwood Opportunity
Fund IV, L.P., which is the sole member and manager of SOFI-IV SMT Holdings,
L.L.C., and as such shares voting and dispositive power of the common shares
owned by SOFI-IV SMT Holdings, L.L.C. SOFI IV Management, L.L.C. disclaims
beneficial ownership of such shares except to the extent of its pecuniary
interest therein.
9. Starwood Capital Group, L.L.C. is the general manager of SOFI IV Management,
L.L.C., which is the general partner of Starwood Opportunity Fund IV, L.P.,
which is the sole member and general manager of SOFI-IV SMT Holdings,
L.L.C.; as such Starwood Capital Group, L.L.C. shares voting and dispositive
power of the common shares owned by SOFI-IV SMT Holdings, L.L.C. Starwood
Capital Group, L.L.C. disclaims beneficial ownership of such shares except
to the extent of its pecuniary interest therein.
10. 591 West Putnam, Greenwich, CT 06830.
11. Represents 10,759,890 common shares beneficially owned by Sternlicht
Holdings II, Inc., of which Mr. Sternlicht is a 100% owner, 41,087,912
common shares beneficially owned by Starwood Capital Group, L.L.C.,
(including 8,000 common shares to be issued in the advisor transaction) of
which Mr. Sternlicht is the general manager and 1,536,847 common shares
which Mr. Sternlicht will own directly upon completion of the advisor
transaction. Mr. Sternlicht shares voting and dispositive power of all of
the common shares beneficially owned by Sternlicht Holdings II, Inc. and
Starwood Capital Group, L.L.C. Mr. Sternlicht disclaims beneficial ownership
of such shares except to the extent of his pecuniary interest therein.
12. 1420 North Lake Shore Drive, Chicago, IL 60610.
13. Includes 4,998 common shares issuable upon the exercise of outstanding
options and 300 common shares owned by Ms. Josephs' spouse.
14. 4 Embarcadero Center, Suite 3640, San Francisco, CA 94111.
15. Includes 4,998 common shares issuable upon the exercise of outstanding
options.
16. 2305 Cedar Springs Road, Suite 401, Dallas, TX 75201.
17. 1114 Avenue of the Americas, 27(th) Floor, New York, NY 10036.
18. Starwood Capital Group, L.L.C. is the member of B Holdings, L.L.C., and as
such, shares voting and dispositive power of the common shares owned by B
Holdings, L.L.C. Starwood Capital
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<PAGE>
Group, L.L.C. disclaims beneficial ownership of such shares except to the
extent of its pecuniary interest therein.
19. Starwood Opportunity Fund II, L.P. is a member of B Holdings, L.L.C., and as
such, shares voting and dispositive power of the common shares owned by B
Holdings, L.L.C. Starwood Opportunity Fund II, L.P. disclaims beneficial
ownership of such shares except to the extent of its pecuniary interest
therein.
20. Mr. Sternlicht is the general manager of Starwood Capital Group, L.L.C.,
which is a member of B Holdings, L.L.C., and as such, shares voting and
dispositive power of the common shares owned by B Holdings, L.L.C. Mr.
Sternlicht disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest therein.
21. Includes 250,000 common shares issuable upon the exercise of outstanding
options. See "The Merger--Interest of Certain Parties in the
Merger--Starwood Financial Affiliates."
22. Represents 53,920,066 common shares beneficially owned by Barry S.
Sternlicht, 765,176 common shares beneficially owned by Jay Sugarman,
409,680 common shares beneficially owned by Spencer B. Haber, 5,298 common
shares beneficially owned by Robin Josephs, 4,998 common shares beneficially
owned by William Matthes, 4,998 common shares beneficially owned by Kneeland
Youngblood, 260,822 common shares beneficially owned by Jeffrey Dishner,
432,216 common shares beneficially owned by Jonathan Eilian and 356,675
common shares beneficially owned by Merrick Kleeman.
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<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND TRUSTEES
OF STARWOOD FINANCIAL
SUMMARY COMPENSATION TABLE
For the year ended December 31, 1998, neither Jay Sugarman, Starwood
Financial's Chief Executive Officer, nor any other executive officer of Starwood
Financial received any compensation directly from Starwood Financial. All
compensation paid to Mr. Sugarman and Starwood Financial's other executive
officers in respect of their services to Starwood Financial were paid by
Starwood Financial's advisor. The following table sets forth the compensation
awarded, earned by, or paid to Mr. Sugarman and Starwood Financial's four other
most highly compensated executive officers by the advisor during the fiscal year
ended December 31, 1998. With the exception of Mr. Sugarman, none of the
executive officers named below was employed on behalf of Starwood Financial
prior to Starwood Financial's March 1998 recapitalization. Mr. Sugarman became
Chief Executive Officer of Starwood Financial in November 1997; however, Mr.
Sugarman received no compensation for his services to Starwood Financial during
the fiscal year ended December 31, 1997. For these reasons, no compensation is
shown below for periods prior to the fiscal year ended December 31, 1998. Salary
figures represent partial-year compensation for the period from the date an
individual's employment commenced through December 31, 1998.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
--------------------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) (#)(1) COMPENSATION
- --------------------------------------------------- --------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Jay Sugarman....................................... 1998 $ 178,125 0 0 0
Chief Executive Officer and President
Spencer B. Haber................................... 1998 $ 122,019 $ 225,000 250,000 $ 500,000(3)
Executive Vice President--
Finance and Chief Financial Officer
Roger M. Cozzi..................................... 1998 $ 79,167 $ 300,000 41,667 0
Senior Vice President
Thomas M. Mulroy (2)............................... 1998 $ 174,808 $ 112,500 166,667 $ 100,000(4)
Senior Vice President
Timothy B. O'Connor................................ 1998 $ 151,667 $ 150,000 41,667 0
Senior Vice President and
Chief Operating Officer
</TABLE>
- ------------------------
(1) Subsequent to December 31, 1998, Messrs. Sugarman and Haber were re-granted
additional options by the advisor to purchase 500,000 and 150,000 Class A
shares, respectively. These options were originally granted to the advisor
in March 1998 in connection with Starwood Financial's recapitalization. The
exercise price of each option is $15.00, and the options are subject to
vesting requirements.
(2) Thomas M. Mulroy also received a $400,000 loan in connection with the
commencement of his employment. This loan is forgivable ratably over its
four-year term so long as Mr. Mulroy remains an employee of Starwood
Financial.
(3) Represents a one-time signing bonus paid to the executive officer.
(4) Represents reimbursement of moving expenses for the executive officer.
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<PAGE>
STOCK OPTION GRANTS IN 1998
The following table sets forth information for the named executive officers
relating to stock option grants during 1998 under Starwood Financial's 1996 Long
Term Incentive Plan.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
POTENTIAL REALIZABLE VALUE
AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATE OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE MARKET FOR OPTION TERM (2)
OPTIONS EMPLOYEES PRICE PER PRICE ON EXPIRATION ---------------------------
NAME GRANTED (1) IN 1998 SHARE GRANT DATE DATE 5% 10%
- ---------------------------------- ----------- ------------- ----------- ----------- ----------- ------------ -------------
Jay Sugarman...................... 0 -- -- -- -- -- --
Spencer B. Haber.................. 250,000 32.1% $ 15.00 $ 28.85 3/13/08 $ 7,861,759 $ 14,519,591
Roger M. Cozzi.................... 41,667 5.3% $ 15.00 $ 22.25 3/13/08 $ 1,358,900 $ 2,532,019
Thomas M. Mulroy.................. 166,667 21.4% $ 15.00 $ 27.375 3/13/08 $ 4,921,914 $ 9,303,108
Timothy B. O'Connor............... 41,667 5.3% $ 15.00 $ 28.125 3/13/08 $ 1,279,538 $ 2,401,098
</TABLE>
- ------------------------
(1) Subsequent to December 31, 1998, Messrs. Sugarman and Haber were re-granted
additional options by the advisor to purchase 500,000 and 150,000 Class A
shares, respectively. These options were originally granted to the advisor
in March 1998 in connection with Starwood Financial's recapitalization. The
exercise price of each option is $15.00, and the options are subject to
vesting requirements.
(2) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast future appreciation of Starwood
Financial's stock price.
FISCAL YEAR-END OPTION VALUES
The following table presents information for the named executive officers
relating to the value of unexercised stock options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT 12/31/98 12/31/98(1)
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------ ----------- ------------- ------------ -------------
Jay Sugarman.................................... -- -- -- --
Spencer B. Haber................................ -- 250,000( (4) -- $ 11,250,000
Roger M. Cozzi.................................. -- 41,667( (4) -- $ 1,875,015
Thomas M. Mulroy................................ 50,000 116,667( (4) $ 2,250,000 5,250,015
Timothy B. O'Connor............................. -- 41,667( (4) -- $ 1,875,015
</TABLE>
- ------------------------
(1) Based on the closing price of Starwood Financial's Class A shares on
December 31, 1998 of $60.00.
(2) Mr. Haber's options will vest and become exercisable as a result of the
merger. See "The Merger--Interests of Certain Parties in the
Merger--Starwood Financial Affiliates."
(3) One third of the executive's options will vest on the one, two and three
year anniversaries of the executive's employment.
(4) If the executive is terminated for cause or if the executive resigns, the
executive will forfeit all unvested options. If the executive is terminated
without cause, all of the executive's unvested options will become
immediately vested. In addition, all of the executive's unvested options
will
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<PAGE>
become immediately vested upon a change of control (as defined in Starwood
Financial's 1996 Long Term Incentive Plan) of Starwood Financial.
STARWOOD FINANCIAL TRUSTEES' COMPENSATION
Each trustee of Starwood Financial who is not also an officer or employee of
Starwood Financial, its advisor or of Starwood Capital Group, L.L.C., currently
receives a fee of $20,000 per year, which is paid quarterly. Each of those
trustees also receives an additional fee of $1,000 for each meeting of the
Starwood Financial Board which he or she attends in person, $750 for each
meeting of the Starwood Financial Board which he or she attends 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 meetings or incurred as a result of other work performed for Starwood
Financial. The trustees who are officers or employees of Starwood Financial, its
advisor or Starwood Capital Group, L.L.C. do not receive any compensation from
Starwood Financial.
Starwood Financial and each of its trustees and executive officers have
entered into indemnification agreements. The indemnification agreements provide
that Starwood Financial 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 Starwood Financial, or
by reason of their serving at the request of Starwood Financial; provided that
the 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 Starwood
Financial 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. Starwood Financial will not indemnify the trustees and
executive officers to the extent prohibited by Starwood Financial's Amended and
Restated Declaration of Trust or Title 8 of the Maryland Corporations Code. If
an amendment to the Declaration of Trust or Title 8 with respect to removal of
limitations on indemnification is approved, the indemnification agreements will
be amended accordingly. Starwood Financial is not required to indemnify any
trustee or executive officer for liabilities: (1) 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;
(2) based upon or attributable to his gaining in fact any personal profit or
advantage to which he was not legally entitled; (3) resulting from an accounting
of profits under Section 16(b) of the Securities Exchange Act of 1934; or (4)
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, Starwood Financial has obtained trustee and officer insurance for its
trustees and executive officers.
Mr. Sugarman entered into an employment agreement with the advisor on May
20, 1999 which will be assumed by Starwood Financial in connection with the
advisor transaction. The agreement provides for an initial three-year term of
employment which is deemed to have commenced on March 18, 1998. The initial term
is automatically renewed for successive one-year terms unless either party gives
the other prior notice of termination. Mr. Sugarman serves as Chief Executive
Officer of Starwood Financial and will report to the Starwood Financial Board.
Mr. Sugarman has agreed to devote substantially all of his business time and
attention to Starwood Financial's affairs. The agreement provides that Mr.
Sugarman will receive an annual base salary of at least $225,000. In addition,
Mr. Sugarman is entitled to participate in Starwood Financial's benefit plans on
no less favorable terms than other key executives of Starwood Financial, and Mr.
Sugarman has been credited with four years of deemed service, in addition to his
actual service, for purposes of participating in those benefit plans, except as
prohibited by law or the terms of those plans. Starwood Financial will maintain
and pay for a
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<PAGE>
five million dollar term life insurance policy which will be owned by Mr.
Sugarman during his employment.
If Mr. Sugarman's employment is terminated by Starwood Financial without
cause or by Mr. Sugarman for good reason, Mr. Sugarman will be entitled to a
lump sum payment equal to the lesser of: (1) the total salary to which Mr.
Sugarman would be entitled from the date of termination through the end of the
employment period then in effect; or (2) two times the amount of Mr. Sugarman's
annual salary in effect on the date of termination. If, however, the termination
follows a change in control of Starwood Financial, the lump sum payment will be
two times the amount of Mr. Sugarman's annual salary then in effect. If Mr.
Sugarman's employment is terminated by Starwood Financial for cause, by Mr.
Sugarman without good reason or as a result of an expiration of Mr. Sugarman's
term of employment, then Starwood Financial will pay to Mr. Sugarman any portion
of Mr. Sugarman's base salary that remains unpaid through the date of
termination. Mr. Sugarman has agreed that during and for 12 months following the
term of his employment, other than following a termination without cause or for
good reason, Mr. Sugarman will not engage, directly or indirectly, in any
business that competes directly and materially with Starwood Financial. This
covenant does not prevent Mr. Sugarman from investing in up to 5% of the
securities of or interests in any publicly-traded corporation or any limited
partnership or other entity. In addition, Mr. Sugarman has agreed that during
and for 12 months following the term of his employment, he will not solicit from
Starwood Financial certain borrowers or lenders with whom Starwood Financial has
a relationship or certain officers or employees of Starwood Financial or
Starwood Capital Group, L.L.C. and its affiliates, unless, in the case of
borrowers and lenders, the solicitation is on behalf of a venture or business
that does not compete directly and materially with Starwood Financial in
investment activities relating to the real estate industry. Mr. Sugarman has
agreed that upon the termination of his employment or upon the termination of
his position as Chief Executive Officer, he will resign as a trustee of Starwood
Financial.
Mr. Haber is a party to a letter agreement which sets forth the terms of his
services to Starwood Financial. The letter agreement provides that Mr. Haber's
employment is at will and may be terminated by Mr. Haber or Starwood Financial
at any time, with or without cause. Mr. Haber is entitled to an annual salary of
at least $225,000 and a discretionary annual bonus equal to at least 100% of his
annual base salary. Mr. Haber is also entitled to participate in benefit
programs at the same level as other employees at his level. The agreement
provides that if Mr. Haber is terminated without cause, he will receive
severance in the amount of one times his base salary and bonus. All options
granted to Mr. Haber will be exercisable for one year after termination of his
employment, unless he is terminated for cause.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain directors and officers of the combined company have, or will have,
direct or indirect interests in one or more of the transactions. For more
information regarding those interests please read the sections of this joint
proxy statement and prospectus entitled:
- "The Merger--Interests of Certain Parties in the Merger--TriNet
Affiliates"
- "The Merger--Interests of Certain Parties in the Merger--Starwood
Financial Affiliates"
- "Certain Agreements Related to the Merger--The Starwood Financial
Affiliate Lock-up Agreements"
- "Certain Agreements Related to the Merger--The Option Standstill
Agreements"
- "Certain Agreements Related to the Merger--The TriNet Management Company
Stock Purchase Agreement"
- "Certain Agreements Related to the Merger--The Registration Rights
Agreement"
- "The Advisor Transaction--Interests of Certain Parties in the Advisor
Transaction."
- "Principal Shareholders of Starwood Financial"
- "Compensation of Executive Officers and Trustees of Starwood Financial"
TRADEMARK LICENSE
Starwood Capital Group, L.L.C. has granted to Starwood Financial an
exclusive, non-transferable, royalty-free license to use the "Starwood" name
within its corporate name.
NON-COMPETE
Pursuant to the terms of Starwood Financial's articles of incorporation,
subject to certain exceptions, Starwood Financial is prohibited from: (1) 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 year from
the acquisition of such debt; (2) acquiring equity interests in hotels (other
than acquisitions of warrants, equity participations or exercise of remedies in
respect of a loan in which Starwood Financial has an interest); or (3) selling
or contributing to or acquiring any interests in Starwood Hotels & Resorts
Worldwide, Inc., including debt positions or equity interests obtained by
Starwood Financial under, pursuant to or by reason of the holding of debt
positions.
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COMPARISON OF STOCKHOLDER RIGHTS;
DESCRIPTION OF THE COMBINED COMPANY'S SECURITIES
COMPARISON OF RIGHTS OF STOCKHOLDERS OF TRINET AND OF THE COMBINED COMPANY
GENERAL. TriNet and Starwood Financial Inc. are each organized as a
corporation under the laws of the State of Maryland. As a Maryland corporation,
each is subject to the Maryland General Corporation Law, which is a general
corporation statute dealing with a wide variety of matters, including election,
tenure, duties, liabilities and indemnification of directors and officers;
dividends and other distributions; meetings and rights of stockholders; and
extraordinary actions, such as amendments to a corporation's charter, mergers,
sales of all or substantially all of the assets and dissolution.
The material differences between the charter of TriNet and the charter of
Starwood Financial Inc. are discussed below. However, the comparison of the
rights of stockholders of TriNet and Starwood Financial Inc. set forth below is
not complete, and you should also read the MGCL, the charter and bylaws of
TriNet and the charter and bylaws of Starwood Financial Inc.
AUTHORIZED STOCK. The authorized stock of TriNet consists of 75,000,000
shares of stock, par value $0.01 per share, consisting of 40,000,000 shares of
common stock, 10,000,000 shares of preferred stock and 25,000,000 shares of
excess stock.
The authorized stock of Starwood Financial Inc. consists of 230 million
shares of stock, par value $0.001 per share. Of these shares, 200,000,000 are
initially classified as common stock and 30 million are initially classified as
preferred stock. The Board of Directors may, to the extent permitted by Maryland
law, without stockholder action, increase or decrease the aggregate number of
authorized shares of stock. Effective October 1, 1999, the MGCL will permit the
Board to have this power.
BOARD OF DIRECTORS. The charter and bylaws of TriNet provide that a
majority of the entire Board of Directors, by resolution, may increase or
decrease the number of directors; however, the number of directors may not be
less than the minimum number required by the MGCL (currently, three) nor more
than nine. Any vacancy occurring in the Board of Directors other than because of
an increase in the number of directors may be filled by the majority vote of the
remaining directors even if the majority is less than a quorum. Any vacancy
occurring in the Board of Directors because of an increase in the number of
directors may be filled by a majority vote of the entire Board of Directors. The
stockholders may elect a successor to fill a vacancy in the Board of Directors
that results from the removal of a director. Under the charter of TriNet, the
directors are divided into three classes, each class consisting as nearly as
possible of one third of the directors, with the term of one class expiring at
each annual meeting of stockholders.
The charter and bylaws of Starwood Financial Inc. provide that at any
regular meeting, or at any special meeting called for that purpose, a majority
of the entire Board of Directors may increase or decrease the number of
directors. The charter provides that the affirmative vote of the holders of a
majority of the combined voting power of all shares of capital stock may
increase or decrease the number of directors. However, the number of directors
may not be less than seven nor more than 18 nor less than the minimum number
required by the MGCL (currently, three). Additionally, the charter of Starwood
Financial Inc. requires that a minimum of the greater of one third of the total
number of directors or three members of the Board and the executive committee,
if any, of the Board be persons who are not affiliates of Starwood Capital
Group, L.L.C. The charter of Starwood Financial Inc. provides that the Board of
Directors will be divided into two classes, as nearly equal in number as
possible, with a term of one class expiring at each annual meeting of
stockholders. Pursuant to the MGCL, the charter and the bylaws, vacancies
resulting from any cause may be filled by a majority of the remaining directors.
The charter of Starwood Financial Inc. also provides that the affirmative vote
of the holders of a majority of the votes cast at a meeting at which a quorum is
present may fill any
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vacancy on the Board of Directors resulting from any cause. At the effective
time of the merger, the number of directors will be increased to 15.
AMENDMENT OF CHARTER. An amendment to the charter of TriNet must be
approved by holders of two thirds of the outstanding shares of stock entitled to
vote on the matter.
The charter of Starwood Financial Inc. provides that an amendment to the
charter must be approved by holders of a majority of the outstanding shares of
stock entitled to vote on that amendment.
BUSINESS COMBINATIONS. Under the MGCL, some "business combinations"
(including a merger, consolidation, share exchange or, in some cases, an asset
transfer or issuance or reclassification of equity securities) between a
Maryland corporation and an "interested stockholder," that is any person who
beneficially owns ten percent or more of the voting power of the corporation's
stock or an affiliate or associate of the corporation who, at any time within
the two-year period prior to the date in question, was the beneficial owner of
10% or more of the voting power of the then-outstanding voting stock of the
corporation or an affiliate or associate of that affiliate or associate, are
prohibited for five years after the most recent date on which the interested
stockholder becomes an interested stockholder. After that, any business
combination must be recommended by the board of directors of the corporation and
approved by the affirmative vote of at least: (1) 80% of the votes entitled to
be cast by holders of outstanding voting stock of the corporation; and (2) two
thirds of the votes entitled to be cast by holders of voting stock of the
corporation other than stock held by the interested stockholder with whom the
business combination is to be effected, unless, among other conditions, the
corporation's common stockholders receive a "minimum price" (as defined in the
MGCL) for their stock and the consideration is received in cash or in the same
form as previously paid by the interested stockholder for its stock. These
provisions of the MGCL do not apply, however, to business combinations that are
approved or exempted by the board of directors of the corporation prior to the
time that the interested stockholder becomes an interested stockholder.
TriNet has exempted Robert W. Holman, Jr. and any present or future
affiliate of his from the business combinations sections of the MGCL. Starwood
Financial Inc. has elected not to be subject to the business combination
provisions of the MGCL.
CONTROL SHARE ACQUISITIONS. The MGCL provides that "control shares" of a
Maryland corporation 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 directors who are employees of the corporation. "Control shares"
are voting shares which, if taken together with all other such shares previously
acquired by the acquiror, or in respect of which the acquiror is able to
exercise or direct the exercise of voting power (except solely by virtue of a
revocable proxy), would entitle the acquiror to exercise voting power in
electing directors within one of the following ranges of voting power:
- One fifth or more but less than one third.
- One third or more but less than a majority.
- 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 stockholder approval.
A person who has made or proposes to make a control share acquisition may
compel the board of directors of a corporation to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the corporation may itself
present the question at any stockholders' meeting.
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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,
in most cases, the corporation 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 stockholders at which the voting rights of such shares are
considered and not approved. If voting rights for control shares are approved at
a stockholders' meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other stockholders may exercise appraisal
rights. The fair value of the shares as determined for purposes of such
appraisal rights may not be less than the highest price per share paid by the
acquiror in the control share acquisition.
The control share acquisition provisions do not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction or to acquisitions approved or exempted by the charter or bylaws of
a corporation, as the case may be.
The bylaws of TriNet contain a provision exempting from the control share
acquisition provisions of the MGCL any and all acquisitions of TriNet shares of
stock. The bylaws of Starwood Financial Inc. contain a similar provision
exempting from the control share acquisition provisions of the MGCL any and all
acquisitions of Starwood Financial shares of stock. That provision may be
amended or eliminated at any time in the future.
OWNERSHIP RESTRICTIONS. The charter of TriNet contains limitations and
restrictions on ownership similar to those in the charter of Starwood Financial
Inc., as discussed in the following paragraphs. However, TriNet's ownership
limit provides that no person, other than an existing holder, may at any time,
directly or indirectly, acquire or hold beneficial ownership of shares of any
class or series of stock with an aggregate value in excess of 9.3% of the
aggregate value of all the outstanding stock of that class or series. Moreover,
rather than being transferred to a charitable trust, the shares transferred in
violation of the ownership or other transfer restrictions are treated as excess
stock and transferred to TriNet, as trustee of a trust for the exclusive benefit
of the person who ultimately acquires the excess stock.
For Starwood Financial Inc. to qualify as a REIT for federal income tax
purposes, it must satisfy requirements concerning the ownership of its
outstanding shares of stock. Specifically, no group of five or fewer individuals
can own more than 50% (in value) of the REIT's stock, and the shares of stock of
Starwood Financial Inc. must be beneficially owned by 100 or more persons during
at least 335 days of a taxable year of 12 months or a proportionate part of a
shorter taxable year. These two requirements do not apply until after the first
taxable year for which Starwood Financial Inc. makes an election to be taxed as
a REIT. Starwood Financial Trust will elect to be taxed as a REIT for its tax
year beginning January 1, 1998. For more information regarding the qualification
of the combined company, Starwood Financial Trust or TriNet as a REIT, please
read the sections of this joint proxy statement and prospectus entitled "Risk
Factors--The failure of the combined company to qualify as a REIT could
adversely affect stockholders" and "Material Federal Income Tax
Considerations--Tax Consequences of the Merger on Starwood Financial's REIT
Status."
Starwood Financial Inc.'s charter provides that no person other than
existing Starwood Financial Inc. stockholders, and direct or indirect owners of
those stockholders, or stockholders exempted by the board of directors may
beneficially or constructively own more than 9.8% of the number or value of the
outstanding shares of any class or series of stock of Starwood Financial Inc.
Any transfer of stock of Starwood Financial Inc. that would:
1. Result in any person owning, directly or indirectly, stock of Starwood
Financial Inc. in excess of the ownership limit.
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2. Result in any person beneficially or constructively owning shares of
stock that result in the corporation being "closely held" or otherwise
cause Starwood Financial Inc. to fail to qualify under the Internal
Revenue Code as a REIT.
3. Result in the stock of Standard Financial Inc. being owned by fewer than
100 persons, will be null and void, and the intended transferee will
acquire no rights in such shares of stock.
Stock transferred in violation of the above-described restrictions that are
not otherwise exempt from the restrictions will be transferred to a charitable
trust. The shares held by the charitable trust will remain issued and
outstanding shares of stock and will be entitled to the same rights and
privileges as all other shares of the same class or series. The charitable
trustee will receive all dividends and distributions on the shares and will hold
the dividends and distributions in trust for the benefit of the beneficiary. The
trustee will vote all of the shares. At the direction of Starwood Financial
Inc., the trustee will sell all the shares of the stock held in the trust to a
person whose ownership of the shares will not violate the restrictions on
ownership.
The shares which violate the ownership or transfer restrictions will be
deemed to have been offered for sale to Starwood Financial Inc., or its
designee, a price per share equal to the lesser of: (1) the price per share in
the transaction that created the shares in trust; and (2) the market price of
the shares on the date Starwood Financial Inc., or its designee, accepts the
offer.
Within 30 days after January 1 of each year, every owner of more than the
percentage of the outstanding shares of common stock specified in the Internal
Revenue Code (currently 5%) is required to give to Starwood Financial Inc., upon
its request, information regarding the name and address of the direct and
indirect owners of those shares and the manner in which those shares are held.
All certificates representing shares of Starwood Financial Inc. stock will
bear a legend referring to the restrictions described above.
The Starwood Financial Inc. and TriNet ownership limits could have the
effect of delaying, deferring or preventing a transaction or a change in control
of each that might involve a premium price for holders of each company's common
stock or otherwise be in their best interest.
DIVIDENDS AND OTHER DISTRIBUTIONS. The MGCL allows the payment of a
dividend or other distribution unless, after giving effect to the dividend or
other distribution, the corporation would not be able to pay its debts as they
become due in the usual course of business or the corporation's total assets
would be less than the corporation's total liabilities plus (unless the
corporation's charter provides otherwise) the amount that would be needed, if
the corporation were to be dissolved at the time of the distribution, to satisfy
the preferential rights upon dissolution of stockholders whose preferential
rights upon dissolution are superior to those receiving the distribution. The
charter of TriNet permits its Board of Directors to not consider the amount that
would be needed, if TriNet were to be dissolved at the time of the distribution,
to satisfy the preferential rights upon dissolution of stockholders whose
preferential rights upon dissolution are superior to those receiving the
distribution, when determining whether to authorize a distribution.
Starwood Financial Inc. is subject to the same requirements for payment of a
dividend or distribution as TriNet. However, the Board of Directors of Starwood
Financial Inc. must consider the amount that would be needed, if the corporation
were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of stockholders whose preferential rights
upon dissolution are superior to those receiving the distribution.
BYLAWS. The Board of Directors and stockholders of TriNet have the power to
alter or repeal any bylaws of TriNet except for the bylaw provisions regarding
amendment of the bylaws and consent requirements of an indemnified person.
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The Board of Trustees of Starwood Financial Inc. have the exclusive power to
adopt, alter or repeal any provision of the bylaws of Starwood Financial Inc.
ANNUAL MEETINGS. The bylaws of TriNet provide that only such business shall
be conducted, and only such proposals shall be acted upon, as have been properly
brought before the meeting. For a matter to be properly brought before the
meeting, it must be brought by a majority of the Board of Directors or any
holder of record of shares of stock entitled to vote at the annual meeting who
complies with the notice procedures. The stockholder must provide notice of the
matter or proposal not less than 75 nor more than 180 days prior to the
anniversary date of the last annual meeting of stockholders or, in the event
that the annual meeting of stockholders is called for a date more than seven
days prior to the anniversary date of the last annual meeting, the stockholder
must provide notice of any matter or proposal 20 days following the earlier of
the date on which notice was mailed to the stockholders or the date which the
meeting was publicly announced. The stockholder's notice to the Secretary must
set forth:
1. A brief description of the proposal and the reason for conducting that
business at the annual meeting.
2. The name and address of the stockholder proposing the business, the
beneficial owner, if any, of the stock registered in the stockholder's
name and the name and address of the other stockholders known by the
stockholder to be supporting the proposal.
3. The class and number of shares of stock which are owned by the
stockholder, the beneficial owners and other stockholders known to
support the proposal.
4. Any financial interest of the stockholder or of the beneficial owners in
the proposal.
If the Board of Directors, or any of its designated committees, determines that
the information provided in the stockholder's notice does not satisfy those
informational requirements, TriNet will notify the stockholder of the
deficiency, and the stockholder will have an opportunity to cure the deficiency
by providing additional information to the Secretary within five days after the
date of the deficiency notice.
Nominations for election to the Board of Directors of Starwood Financial
Inc. and proposals of business to be conducted at an annual meeting of
stockholders of Starwood Financial Inc. may be made at any annual meeting of
stockholders pursuant to Starwood Financial Inc.'s notice of meeting, by the
Board of Directors or by any stockholder of record who is entitled to vote at
the meeting and who has complied with certain notice procedures. For a
stockholder's notice to be timely, the notice shall be delivered to the
Secretary of Starwood Financial Inc. not less than 60 nor more than 90 days
prior to the first anniversary of the last annual meeting. If the date of the
annual meeting is advanced by more than 30 days or delayed by more than 60 days
from the anniversary date of the last annual meeting, notice by the stockholder
must be delivered not more than 90 days prior nor less than 60 days prior to the
annual meeting or 10 days from the date of the public announcement of the
meeting. A stockholder's notice must set forth:
1. As to each person the stockholder proposes to nominate for election as a
director, all information relating to the person that is required to be
disclosed in the solicitation of proxies for election of directors.
2. As to any other business the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before
the meeting, the reasons for conducting the business at the meeting, and
the stockholder's and beneficial owner's, if any, material interests in
the business.
3. The name and address of the stockholder providing notice and the class
number of shares of Starwood Financial Inc.'s stock which are owned
beneficially or of record by the stockholder.
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SPECIAL MEETINGS OF STOCKHOLDERS. The bylaws of TriNet provide that a
special meeting of stockholders may be called by the Chairman, the President or
a majority of the Board of Directors. In addition, a special meeting of
stockholders must be called by the Secretary upon the written request of the
holders or shares entitled to cast 25% or more of the votes entitled to be cast
at the meeting. A stockholder request must state the purpose or purposes of the
meeting and the matters proposed to be acted on at the meeting. Not less than 10
days and not more than 90 days before any meeting of stockholders, written
notice of the meeting will be given to each stockholder entitled to notice,
stating the time, place and the purpose or purposes of the meeting.
The bylaws of Starwood Financial Inc. provide that a special meeting of
stockholders may be called by the Chairman or at least two other directors. A
special meeting of stockholders must also be called by the Secretary upon the
written request of stockholders entitled to cast not less than 20% of all the
votes entitled to be cast at the meeting. The stockholder request must state the
purpose for the meeting and the matters proposed to be acted on at the meeting.
Unless requested by stockholders entitled to cast a majority of all the votes
entitled to be cast at a meeting, a special meeting does not need to be called
to consider any matter which is substantially the same as a matter voted on at
any meeting of stockholders held during the last 12 months. Not less than 10
days nor more than 60 days before each meeting of stockholders, the Secretary
must give notice of the meeting to each stockholder entitled to notice of the
meeting. If Starwood Financial Inc. calls a special meeting of stockholders for
purpose of electing one or more directors to the Board, any stockholder may
nominate a person or persons for election to the Board of Directors by providing
notice to Starwood Financial Inc. not more than 90 days nor less than 60 days
prior to the meeting or 10 days after the day on which the public announcement
of the special meeting and the nominees proposed by the Board of Directors is
first made by Starwood Financial Inc.
COMPARISON OF THE 9 3/8% SERIES A CUMULATIVE PREFERRED STOCK OF TRINET AND
THE 9 3/8% SERIES B CUMULATIVE REDEEMABLE PREFERRED STOCK OF STARWOOD FINANCIAL
INC. The 9 3/8% Series A Cumulative Preferred Stock of TriNet consists of
2,300,000 shares, par value $0.01 per share. Holders of shares of Series A
preferred stock of TriNet do not have voting rights except after the failure of
TriNet to pay six or more quarterly dividends.
The 9 3/8% Series B Cumulative Redeemable Preferred Stock of Starwood
Financial Inc. consist of 2,300,000 shares, par value $0.001 per share. In
addition to voting rights related to an arrearage of six or more quarterly
dividends, each share of Series B preferred stock of Starwood Financial Inc. is
entitled to cast (voting together with all the common stock of Starwood
Financial Inc.) 0.25 of one vote with respect to all matters on which holders of
common stock are entitled to vote at each meeting of stockholders of Starwood
Financial Inc.
There are otherwise no material differences between the terms of the 9 3/8%
Series A Cumulative Preferred Stock of TriNet and the 9 3/8% Series B Cumulative
Redeemable Preferred Stock of Starwood Financial Inc. For more information
regarding the comparison of the terms of the 9 3/8% Series A Cumulative
Redeemable Preferred Stock of TriNet and the 9 3/8% Series B Cumulative
Redeemable Preferred Stock of Starwood Financial Inc., please read this section,
"Comparison of Rights of Stockholders of TriNet and of Starwood Financial Inc.,"
in its entirety. The terms and provisions of the Series B Preferred Stock of
Starwood Financial Inc. are described in the section of this "Comparison of
Stockholder Rights; Description of the Combined Company's Securities" entitled
"Description of the Capital Stock of the Combined Company--Preferred
Stock--9 3/8% Series B Cumulative Redeemable Preferred Stock."
COMPARISON OF THE 9.20% SERIES B CUMULATIVE PREFERRED STOCK OF TRINET AND
THE 9.20% SERIES C CUMULATIVE REDEEMABLE PREFERRED STOCK OF STARWOOD FINANCIAL
INC. The 9.20% Series B Cumulative Preferred Stock of TriNet consists of
1,495,000 shares, par value $0.01 per share. Holders of shares of
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Series B preferred stock of TriNet do not have voting rights except after the
failure of TriNet to pay six or more quarterly dividends.
The 9.20% Series C Cumulative Redeemable Preferred Stock of Starwood
Financial Inc. consist of 1,495,000 shares, par value $0.001 per share. In
addition to voting rights related to an arrearage of six or more quarterly
dividends, each share of Series C preferred stock is entitled to cast (voting
together with all the common stock of Starwood Financial Inc.) 0.25 of one vote
with respect to all matters on which holders of common stock are entitled to
vote at each meeting of stockholders of Starwood Financial Inc.
There are otherwise no material differences between the terms of the 9.20%
Series B Cumulative Preferred Stock of TriNet and the 9.20% Series C Cumulative
Redeemable Preferred Stock of Starwood Financial Inc. For more information
regarding the comparison of the terms of the 9.20% Series B Cumulative Preferred
Stock of TriNet and the 9.20% Series C Cumulative Redeemable Preferred Stock of
Starwood Financial Inc., please read this section, "Comparison of Rights of
Stockholders of TriNet and of Starwood Financial Inc.," in its entirety. The
terms and provisions of the Series C preferred stock of Starwood Financial Inc.
are described in the section of this "Comparison of Stockholder Rights;
Description of the Combined Company's Securities" entitled "Description of the
Capital Stock of the Combined Company--Preferred Stock--9.20% Series C
Cumulative Redeemable Preferred Stock."
COMPARISON OF THE 8% SERIES C CUMULATIVE PREFERRED STOCK OF TRINET AND THE
8% SERIES D CUMULATIVE REDEEMABLE PREFERRED STOCK OF STARWOOD FINANCIAL
INC. The 8% Series C Cumulative Preferred Stock of TriNet consists of 4,600,000
shares, par value $0.01 per share. Holders of shares of Series C preferred stock
of TriNet do not have voting rights except after failure of TriNet to pay six or
more quarterly dividends.
The 8% Series D Cumulative Redeemable Preferred Stock of Starwood Financial
Inc. consists of 4,600,000 shares, par value $0.001 per share. In addition to
voting rights related to an arrearage of six or more quarterly dividends, each
share of Series C preferred stock is entitled to cast (voting together with all
the common stock of Starwood Financial Inc.) 0.25 of one vote with respect to
all matters on which holders of common stock are entitled to vote at each
meeting of stockholders of Starwood Financial Inc.
There are otherwise no material differences between the terms of the 8%
Series C Cumulative Preferred Stock of TriNet and the 8% Series D Cumulative
Redeemable Preferred Stock of Starwood Financial Inc. For more information
regarding the comparison of the terms of the 8% Series C Cumulative Preferred
Stock of TriNet and the 8% Series D Cumulative Redeemable Preferred Stock of
Starwood Financial Inc., please read this section, "Comparison of Rights of
Stockholders of TriNet and of Starwood Financial Inc., in its entirety. The
terms and provisions of the Series D Preferred Stock of Starwood Financial Inc.
are described in the section of this "Comparison of Stockholder Rights;
Description of the Combined Company's Securities" entitled "Description of the
Capital Stock of the Combined Company--Preferred Stock--8% Series D Cumulative
Redeemable Preferred Stock."
COMPARISON OF RIGHTS OF SHAREHOLDERS OF STARWOOD FINANCIAL TRUST AND
STOCKHOLDERS OF STARWOOD FINANCIAL INC.
GENERAL. Starwood Financial Trust is organized as a real estate investment
trust, and Starwood Financial Inc. is organized as a corporation under the laws
of the State of Maryland. As a Maryland real estate investment trust, Starwood
Financial Trust is governed by Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland and other provisions of the Annotated
Code of Maryland. Title 8 covers some of the same matters covered by the MGCL,
including liabilities of Starwood Financial Trust shareholders, trustees and
officers; amendment of the declaration of trust or bylaws; and mergers of a real
estate investment trust with or into other entities. Many matters that are
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addressed in the MGCL are not dealt with in Title 8, and it is a general
practice of real estate investment trusts to address some of these matters
through provisions in their declaration of trust or bylaws.
As a Maryland corporation, Starwood Financial Inc. is subject to the MGCL,
which is a general corporation statute dealing with a wide variety of matters,
including election, tenure, duties, liabilities and indemnification of directors
and officers; dividends and other distributions; meetings and rights of
stockholders; and extraordinary actions, such as amendments to the charter,
mergers, sales of all or substantially all of a corporation's assets and
dissolution.
Some of the differences between Title 8 and the MGCL and between the
Declaration of Trust and bylaws of Starwood Financial Trust and charter and
bylaws of Starwood Financial Inc. are discussed below. However, the comparison
of the rights of stockholders of Starwood Financial Inc. and shareholders of
Starwood Financial Trust set forth below is not necessarily complete and you
should also read relevant portions of the MGCL, Title 8 and the charter and
bylaws of Starwood Financial Inc. and the Declaration of Trust and Bylaws of
Starwood Financial Trust.
AUTHORIZED SHARES. The authorized shares of beneficial interest of Starwood
Financial Trust consist of 109,400,000 shares, of which 70,000,000 are
designated Class A Shares, par value $1.00 per share, 35,000,000 are designated
Class B shares, par value $0.01 per share, and 4,400,000 are designated Series A
preferred shares, par value $0.01 per share. The Board of Trustees, without
shareholder approval, may increase or decrease the aggregate number of
authorized shares of beneficial interest.
The authorized stock of Starwood Financial Inc. consists of 230,000,000
shares of stock. Of these shares, 200,000,000 are initially classified as common
stock and 30,000,000 are initially classified as preferred stock. The preferred
stock consists of four classes--9.5% Series A Cumulative Redeemable Preferred
Stock, par value $0.001 per share, 9 3/8% Series B Cumulative Redeemable
Preferred Stock, par value $0.001 per share, 9.20% Series C Cumulative
Redeemable Preferred Stock, par value $0.001 per share and 8% Series D
Cumulative Redeemable Preferred Stock, per value $0.001 per share. The Board of
Directors may, to the extent permitted by Maryland law, without stockholder
action, increase or decrease the aggregate number of authorized shares of stock.
Effective October 1, 1999, the MGCL will permit the Board of Directors to have
this power.
BOARD OF TRUSTEES AND BOARD OF DIRECTORS. The Declaration of Trust and
bylaws of Starwood Financial Trust provide that at any regular meeting, or at
any special meeting called for that purpose, a majority of the entire Board of
Trustees may increase or decrease the number of trustees. However, the number of
trustees cannot be less than seven nor more than 15. Any vacancy will be filled
at any regular meeting or at any special meeting of the Trustees called for that
purpose by the vote of a majority of the Trustees. Under the Declaration of
Trust and bylaws of Starwood Financial Trust, the Trustees are divided into two
classes, as nearly equal in number as possible, with the term of one class
expiring at each annual meeting of shareholders. The staggered terms of trustees
may have the effect of delaying, deferring or preventing a transaction or a
change of control of Starwood Financial Trust that might involve a premium price
for holders of shares of beneficial interest or otherwise be in their best
interest.
The charter and bylaws of Starwood Financial Inc. provide that at any
regular meeting, or at any special meeting called for that purpose, a majority
of the entire Board of Directors or stockholders holding a majority of the
combined voting power of all of the outstanding shares of stock entitled to vote
for directors may increase or decrease the number of directors. However, the
number of directors may not be less than seven nor more than 18, and never less
than the minimum required by the MGCL (currently, three). As in the Declaration
of Trust of Starwood Financial Trust, the charter of Starwood Financial Inc.
provides that at least three directors or one-third of the number of directors
(whichever is greater) must be non-affiliates of Starwood Capital Group, L.L.C.
The charter of Starwood Financial Inc. provides that the Board of Directors is
divided into two classes, as nearly equal in
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number as possible, with the term of one class expiring at each annual meeting
of stockholders. Pursuant to the MGCL, the charter and the bylaws, vacancies may
be filled by a majority of the remaining directors or by the affirmative vote of
the holders of a majority of the votes cast at a meeting at which a quorum is
present.
ACTION BY WRITTEN CONSENT. Title 8 contains no provisions regarding
shareholder action by written consent. The bylaws of Starwood Financial Trust
permit any action which may be taken at a meeting of shareholders to be taken
without a meeting if a written consent to the action is signed by a proportion
of the Class A shareholders and Class B shareholders sufficient to approve the
action at a meeting.
The bylaws of Starwood Financial Inc., in accordance with the MGCL, permit
stockholder action by consent only upon receipt of the unanimous written consent
of all stockholders entitled to vote on the matter and a written waiver of any
right to dissent signed by each stockholder entitled to notice of the meeting
but not entitled to vote at it.
AMENDMENT OF CHARTER AND DECLARATION OF TRUST. Under Title 8 and Starwood
Financial Trust's Declaration of Trust, the Trustees, by a two thirds vote, may
at any time amend the Declaration of Trust to enable it to qualify as a REIT
under the Internal Revenue Code or as a Maryland real estate investment trust
under Title 8, without the approval of the shareholders. Also, the Board of
Trustees, without shareholder action, may amend the Declaration of Trust from
time to time to increase or decrease the aggregate number of shares of
beneficial interest or the number of shares of beneficial interest of any class
that Starwood Financial Trust has the authority to issue. Other amendments to
the Declaration of Trust require the vote of holders of two thirds of the
outstanding shares.
As permitted by the MGCL, an amendment to the charter of Starwood Financial
Inc. must be approved by holders of a majority of the outstanding shares of
stock entitled to vote on that matter. The charter provides that to the extent
permitted by Maryland law, without any action by the stockholders, the Board of
Directors may amend the Charter to increase or decrease the aggregate number of
shares of stock or the number of shares of stock of any class or series that
Starwood Financial Inc. has authority to issue. Effective October 1, 1999, the
MGCL will permit the Board of Directors to have this power.
TERMINATION OF STARWOOD FINANCIAL TRUST AND DISSOLUTION OF STARWOOD
FINANCIAL INC. Subject to the provisions of any class or series of shares of
beneficial interest at the time outstanding, the Declaration of Trust permits
the termination of Starwood Financial Trust by the affirmative vote of the
holders of not less than 66 2/3% of the outstanding Class A and Class B shares,
voting together at a meeting of shareholders called for that purpose.
Starwood Financial Inc. may be dissolved if the Board of Directors, by
resolution adopted by a majority of the entire Board of Directors, declares the
dissolution advisable and directs that the proposed dissolution be submitted for
consideration at either an annual or special meeting of stockholders.
Dissolution will occur once it is approved by the affirmative vote of a majority
of stockholders entitled to cast votes on the matter.
BUSINESS COMBINATIONS. The business combination provisions of the MGCL are
applicable to Maryland real estate investment trusts as well as Maryland
corporations. For a description of how these provisions work, please read the
section of this discussion of "Comparison of Stockholder Rights; Description of
the Combined Company's Securities" entitled "Comparison of Rights of
Stockholders of TriNet and of the Combined Company--Business Combinations."
Starwood Financial Trust exempted Starwood Capital Group, L.L.C. and its
affiliates from the business combination provisions of the MGCL. Starwood
Financial Inc. has elected not to be subject to the business combination
provisions of the MGCL.
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CONTROL SHARE ACQUISITIONS. The control share acquisition provisions of the
MGCL are applicable to Maryland real estate investment trusts as well as
Maryland corporations. For a description of how these provisions work, please
read the section of this discussion of "Comparison of Stockholder Rights;
Description of the Combined Company's Securities" entitled "Comparison of Rights
of Stockholders of TriNet and of the Combined Company--Business Combinations."
Starwood Financial Trust's Declaration of Trust exempts Starwood Capital,
L.L.C. and its affiliates from the control share acquisition provisions of the
MGCL. Starwood Financial Inc.'s bylaws exempt any and all acquisitions of
Starwood Financial Inc.'s stock from the control share acquisition provisions of
the MGCL.
REMOVAL OF DIRECTORS AND TRUSTEES. Under Title 8 and the Declaration of
Trust, a trustee may be removed with or without cause by the affirmative vote of
holders of at least a majority of the shares outstanding and entitled to vote in
the election of trustees. Under the Declaration of Trust of Starwood Financial
Trust, a trustee may be removed, with cause, by all remaining trustees. "Cause"
is defined in the Declaration of Trust to mean a trustee's willful and material
violation of the Declaration of Trust or the bylaws that is against the
interests of the shareholders or gross negligence in the performance of his or
her duties.
Under the MGCL and the Starwood Financial Inc. charter, a director of
Starwood Financial Inc. may be removed with or without cause by the affirmative
vote of a majority of all the votes entitled to be cast in the election of
directors. The term "cause" is defined similarly in the Declaration of Trust of
Starwood Financial Trust and the charter of Starwood Financial Inc.
OWNERSHIP RESTRICTIONS. The Declaration of Trust of Starwood Financial
Trust contains substantially similar limitations and restrictions on ownership
to those in the charter of Starwood Financial Inc. The ownership restrictions
applicable to the stock of Starwood Financial Inc. are described in the section
of this "Comparison of Stockholder Rights; Description of the Combined Company's
Securities" entitled "Comparison of Rights of Stockholders of TriNet and of the
Combined Company--Ownership Restrictions." Starwood Financial Trust's ownership
limit differs from that of Starwood Financial Inc. in that it provides that no
person, other than an existing holder, can acquire 9.8% or more of the Class A
shares, or value of the aggregate of all the outstanding shares of the trust.
Moreover, rather than being transferred to a charitable trust, Starwood
Financial Trust shares transferred in violation of the ownership restrictions
are treated as excess shares, and the excess shares are transferred to a trust
for the exclusive benefit of the person who ultimately acquires the excess
stock.
The Starwood Financial Inc. and Starwood Financial Trust ownership limits
could have the effect of delaying, deferring or preventing a transaction or a
change of control of Starwood Financial Inc. or Starwood Financial Trust
(respectively) that might involve a premium price for holders of each company's
common equity or otherwise be in their best interest.
DIVIDENDS AND OTHER DISTRIBUTIONS. Under Title 8 and the Declaration of
Trust of Starwood Financial Trust, there are no limits on the payment of
dividends or other distributions; however, a Maryland court could consider the
MGCL provisions (as described in the following paragraph) relevant to its
decision as to the validity of a dividend or distribution made by a real estate
investment trust, such as Starwood Financial Trust.
The MGCL allows the payment of a dividend or other distribution unless,
after giving effect to the dividend or other distribution, the corporation would
not be able to pay its debts as they become due in the usual course of business
or the corporation's total assets would be less than the corporation's total
liabilities plus (unless the corporation's charter provides otherwise, which the
Declaration of Trust of Starwood Financial Trust does not) the amount that would
be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
stockholders whose preferential rights upon dissolution are superior to those
receiving the distribution.
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RESTRICTIONS ON INVESTMENT AND USE. Under Title 8, a Maryland real estate
investment trust must hold at least 75% of the value of its assets in real
estate assets, mortgages or mortgage-related securities, government securities,
cash and cash equivalent items, including high-grade short-term securities and
receivables and may not use or apply land for farming, agriculture, horticulture
or similar purposes. However, this requirement will be repealed effective
October 1, 1999. There are no statutory investment restrictions applicable to
Maryland corporations.
COMPARISON OF THE 9.5% SERIES A PREFERRED SHARES OF STARWOOD FINANCIAL TRUST
AND THE 9.5% SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK OF STARWOOD
FINANCIAL INC. There are 4,400,000 Series A preferred shares of Starwood
Financial Trust, par value $0.01 per share.
The 9.5% Series A Cumulative Redeemable Preferred Stock of Starwood
Financial Inc. consists of 4,4000,000 shares, par value $0.001 per share.
There are no material differences between the terms and provisions of the
Series A Preferred Shares of Starwood Financial Trust and the Series A Preferred
Stock of Starwood Financial Inc. For more information regarding the comparison
of the terms of the 9.5% Series A Cumulative Preferred Shares of Starwood
Financial Trust and the 9.5% Series A Cumulative Redeemable Preferred Stock of
Starwood Financial Inc., please read the section, "Comparison of Rights of
Shareholders of Starwood Financial and Stockholders of Starwood Financial Inc.,"
in its entirety.
DESCRIPTION OF THE CAPITAL STOCK OF THE COMBINED COMPANY
The following description of the terms of Starwood Financial Inc. stock is
only a summary. For a complete description, we refer you to the MGCL and the
Starwood Financial Inc. charter and bylaws.
GENERAL. The Starwood Financial Inc. charter provides for the issuance of
up to 200,000,000 shares of common stock, par value $0.001 per share, and
30,000,000 shares of preferred stock. Prior to the consummation of the
incorporation merger, Starwood Financial Inc. will adopt articles supplementary
creating a class of preferred stock designated as 9.5% Series A Cumulative
Redeemable Preferred Stock, consisting of 4,400,000 shares. Prior to the
consummation of the merger, Starwood Financial Inc. will adopt articles
supplementary creating a class of preferred stock designated as 9 3/8% Series B
Cumulative Redeemable Preferred Stock, consisting of 2,300,000 shares, articles
supplementary creating a class of preferred stock designated as 9.20% Series C
Cumulative Redeemable Preferred Stock, consisting of 1,495,000 shares, and
articles supplementary creating a class of preferred stock designated as 8%
Series D Cumulative Redeemable Preferred Stock consisting of 4,600,000 shares
Holders of common stock will be entitled to receive distributions on common
stock if, as and when the Board of Directors authorizes and declares
distributions. However, rights to distributions may be subordinated to the
rights of holders of preferred stock, when preferred stock is issued and
outstanding. In any liquidation, dissolution or winding up of Starwood Financial
Inc., each outstanding share of common stock will entitle its holder to a
proportionate share of the assets that remain after Starwood Financial Inc. pays
its liabilities and any preferential distributions owed to preferred
stockholders.
Holders of the common stock are entitled to one vote for each share on all
matters submitted to a stockholder vote. Holders of the Series B preferred
stock, Series C preferred stock, and Series D preferred stock are entitled to
0.25 of a vote for each share on all matters submitted to a stockholder vote.
There is no cumulative voting in the election of directors.
Holders of shares of common stock have no preference, conversion, sinking
fund, redemption, appraisal or exchange rights or any preemptive rights to
subscribe for any Starwood Financial Inc. securities. All shares of common stock
have equal dividend, distribution, liquidation and other rights.
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Starwood Financial Inc. may be dissolved if the Board of Directors, by
resolution adopted by a majority of the entire Board of Directors, declares the
dissolution advisable and directs that the proposed dissolution be submitted for
consideration at either an annual or special meeting of stockholders.
Dissolution will occur once it is approved by the affirmative vote of a majority
of stockholders entitled to cast votes on the matter.
STARWOOD FINANCIAL INC. HAS THE POWER TO ISSUE ADDITIONAL SHARES OF
STOCK. The Starwood Financial Inc. charter grants the Board of Directors the
power to authorize the issuance of additional authorized but unissued shares of
common stock and preferred stock. The Board of Directors may also classify or
reclassify unissued shares of common stock or preferred stock and authorize the
issuance of these classified or reclassified shares of stock. The Board of
Directors sets the terms and conditions for each class or series, including
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption.
Starwood Financial Inc. believes that these powers of the Board of Directors
provide increased flexibility in structuring possible future financings and
acquisitions and in meeting other needs which might arise. Unless stockholder
action is required by applicable law or the rules of any stock exchange or
automated quotation system on which Starwood Financial Inc. securities may be
listed or traded, the additional classes or series, as well as the common stock,
will generally be available for issuance without further action by stockholders.
Although the Board of Directors does not intend to do so at the present time, it
could authorize the issuance of a class or series that could delay, defer or
prevent a change of control or other transaction that might involve a premium
price for the common stock or otherwise be in the best interest of the
stockholders.
The Starwood Financial Inc. charter also provides that, to the extent
permitted by the MGCL, the Board of Directors may, without any action by the
stockholders, amend the Starwood Financial Inc. charter from time to time to
increase or decrease the aggregate number of shares of stock or the number of
shares of stock of any class or series that Starwood Financial Inc. has
authority to issue. Effective October 1, 1999 the MGCL will permit the Board of
Directors of Starwood Financial Inc. to have this power.
RESTRICTIONS ON OWNERSHIP AND TRANSFER. To maintain Starwood Financial
Inc.'s REIT qualification under the Internal Revenue Code, no fewer than six
individuals can own, actually or constructively, more than 50% in value of
Starwood Financial Inc.'s issued and outstanding stock at any time during the
last half of a taxable year. Additionally, at least 100 persons must
beneficially own Starwood Financial Inc. stock during at least 335 days of a
taxable year. For more information regarding the qualification of Starwood
Financial Inc. as a REIT for federal income tax purposes, please read the
section of this joint proxy statement and prospectus entitled "Material Federal
Income Tax Considerations--Tax Consequences of the merger on Starwood
Financial's REIT Status." To help insure that Starwood Financial Inc. meets
these tests, the Starwood Financial Inc. charter restricts the acquisition and
ownership of its shares of stock.
The ownership restrictions in the Starwood Financial Inc. charter are
described under the section of this "Comparison of Stockholder Rights;
Description of the Combined Company's Securities" entitled "Comparison of Rights
of Stockholders of TriNet and of the Combined Company--Ownership Restrictions."
Each person who is a beneficial or constructive owner of shares of stock and
each person, including the stockholder of record, who is holding shares of stock
for a beneficial or constructive owner must provide to Starwood Financial Inc.
in writing any information with respect to direct, indirect and constructive
ownership of shares of stock as the Board of Directors deems reasonably
necessary to comply with the provisions of the Internal Revenue Code applicable
to a REIT, to determine Starwood Financial Inc.'s status as a REIT, to comply
with the requirements of any taxing authority or governmental agency or to
determine any such compliance.
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These restrictions on ownership and transfer will not apply to stock of
Starwood Financial Inc. if the Board of Directors determines that it is no
longer in the best interests of Starwood Financial Inc. to qualify as a REIT.
These restrictions on ownership and transfer could delay, defer or prevent a
transaction or a change of control of Starwood Financial Inc. that might involve
a premium price for shares of stock of Starwood Financial Inc. or otherwise be
in the best interest of its stockholders.
PREFERRED STOCK. The following summary of the terms and provisions of the
Series A, B, C and D preferred stock is not necessarily complete, and you should
also read the applicable sections of the Starwood Financial Inc. charter,
including the Articles Supplementary creating each Series of preferred stock,
copies of which have filed as exhibits to the registration statement containing
this joint proxy statement and prospectus.
9.5% SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK. Dividends: Each share
of Series A preferred stock entitles its holder to receive dividends out of any
assets legally available for dividends, prior to and in preference to any
declaration or payment of any dividend, on any securities junior in dividend
rights to the Series A preferred stock (other than dividends payable in the form
of those junior securities) and on a parity with any securities that are
designated to be on a parity with the Series A preferred stock. Dividends are
payable when and as authorized by the Board of Directors and declared by
Starwood Financial Inc. Dividends on each share of Series A preferred stock
accrue at the rate determined as described below on the liquidation value of
$50.00 per share. The dividend on the Series A preferred stock is cumulative and
is payable in cash in arrears on April 15, July 15, October 15 and January 15 of
each year, to holders of record on March 31, June 30, September 30 and December
31 respectively, of each year. Dividends accrue whether or not they have been
declared and whether or not there are profits, surplus or other funds of
Starwood Financial Inc. legally available for the payment of dividends. To the
extent that any dividend on the Series A preferred stock is not paid on a
scheduled payment date, the dividend accumulates and compounds quarterly from
that date at the then applicable dividend rate until the dividend is paid in
full.
Starwood Financial Inc. may not pay any dividends on any junior securities,
other than dividends payable in the form of those junior securities, unless all
accrued and unpaid dividends required to be paid on the Series A preferred stock
as of the immediately prior scheduled dividend payment date have been paid in
full. Likewise, Starwood Financial Inc. may not redeem, acquire or repurchase
any junior securities, except as required to comply with the ownership transfer
restriction provisions in the Starwood Financial Inc. charter, unless it is
current in its dividend payments on the Series A preferred stock.
The dividend rate on the Series A preferred stock will initially be 9.5% per
year. On December 15, 2005, 2006 and 2007, the dividend rate will increase by
0.25% per year. If Starwood Financial Inc. fails to pay the full amount of
accrued and unpaid dividends on four consecutive scheduled dividend payment
dates, on the day after the fourth scheduled dividend payment date, the dividend
rate will increase by 0.50% per annum. The maximum amount of the increase is
0.50% per annum. The increase in dividend rate will be effective as of the day
after the last scheduled dividend payment date on which Starwood Financial Inc.
paid the full required dividend. The increase in the dividend rate will remain
in effect until the close of the business day on which the delinquent dividends
are paid in full.
The amount of dividends payable for any period shorter or longer than a full
quarterly period shall be computed on the basis of twelve 30-day months and a
360-day year.
Liquidation, Dissolution or Winding up; Mergers, Consolidations and Asset
Sales: In the event of any voluntary or involuntary liquidation, dissolution or
winding up of Starwood Financial Inc., the holders of Series A preferred stock
then outstanding will be entitled to be paid out of the assets of Starwood
Financial Inc. available for distribution to its stockholders after payment of
any liquidation
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values of any securities senior in liquidation rights to the Series A preferred
stock and before any securities junior in liquidation rights to the Series A
preferred stock.
If, upon any liquidation, dissolution or winding up of Starwood Financial
Inc., the remaining assets of Starwood Financial Inc. available for distribution
to its stockholders are insufficient to pay the holders of Series A preferred
stock and all other classes or series of stock ranking equal to it with respect
to liquidation the full amount to which they are entitled, the holders of Series
A preferred stock and, together with holders of the equally preferenced stock,
will share ratably (based on their relative liquidation values) in any
distribution of the remaining assets and funds of Starwood Financial Inc.
The voluntary consolidation or merger of Starwood Financial Inc. into
another entity, if it results in the exchange of the Series A preferred stock
for securities of the other entity, or the sale of all or substantially all of
the assets of Starwood Financial Inc. is not a liquidation or dissolution with
respect to the Series A preferred stock unless:
1. The asset sale is in connection with the dissolution or winding up of
the business of Starwood Financial Inc.;
2. Starwood Financial Inc. is not the surviving entity and any holders of
junior securities receive cash (other than in payment for fractional
shares), notes, debentures, other indebtedness or preferred stock that
ranks equal to the Series A preferred stock in liquidation or dividend
preference; or
3. Starwood Financial Inc. is not the surviving entity and the holders of
the Series A Preferred Stock do not receive preferred stock of the
surviving entity that has terms (including liquidation and dividend
preference) that are no worse than the terms of the Series A preferred
stock.
Voting Rights: Except as otherwise provided below, holders of Series A
preferred stock are not entitled to vote.
Starwood Financial Inc. will not alter, amend or repeal the preferences,
special rights or other powers of the Series A preferred stock, without the
written consent or affirmative vote of holders of a majority of the then
outstanding shares of Series A preferred stock.
If Starwood Financial Inc. fails to pay a full dividend within thirty days
after a scheduled dividend payment date, the holders of Series A preferred stock
will be entitled to elect one director to the Board of Directors, increasing the
size of the Board of Directors. If Starwood Financial fails to pay full
dividends on any six consecutive dividend payment dates, the holders of Series A
preferred stock will be entitled to elect a second director, increasing the size
of the Board of Directors again. Any directors elected in this manner or their
successors will serve until the date on which all delinquent dividends,
including compounded dividends, are paid in full.
The majority of the holders of Series A preferred stock may elect a director
at a special or annual shareholder meeting or by written consent. After
receiving a written request from the majority of the holders of Series A
preferred stock, an appropriate officer of Starwood Financial will call a
special meeting of shareholders at which the election of a director will be
conducted. The special meeting will be held at the earliest permissible date at
the main offices of Starwood Financial or at another place chosen by the holders
of Series A Preferred Stock. If the special meeting has not been timely held
after notice has been given to the appropriate officer of Starwood Financial
Inc. by the holders of Series A preferred stock, those holders may hold the
special meeting of shareholders at Starwood Financial Inc.'s expense. If the
notice is given by hand or by overnight courier, Starwood Financial Inc. will
have 15 days after that notice was given to hold the meeting. If the notice was
given by mail, Starwood Financial, Inc. has 20 days after the notice was given
to hold the meeting. If Starwood Financial Inc. is
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subject to the proxy solicitation rules of the Securities Exchange Act of 1934,
the 15 and 20 day periods will be increased to 120 and 125 days respectively.
The holders of Series A preferred stock will be given access to the stock record
books of Starwood Financial Inc. for the purpose of calling the meeting.
At any meeting or at any adjournment of that meeting at which the holders of
the Series A Preferred Stock have the right to elect directors, the presence, in
person or by proxy, of the holders of a majority of the Series A Preferred Stock
is required to constitute a quorum for the election or removal of any director
by those holders. The affirmative vote of the holders of a majority of the
Series A Preferred Stock represented in person or proxy at that meeting is
required to elect or remove any of those directors.
Optional Repurchase by Starwood Financial Inc: From and after December 15,
2003, Starwood Financial Inc. will have the right to repurchase and redeem, all,
or any part of the Series A preferred stock outstanding for a price per share
equal to the liquidation value of the shares to be repurchased plus all unpaid
dividends that have been declared, accumulated or accrued, including any
compounded dividends to the date of the repurchase. After Starwood Financial
Inc. has repurchased 74% of the total number of shares of Series A preferred
stock issued originally, Starwood Financial Inc. must repurchase all remaining
outstanding shares of Series A preferred stock if any are repurchased. Any
repurchase of Series A preferred stock must be made pro rata among all holders
of Series A Preferred Stock and must be for at least $10 million in liquidation
value or the liquidation value of the remaining Series A preferred stock then
outstanding (whichever is less).
All holders of record of Series A preferred stock will be given written
notice of the repurchase and the date and place for the repurchase not less than
30 days nor more than 60 days prior to the date scheduled for the repurchase.
Starwood Financial Inc. has the right to revoke the notice of the repurchase at
any time prior to the designated date for the repurchase. On or before that
date, each holder of Series A preferred stock will surrender that holder's
certificates representing the Series A preferred stock to Starwood Financial
Inc. at the place designated in the notice, and on the later of the date for the
repurchase and the date the certificates are surrendered, will receive the
payment to which it is entitled.
On the date scheduled for the repurchase, provided that Starwood Financial
Inc. has deposited the funds necessary to effect the repurchase, all rights with
respect to the Series A preferred stock, including the right to receive notices
and vote (if those rights exist at the time), will terminate, except for the
right of the holders of that stock to receive the repurchase price.
Optional Redemption by the Holders of Series A Preferred Stock: In the
event of a "change of control," (as described below), and upon the election by
holders of a majority of the then outstanding Series A preferred stock, each
holder of Series A preferred stock has the right to have Starwood Financial Inc.
redeem all, but not less than all, of the Series A preferred stock held by the
holder on the date of the change of control for a price per share equal to the
liquidation value of the stock plus all unpaid dividends that have been
declared, accumulated or accrued, including any compounded dividends, to the
date scheduled for the redemption.
If a change of control has occurred, Starwood Financial Inc. must give
prompt written notice of the change of control, describing in reasonable detail
its definitive terms and date of consummation, to each holder of Series A
Preferred Stock, in any event, no later than five business days after the date
of the change of control. The notice must also specify a date on which the
redemption is to occur, which must be no earlier than 30 days after the notice
is mailed or the date the change of control is to be completed (whichever is
later). After receiving the notice, the holders of the Series A preferred stock
have 20 days to elect by written notice to Starwood Financial Inc. to have
Starwood Financial Inc. redeem the stock. If Starwood Financial Inc. does not
receive from the holders of at least a majority the Series A Preferred Stock
outstanding notice of their election to require redemption within the 20 day
period, no Series A preferred stock will be repurchased by Starwood Financial
Inc., and the holders of the Series A preferred stock will no longer have the
right to require redemption of their stock because of the change of control of
which they were notified.
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If a majority of holders of the Series A preferred stock elect to require
Starwood Financial Inc. to redeem their stock, all shares of Series A preferred
stock will be redeemed for cash upon the surrender of certificates representing
that stock. On the date scheduled for the redemption, provided that Starwood
Financial Inc. has deposited funds sufficient to make the redemption, all rights
with respect to the Series A preferred stock except for the right to receive the
redemption payment will cease, including the rights to receive notices and vote
(if those rights exist at the time). If a proposed change of control is not
completed, all elections to require redemption of the Series A preferred stock
in connection with the change of control will automatically be rescinded.
A "change of control" means the occurrence of one or more of the following
events that is not approved by the Board of Directors of Starwood Financial Inc.
prior to the occurrence of the event:
1. Any "person" or "group" (as defined in the Securities Exchange Act of
1934), other than the current controlling shareholders and their
affiliates (B Holdings, L.L.C., SOFI-IV SMT Holdings, L.L.C., Starwood
Mezzanine Investors, L.P., Starwood Opportunity Fund IV, L.P. and their
direct or indirect general partners and affiliates) obtains beneficial
ownership of a majority of the shares eligible to vote on matters
generally to be voted upon by the shareholders of Starwood Financial
Inc.; provided that if, after the event has occurred, the current
controlling shareholders or their affiliates will retain the power to
elect or designate for election a majority of Starwood Financial Inc.'s
Board of Directors, a change of control will not be deemed to have
occurred.
2. Any sale, lease, exchange or other transfer, in one transaction or a
series of related transactions, of all or substantially all of the assets
of Starwood Financial Inc. to any person or group other than the current
controlling shareholders and their affiliates.
Other Provisions: The Series A preferred stock is subject to the provisions
of the Starwood Financial Inc. charter, including the restrictions on ownership
and transfer of shares of Starwood Financial Inc. stock. For more information
regarding the provisions generally applicable to shares of Starwood Financial
Inc. stock that restrict their transfer and ownership, please see the section of
this "Comparison of Stockholder Rights; Description of the Combined Company's
Securities" entitled "Comparison of Rights of Stockholders of TriNet and of the
Combined Company--Ownership Restrictions."
9 3/8% SERIES B CUMULATIVE REDEEMABLE PREFERRED STOCK Dividends: Holders of
shares of the Series B preferred stock are entitled to receive, when and as
declared by the Board of Trustees, out of funds legally available for the
payment of dividends, cumulative preferential cash dividends at the rate of
9 3/8% per annum of the $25.00 liquidation preference, equivalent to a fixed
annual rate of $2.34375 per share. Dividends are cumulative from the date of
original issue and are payable quarterly in arrears on or before the 15th day of
each March, June, September and December or, if not a business day, the next
succeeding business day. Any dividend payable on the Series B preferred stock
for any partial dividend period will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Dividends will be payable to holders of
record as of the close of business on the first day of the calendar month in
which the applicable dividend payment date falls or on another date designated
by the Board of Directors of Starwood Financial Inc. for the payment of
dividends that is not more than 30 nor less than 10 days prior to the dividend
payment date.
The Board of Directors of Starwood Financial Inc. may not declare, pay or
set aside for payment any dividends on shares of Series B preferred stock if
doing so would constitute a default under, a breach of or a violation of, any
agreement entered into by Starwood Financial Inc.
Dividends on the Series B Preferred Stock will accrue whether or not
Starwood Financial Inc. has earnings, there are funds legally available for the
payment of dividends and dividends are declared. Accrued but unpaid dividends on
the Series B Preferred Stock will accumulate starting on the dividend
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payment date on which they first become payable. No dividends or securities that
rank equally with or below the Series B preferred stock with respect to
dividends will be declared, paid or set apart for payment unless Starwood
Financial Inc. has paid all dividends required to be paid on the Series B
preferred stock.
All dividends declared on the Series B preferred stock and any securities
ranking on a parity as to dividends with the Series B preferred stock will be
paid pro rata based on the amount of accrued and unpaid dividends on each. No
interest, or sum of money instead of interest will be payable in respect of any
dividend payment or payments on the Series B preferred stock that may be in
arrears.
Unless full, cumulative dividends on the Series B preferred stock have
either been declared and paid or declared and set aside for payment through the
last scheduled dividend payment date, Starwood Financial Inc. may not:
1. Declare or pay any dividends on securities that are junior to or on a
parity with the Series B preferred stock with respect to dividend rights
except for dividends in the form of stock that is junior to the Series B
preferred stock with respect to dividend and liquidation rights; or
2. Redeem, purchase or otherwise acquire securities that are junior to or
on a parity with the Series B preferred stock or set aside money for a
sinking fund for the redemption of those securities, except for an
acquisition of those securities in exchange for securities that are
junior to the Series B preferred stock with respect to dividend and
liquidation rights.
Any dividend payment made on shares of the Series B preferred stock will
first be credited against the earliest accrued but unpaid dividend.
Liquidation Preference: Upon any liquidation, dissolution or winding up of
Starwood Financial Inc., the holders of Series B preferred stock are entitled to
be paid a liquidation preference of $25.00 per share in addition to any accrued
and unpaid dividends out of the assets of Starwood Financial Inc. legally
available for distribution, before any distribution of assets is made to holders
of common stock or any other class or series of stock of Starwood Financial Inc.
that ranks junior to the Series B preferred stock as to liquidation rights.
Holders of Series B preferred stock will be entitled to written notice of any
liquidation. After payment of the full amount of their liquidating
distributions, the holders of Series B preferred stock will have no right or
claim to any of the remaining assets of Starwood Financial Inc. The
consolidation or merger of Starwood Financial Inc. with or into any entity or of
any other corporation with or into Starwood Financial Inc., or the sale, lease
or conveyance of all or substantially all of the property or business of
Starwood Financial Inc., will not be deemed to constitute a liquidation,
dissolution or winding up of Starwood Financial Inc.
Redemption: The Series B preferred stock is not redeemable prior to June
15, 2001. However, in order to ensure that Starwood Financial Inc. remains a
qualified REIT for federal income tax purposes, Series B Preferred Stock will be
subject to the restrictions on ownership and transfer in the Starwood Financial
Inc. charter. Pursuant to these provisions of the Starwood Financial Inc.
charter, shares of Series B preferred stock, together with other stock of
Starwood Financial Inc., owned by a stockholder in excess of the ownership limit
set forth in the Starwood Financial charter will be automatically transferred to
a trust for the benefit of a charitable beneficiary. Starwood Financial Inc.
will have the right to purchase from the charitable trust any shares that are
transferred to the trust.
On and after June 15, 2001, Starwood Financial Inc., at its option and with
not less than 30 nor more than 60 days' written notice to the holders of the
Series B preferred stock, may redeem shares of the Series B preferred stock, in
whole or in part, from time to time, for cash at a redemption price of $25.00
per share, plus all accrued and unpaid dividends to the date fixed for
redemption, except as provided below, without interest. The redemption price of
the Series B preferred stock other than the portion
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consisting of accrued and unpaid dividends may only be paid out of the sale
proceeds of other capital stock of Starwood Financial Inc., which may include
other series of preferred stock.
Holders of Series B preferred stock to be redeemed will surrender the Series
B preferred stock at the place designated in the notice of redemption and will
be entitled to the redemption price and any accrued and unpaid dividends payable
upon redemption following surrender. If notice of redemption of any shares of
Series B preferred stock has been given and if the funds necessary for
redemption have been set aside by Starwood Financial Inc. in trust for the
benefit of the holders of any shares of Series B preferred stock called for
redemption, then starting on the redemption date, dividends will stop accruing
on such shares of Series B preferred stock, such shares of Series B preferred
stock will no longer be deemed outstanding and all rights of the holders of
these shares will terminate, except the right to receive the redemption price.
If less than all of the outstanding Series B preferred stock is to be redeemed,
the Series B preferred stock to be redeemed will be selected pro rata, as nearly
as practicable without creating fractional shares, or by any other equitable
method determined by Starwood Financial Inc.
Unless full, cumulative dividends on all shares of Series B preferred stock
have been or contemporaneously are declared and paid or declared and a sum
sufficient for their payment set apart for payment for all past dividend periods
and the then current dividend period, no shares of Series B preferred stock will
be redeemed unless all outstanding shares of Series B preferred stock are
simultaneously redeemed, and Starwood Financial Inc. will not purchase or
otherwise acquire directly or indirectly any shares of Series B preferred stock,
except by exchange for stock of Starwood Financial Inc. ranking junior to the
Series B preferred stock as to dividends and upon liquidation; provided,
however, that the foregoing will not prevent the purchase by Starwood Financial
Inc. of shares of Series B preferred stock transferred to the charitable trust
referred to above in order to ensure that Starwood Financial Inc. remains
qualified as a REIT, as more fully described under the caption "Restrictions on
Ownership and Transfer of Stock" set forth above, or the purchase or acquisition
of shares of Series B preferred stock pursuant to a purchase or exchange offer
made on the same terms to holders of all outstanding shares of Series B
preferred stock.
Notice of redemption will be given by publication in a newspaper of general
circulation in New York City, publication of the notice to be made once a week
for two successive weeks commencing not less than 30 nor more than 60 days prior
to the redemption date. A similar notice will be mailed by Starwood Financial
Inc., postage prepaid, not less than 30 nor more than 60 days prior to the
redemption date, addressed to the respective holders of record of the Series B
preferred stock to be redeemed at their respective addresses as they appear on
the stock transfer records of Starwood Financial Inc. No failure to give notice
of redemption or any defect in the notice or in the notice's mailing will affect
the validity of the proceedings for the redemption of any shares of Series B
preferred stock except as to the holder to whom notice was defective or not
given. Each notice shall state:
1. The redemption date.
2. The redemption price.
3. The number of shares of Series B preferred stock to be redeemed.
4. The place or places where the Series B preferred stock is to be
surrendered for payment of the redemption price.
5. That dividends on the shares to be redeemed will cease to accrue on the
redemption date.
If less than all of the Series B preferred stock held by any holder is to be
redeemed, the notice mailed to the holder will also specify the number of shares
of Series B preferred stock held by the holder to be redeemed.
Immediately prior to any redemption of Series B preferred stock, Starwood
Financial Inc. will pay, in cash, any accumulated and unpaid dividends through
the redemption date, unless a redemption date falls after a dividend record date
and prior to the corresponding dividend payment date, in which case each
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holder of Series B preferred stock at the close of business on the dividend
record date shall be entitled to the dividend payable on these shares on the
corresponding dividend payment date notwithstanding the redemption of these
shares before the dividend payment date. Except as provided above, Starwood
Financial Inc. will make no payment or allowance for unpaid dividends, whether
or not in arrears, on Series B Preferred Stock which is redeemed.
Voting Rights: Holders of the Series B preferred stock will not have any
voting rights, except as set forth below or as otherwise from time to time
required by law.
Each share of Series B preferred stock, voting together with all Starwood
Financial Inc. common stock and all other series of preferred stock entitled to
vote, will be entitled to cast 0.25 of one vote with respect to all matters on
which the holders of common stock are entitled to vote at each meeting of
stockholders of Starwood Financial Inc.
Whenever dividends on any shares of Series B preferred stock are in arrears
for six or more quarterly periods, the holders of the Series B preferred stock,
together with the holders of any other class of stock that ranks equally with
the Series B preferred stock in terms of dividend and liquidation preference
whose voting rights have become exercisable because of a dividend delinquency,
will have the right to elect two additional directors to the Board of Directors
of Starwood Financial Inc. These voting rights can be exercised either at an
annual or special meeting of shareholders. The voting rights terminate once all
delinquent dividends have been paid in full or declared and set aside for
payment. Each director is entitled to one vote on each issue considered by the
Board of Directors of Starwood Financial Inc.
A director elected because of dividend delinquencies may be removed with or
without cause by the majority vote of the stockholders entitled to elect the
director. Until the delinquent dividends are paid, a vacancy in the office of
one of the directors may be filled by the written consent of the other. If there
are two vacancies, they must be filled by the majority vote of the stockholders
entitled to elect the director.
So long as any shares of Series B preferred stock remain outstanding,
Starwood Financial Inc. will not, without the affirmative vote or consent of the
holders of at least two thirds of the shares of the Series B preferred stock
outstanding at the time, given in person or by proxy, either in writing or at a
meeting, voting separately as a class:
1. Authorize or create, or increase the authorized or issued amount of, any
class or series of stock ranking prior to the Series B preferred stock
with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up or reclassify any authorized stock
of Starwood Financial Inc. into such shares, or create, authorize or
issue any obligation or security convertible into or evidencing the right
to purchase any such shares.
2. Amend, alter or repeal the provisions of the Starwood Financial charter
or the Series B Articles Supplementary, whether by merger, consolidation
or otherwise, so as to materially and adversely affect any right,
preference, privilege or voting power of the Series B preferred stock or
the holders thereof.
However, with respect to the occurrence of any of the events set forth in
(2) above, so long as the Series B preferred stock remains outstanding with the
terms thereof materially unchanged, the occurrence of any the events set forth
in (2) above shall not be deemed to materially and adversely affect the rights,
preferences, privileges or voting power of holders of the Series B preferred
stock. Furthermore, any: (1) increase in the amount of the authorized preferred
stock or the creation or issuance of any other series of preferred stock; (2)
increase in the amount of authorized shares of a series of preferred stock, in
each case ranking on a parity with or junior to the Series B preferred stock
with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up, shall not be deemed to materially and
adversely affect the rights, preferences, privileges or voting powers of the
holders of the Series B preferred stock.
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The voting provisions described above will not apply if, at or prior to the
time when the act with respect to which a vote would otherwise be required shall
be effected, all outstanding shares of Series B preferred stock shall have been
redeemed or called for redemption upon proper notice and sufficient funds shall
have been deposited in trust to effect such redemption.
Conversion: The Series B preferred stock is not convertible into or
exchangeable for any other property or securities of Starwood Financial Inc.
Restrictions on Ownership: The Series B preferred stock is subject to the
restrictions on ownership and transfer of the Starwood Financial Inc. stock
contained in the Starwood Financial charter. The ownership restrictions are
described in the section of this "Comparison of Stockholder Rights; Description
of the Combined Company's Securities" entitled "Comparison of Rights of
Stockholders of TriNet and of the Combined Company--Ownership Restrictions."
9.20% SERIES C CUMULATIVE REDEEMABLE PREFERRED STOCK. The terms of the
Series C preferred stock are substantially identical to the terms of the Series
B preferred stock described above, except for the differences in dividends and
redemption provisions set forth below.
Holders of shares of the Series C preferred stock are entitled to receive,
when and as declared by the Board of Directors, out of funds legally available
for the payment of dividends, cumulative preferential cash dividends at the rate
of 9.20% of the $25.00 liquidation preference per year, equivalent to a fixed
annual rate of $2.30 per share.
The Series C preferred stock is not redeemable prior to August 15, 2001. On
and after August 15, 2001, the Series C preferred stock is redeemable in the
manner described above for the Series B preferred stock.
8% SERIES D CUMULATIVE REDEEMABLE PREFERRED STOCK. The terms of the Series
D preferred stock are substantially identical to the terms of the Series B
preferred stock described above, except for the differences in dividends and
redemption provisions set forth below.
Holders of shares of the Series D preferred stock are entitled to receive,
when and as declared by the Board of Directors, out of funds legally available
for the payment of dividends, cumulative preferential cash dividends at the rate
of 8% of the $25.00 liquidation preference per year, equivalent to a fixed
annual rate of $2.00 per share.
The Series D preferred stock is not redeemable prior to October 8, 2002. On
and after October 8, 2002, the Series D preferred stock is redeemable in the
manner described above for the Series B preferred stock.
TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for the
common stock and preferred stock is First Chicago Trust Company of New York.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMBINED
COMPANY CHARTER AND BYLAWS
The business combinations and control share acquisition provisions of the
MGCL, the provisions of the Starwood Financial charter on classification of the
Board of Directors and the advance notice provisions of the Starwood Financial
bylaws could delay, defer or prevent a transaction or a change in control of
Starwood Financial Inc. that might involve a premium price for holders of common
stock or otherwise be in their best interest.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences relating to the transactions, including the merger of a
wholly-owned subsidiary of Starwood Financial into TriNet with TriNet surviving
as a wholly-owned subsidiary of Starwood Financial. This discussion is not
exhaustive of all possible tax considerations and does not include a detailed
discussion of any state, local or foreign tax considerations. In addition, the
following discussion is intended to address only those federal income tax
considerations that are generally applicable to all U.S. shareholders and does
not discuss all of the aspects of federal income taxation that may be relevant
to particular U.S. shareholders in light of their specific circumstances or to
certain types of shareholders (including insurance companies, tax-exempt
entities, financial institutions or broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) who are subject
to special treatment under the federal income tax laws.
The statements and opinions in this discussion are based on current
provisions of the Internal Revenue Code of 1986, as amended, and its legislative
history, existing, temporary and currently proposed Treasury Regulations under
the Internal Revenue Code, existing administrative rulings and practices of the
Internal Revenue Service and judicial decisions. No assurance can be given that
legislative, judicial or administrative changes will not affect the accuracy of
any statements in this joint proxy statement and prospectus with respect to
transactions entered into or contemplated prior to the effective date of such
changes. In addition, Starwood Financial has not requested and does not plan to
request any rulings from the Internal Revenue Service concerning the tax
treatment of any of the transactions. Accordingly, no assurance can be given
that the statements set forth in this discussion (which do not bind the Internal
Revenue Service or the courts) will not be challenged by the Internal Revenue
Service or sustained by the courts if so challenged.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
EACH HOLDER OF STARWOOD FINANCIAL OR TRINET SHARES IS URGED TO CONSULT WITH HIS
OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF
THE TRANSACTIONS, INCLUDING THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX
CONSEQUENCES THAT MAY BE APPLICABLE TO SUCH HOLDER.
TAX CONSEQUENCES OF THE ADVISOR TRANSACTION
The advisor transaction is intended to qualify as a tax-free transaction
under the Internal Revenue Code with respect to Starwood Financial and its
shareholders. In the opinion of Rogers & Wells LLP, the advisor transaction will
not result in the recognition of gain or loss by Starwood Financial or its
shareholders.
TAX CONSEQUENCES OF THE INCORPORATION MERGER
The incorporation merger is intended to qualify as, and in the opinion of
Rogers & Wells LLP, the incorporation merger will constitute, a reorganization
under Section 368(a) of the Internal Revenue Code. If the incorporation merger
qualifies as a reorganization, no gain or loss will be recognized by the
shareholders of Starwood Financial on the conversion of their Starwood Financial
shares into shares of Starwood Financial, Inc. pursuant to the incorporation
merger. In addition, no gain or loss will be recognized by Starwood Financial or
Starwood Financial, Inc. as a result of the incorporation merger. Starwood
Financial, Inc., as the surviving company, will have a carryover basis in the
assets acquired from Starwood Financial pursuant to the incorporation merger. A
shareholder's holding period for the new Starwood Financial, Inc. shares
received will generally include the period during which the original Starwood
Financial shares were held by such shareholder.
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TAX CONSEQUENCES OF THE SPECIAL STOCK DIVIDEND
The special stock dividend is intended to qualify as, and in the opinion of
Rogers & Wells LLP, the special stock dividend will constitute, a non-taxable
stock dividend under Section 305(a) of the Internal Revenue Code. If the special
stock dividend qualifies as a non-taxable stock dividend, no gain or loss will
be recognized by Starwood Financial or its shareholders receiving the special
stock dividend. Shareholders of Starwood Financial receiving the special stock
dividend must allocate the basis in their Starwood Financial shares between such
shares and the new shares received in proportion to the fair market values of
such shares on the distribution date. A shareholder's holding period for the new
Starwood Financial shares received will generally include the period during
which the original Starwood Financial shares were held by such shareholder.
If the special stock dividend does not qualify as a non-taxable stock
dividend under Section 305(a) of the Internal Revenue Code, the shareholders of
Starwood Financial would be required to include the value of the stock dividend
received as ordinary dividend income. In that case, a shareholder would have a
basis in the Starwood Financial shares received equal to its fair market value
on the distribution date and the holding period of such shares would begin on
the distribution date.
TAX CONSEQUENCES OF THE MERGER
The merger is intended to qualify as a reorganization under Section 368(a)
of the Internal Revenue Code. Rogers & Wells LLP, counsel to Starwood Financial,
and Paul, Weiss, Rifkind, Wharton & Garrison, counsel to TriNet, as a condition
to the merger, will deliver opinions to Starwood Financial and TriNet,
respectively, that the merger will qualify as a reorganization under Section
368(a) of the Internal Revenue Code, based on certain factual assumptions and
representations made by Starwood Financial and TriNet.
If the merger qualifies as a reorganization under Section 368(a) of the
Internal Revenue Code, a TriNet shareholder who receives solely Starwood
Financial common shares in exchange for TriNet common shares will not recognize
any gain or loss on the exchange. Similarly, a TriNet shareholder who receives
solely Series B, Series C or Series D Cumulative Redeemable Preferred Stock of
Starwood Financial in exchange for Series A, Series B or Series C Cumulative
Redeemable Preferred Stock of TriNet, as the case may be, will not recognize any
gain or loss on the exchange. However, if a TriNet shareholder receives Starwood
Financial common shares and cash in lieu of a fractional share of Starwood
Financial common share, such TriNet shareholder will recognize taxable gain or
loss in an amount equal to the difference between such cash and the tax basis
allocated to such TriNet shareholder's fractional share interest. Such gain or
loss will constitute capital gain or loss if the shareholder's TriNet common
shares were held as a capital asset. A shareholder of TriNet will have an
aggregate tax basis in the Starwood Financial shares received in the merger
equal to his aggregate tax basis in the TriNet shares (reduced by the amount of
any tax basis allocable to a fractional share interest for which cash is
received) that were exchanged for those Starwood Financial shares. If the TriNet
shares are held as a capital asset by a TriNet shareholder at the effective time
of the merger, such TriNet shareholder's holding period for the Starwood
Financial shares received in the merger will include his holding period for the
TriNet shares that were exchanged for those Starwood Financial shares. If a
TriNet shareholder holds multiple blocks of TriNet shares that have different
holding periods and/or different tax bases, the Starwood Financial shares
received for each block of TriNet shares will have a separate tax basis and
holding period that is determined by reference to the specific tax basis and
holding period of the specific TriNet shares exchanged for those Starwood
Financial shares.
No gain or loss will be recognized by Starwood Financial or TriNet as a
result of the merger so long as the merger qualifies as a reorganization under
Section 368(a) of the Internal Revenue Code.
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TAX CONSEQUENCES OF THE MERGER ON STARWOOD FINANCIAL'S REIT STATUS
In the opinion of Rogers & Wells LLP, Starwood Financial's proposed method
of operation from and after the earlier of the date of the incorporation merger
and the merger, taking into account the effects of the incorporation merger and
the merger, will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Internal Revenue Code. The
opinion of Rogers & Wells LLP is based on: (1) certain factual representations
of Starwood Financial and TriNet; (2) the opinion of Mayer, Brown & Platt that,
commencing with Starwood Financial's taxable year ending December 31, 1998,
Starwood Financial has been organized in conformity with the requirements for
qualification as a REIT under Section 856 of the Code, and Starwood Financial's
actual and proposed method of operation, as represented by Starwood Financial,
has enabled Starwood Financial and will continue to enable Starwood Financial to
satisfy the requirements for qualification as a REIT up to the time immediately
prior to the earlier of the incorporation merger and the merger; (3) the opinion
of Katten, Muchin & Zavis regarding the treatment of Starwood Financial's
subsidiary entities as partnerships or disregarded entities under the Internal
Revenue Code; and (4) the opinion of Paul, Weiss, Rifkind, Wharton & Garrison
that TriNet was organized and has operated in conformity with the requirements
for qualification and taxation as a REIT under the Internal Revenue Code
commencing with its taxable year ended December 31, 1993, and the current
organization and method of operation of TriNet will allow it to continue to
qualify as a REIT through the effective date of the merger. Although the
combined company intends to operate in a manner which will permit it to satisfy
the requirements for qualification and taxation as a REIT under the Internal
Revenue Code, no assurance can be given that these requirements will be met.
To qualify as a REIT under the Internal Revenue Code for a taxable year, the
combined company must meet organizational and operational requirements. With
respect to its assets, at least 75% of the value of the combined company's total
assets at the end of each calendar quarter must consist of real estate assets,
cash or governmental securities. In addition, the combined company may not own:
(1) the debt or equity securities of a single issuer (other than a mortgage loan
which qualifies as a real estate asset, an interest in a partnership or shares
of a "qualified REIT subsidiary" or another REIT) with a value in excess of 5%
of the value of the combined company's total assets; or (2) more than 10% of any
single issuer's outstanding voting securities (other than an interest in a
partnership or shares of a "qualified REIT subsidiary" or another REIT).
Following the merger, the combined company will own approximately 96% of the
non-voting stock of TriNet Management Operating Company, Inc. (the "Management
Company"). The combined company will not own more than 10% of the voting
securities of the Management Company. In addition, the combined company's senior
management believes that the value of the securities of the Management Company
will not exceed 5% of the total value of the combined company's gross assets
after the merger. There can be no assurance, however, that the Internal Revenue
Service will not contend that the value of the securities of the Management
Company exceeds the 5% value limitation. Rogers & Wells LLP, in rendering its
opinion regarding the qualification of the combined company as a REIT, will rely
on the conclusions of the combined company and its senior management as to the
value of the securities of the Management Company.
With respect to its income: (1) at least 75% of the combined company's gross
income for each taxable year must be derived directly or indirectly from, among
other items, investments in real property or mortgages on real property, or from
certain types of temporary investments; and (2) at least 95% of the combined
company's gross income for each taxable year must be derived from the same items
which qualify under the 75% gross income test, plus dividends, interest and gain
from the sale or disposition of stock or securities, or from any combination of
the foregoing. Qualifying income for purposes of these requirements includes
interest on obligations secured by mortgages on real property or by interests in
real property, certain rents from real property, gain from the sale of real
property not held primarily for sale to customers in the ordinary course of
business, dividends on REIT shares and income from foreclosure property. For
interest to qualify as interest on obligations secured by mortgages on real
property or by interests in real property, such interest must not be based on
the
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net income or profits of any person, except that they may be based on a
percentage or percentages of gross income or gross receipts. For rents to
qualify as rents from real property, they may not be based on the net income or
profits of any person, except that they may be based on a percentage or
percentages of gross income or gross receipts, and they may not be derived from
a tenant in which the combined company owns, directly or indirectly, a 10% or
greater interest. In addition, subject to certain limited exceptions, the
combined company may not furnish non-customary services to tenants other than
through an independent contractor which is paid an arm's-length fee and from
which the combined company derives no income. However, a DE MINIMIS rule may
apply to otherwise impermissible services provided by the combined company. The
combined company may receive certain types of income that will not qualify under
the 75% or 95% gross income tests. For example, any dividends received from the
Management Company will not qualify under the 75% gross income test. The
combined company believes, however, that the aggregate amount of such items and
other nonqualifying income in any taxable year, taking into account the effects
of the merger, will not cause the combined company to exceed the limits on
nonqualifying income under the 75% and 95% gross income tests.
The combined company must also satisfy certain ownership restrictions that
prohibit the ownership of more than 50% of the value of the combined company's
shares by five or fewer individuals (as defined in the Internal Revenue Code to
include certain entities). Moreover, the outstanding capital stock of the
combined company must be held by 100 or more stockholders during at least 335
days of a taxable year of 12 months, or during a proportionate part of a taxable
year of less than 12 months. As described above, no more than 50% in value of
the outstanding capital stock (including in some circumstances capital stock
into which outstanding securities might be converted) may be owned, actually or
constructively, by five or fewer individuals or certain other entities at any
time during the last half of the taxable year. Accordingly, the combined
company's articles of incorporation contain certain restrictions regarding the
transfer of its shares that are intended to assist the combined company in
maintaining its REIT status. However, because the Internal Revenue Code imposes
broad attribution rules in determining constructive ownership, no assurance can
be given that the restrictions contained in the combined company's articles of
incorporation will be effective in maintaining the combined company's REIT
status. The combined company believes that it has complied with these ownership
requirements and, taking into account the effects of the merger, will continue
to comply with these requirements.
So long as the combined company qualifies for taxation as a REIT and
distributes at least 95% of its REIT taxable income for its taxable year to its
stockholders annually, the combined company will not be subject to federal
income tax on that portion of such income distributed to stockholders. The
combined company will be taxed at regular corporate rates on all income (other
than certain excess "noncash" income) not distributed to stockholders. The
combined company intends to make timely distributions sufficient to satisfy the
annual distribution requirements. It is possible, however, that the combined
company, from time to time, may not have sufficient cash or other liquid assets
to meet the 95% distribution requirement due to timing differences between the
actual receipt of income and actual payment of deductible expenses and the
inclusion of such income and deduction of such expenses in arriving at REIT
taxable income. In the event that such circumstances do occur, then in order to
meet the 95% distribution requirement, the combined company may arrange for
short-term, or possibly long-term, borrowings to permit the payment of required
dividends. Under certain circumstances, the combined company may elect to retain
and pay income taxes on net long-term capital gain, in which case shareholders
of the combined company would include in their income as long-term capital gain
their proportionate share of such net long-term capital gain. In that case,
shareholders of the combined company would receive a refundable tax credit for
such shareholder's proportionate share of the tax paid by the combined company
on such retained capital gain and an increase in the basis of its shares of the
combined company in an amount equal to the difference between the undistributed
long-term capital gain and the amount of tax paid by the combined
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company. The combined company also may incur taxes for certain other activities
or to the extent distributions do not satisfy certain other requirements.
If the combined company fails to qualify for taxation as a REIT in any
taxable year, and certain relief provisions do not apply, the combined company
would be subject to tax (including any applicable alternative minimum tax) on
its taxable income at regular corporate rates. Distributions to shareholders in
any year in which the combined company fails to qualify would not be deductible
nor would they be required to be made. In such event, to the extent of current
and accumulated earnings and profits, all distributions to stockholders would be
taxable as ordinary income, and, subject to certain limitations of the Internal
Revenue Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, the
combined company would also be disqualified from taxation as a REIT for the four
taxable years following the year during which qualification was lost. It is not
possible to state whether in all circumstances the combined company would be
entitled to such statutory relief.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The cash payments, if any, due a holder upon the exchange of TriNet common
shares pursuant to the merger, other than exempt persons or entities, will be
subject to "backup withholding" for federal income tax purposes unless specific
requirements are met. Starwood Financial or a third-party paying agent, as the
case may be, must withhold 31% of the cash payments to the holder, unless the
holder: (1) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact; or (2) provides a taxpayer
identification number, certifies as to no loss of exemption and otherwise
complies with the applicable requirements of the backup withholding rules. Any
amount paid as backup withholding will be credited against the holder's federal
income tax liability.
Shareholders who receive shares of the combined company must also comply
with the information reporting requirements of the Treasury Regulations under
Section 368 of the Internal Revenue Code. In general, these Treasury Regulations
require any taxpayer who receives shares, securities or other property,
including cash, in a tax-free exchange in connection with a corporate
reorganization to include with his or her income tax return a complete statement
of facts pertaining to the nonrecognition of gain or loss including: (1) the
cost or other basis of the shares or securities transferred in the exchange; and
(2) the amount of shares, securities or other property received in the exchange.
In addition, the statement must include the fair market value, at the date of
the exchange, of each type of shares, securities or other property received by
the taxpayer and taxpayers are required to keep permanent records showing the
cost or other basis of any property involved in such an exchange. All Starwood
Financial and TriNet shareholders are urged to consult their own tax advisors to
determine the specific information that they may need to file pursuant to the
Treasury Regulations under Section 368 of the Internal Revenue Code.
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LEGAL MATTERS
The validity of the shares of Starwood Financial Inc. common stock offered
to holders of TriNet common stock by this joint proxy statement and prospectus
has been passed upon for Starwood Financial Inc. by Ballard Spahr Andrews &
Ingersoll, LLP, Baltimore, MD. An opinion as to the continued qualification of
the combined company as a REIT following the merger has been rendered by Rogers
& Wells L.L.P., New York, New York. An opinion as to the historical
qualification of Starwood Financial as a REIT prior to the merger has been
rendered by Mayer, Brown & Platt, Chicago, Illinois. An opinion as to the
historical treatment of some subsidiaries of Starwood Financial as partnerships
or disregarded entities under the Internal Revenue Code of 1986, as amended, has
been rendered by Katten Muchin & Zavis, Chicago, Illinois. An opinion as to the
historical qualification of TriNet as a REIT and also as to the historical
treatment of some subsidiaries of TriNet as partnerships or disregarded entities
under the Internal Revenue Code of 1986, as amended, has been rendered by Paul,
Weiss, Rifkind, Wharton & Garrison, New York, New York. An opinion as to certain
federal income tax consequences of the merger will be rendered for Starwood
Financial by Rogers & Wells L.L.P., New York, New York, and for TriNet by Paul,
Weiss, Rifkind, Wharton & Garrison, New York, New York. Nina B. Matis, the
General Counsel of Starwood Financial, is a partner in the law firm of Katten
Muchin & Zavis.
EXPERTS
The financial statements incorporated in this joint proxy statement and
prospectus by reference to the Annual Reports on Form 10-K of Starwood Financial
and TriNet for the year ended December 31, 1998, have been so incorporated in
reliance upon the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in auditing and
accounting.
139
<PAGE>
INDEX TO FINANCIAL STATEMENTS
STARWOOD FINANCIAL
<TABLE>
<S> <C>
PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS (POST-PROXY TRANSACTIONS) (UNAUDITED)
Pro Forma Consolidating Balance Sheets as of June 30, 1999........................... F-2
Pro Forma Consolidating Statements of Operations for the six months ended June 30,
1999 and for the year ended December 31, 1998...................................... F-3
Notes and Management's Assumptions to Unaudited Pro Forma Consolidating Financial
Statements......................................................................... F-5
PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS (PRE-PROXY TRANSACTIONS) (UNAUDITED)
Pro Forma Consolidating Statement of Operations for the year ended December 31,
1998............................................................................... F-9
Notes and Management's Assumptions to Unaudited Pro Forma Consolidating Financial
Statements......................................................................... F-10
</TABLE>
TRINET CORPORATE REALTY TRUST, INC.
<TABLE>
<S> <C>
PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS (PRE-PROXY TRANSACTIONS) (UNAUDITED)
Pro Forma Consolidating Statement of Operations for the year ended December 31,
1998............................................................................... F-12
Notes and Management's Assumptions to Unaudited Pro Forma Consolidating Financial
Statements......................................................................... F-13
</TABLE>
F-1
<PAGE>
STARWOOD FINANCIAL INC.
PRO FORMA CONSOLIDATING BALANCE SHEET--POST-PROXY TRANSACTIONS
AS OF JUNE 30, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL (A) PROXY
------------------------ TRANSACTIONS POST-PROXY
STARWOOD PRO FORMA TRANSACTIONS
FINANCIAL TRINET ADJUSTMENTS PRO FORMA
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
(NOTE 2)
ASSETS
Loans and other investments, net....................................... $ 1,929,472 $ 45,740 $ -- $1,975,212
Real estate subject to operating leases, net........................... 187,211 1,375,647 152,972(B) 1,715,830
Cash and cash equivalents.............................................. 19,518 7,559 --(C) 27,077
Restricted cash........................................................ 3,497 8,110 -- 11,607
Marketable securities.................................................. 4,862 -- -- 4,862
Accrued interest and rent receivable................................... 12,333 5,271 -- 17,604
Deferred rent receivable............................................... -- 28,690 (28,690)(D) --
Deferred expenses and other assets..................................... 14,326 24,009 (12,997)(E) 25,338
Investment in Starwood Operating....................................... 409 -- -- 409
----------- ----------- ------------ ------------
Total assets....................................................... $ 2,171,628 $ 1,495,026 $ 111,285 $3,777,939
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabilities............... $ 8,572 $ 45,884 $ (1,382)(F) $ 53,074
Dividends payable...................................................... -- 16,215 -- 16,215
Debt obligations....................................................... 1,160,885 622,334 32,452(G) 1,815,671
----------- ----------- ------------ ------------
Total liabilities.................................................. 1,169,457 684,433 31,070 1,884,960
----------- ----------- ------------ ------------
Minority interest...................................................... -- 2,565 -- 2,565
----------- ----------- ------------ ------------
Commitments and contingencies.......................................... -- -- -- --
Shareholders' equity:
Series A Preferred Shares, $0.01 par value, liquidation value $50.00
per share, 4,400,000 shares authorized 4,400,000 shares issued and
outstanding.......................................................... 44 -- -- 44
TriNet Preferred Stock, $.01 par value, 10,000,000 shares authorized:
Series A: 2,000,000 shares issued and outstanding, (aggregate
liquidation preference $50,000).................................. -- 20 -- 20
Series B: 1,300,000 shares issued and outstanding, (aggregate
liquidation preference $32,500).................................. -- 13 -- 13
Series C: 4,000,000 shares issued and outstanding, (aggregate
liquidation preference $100,000)................................. -- 40 -- 40
Common stock, $.01 par value, 40,000,000 shares authorized,
25,066,760 shares issued and outstanding............................. -- 251 (251)(H) --
Class A Shares, $1.00 par value, 70,000,000 shares authorized,
52,470,951 shares issued and outstanding,............................ 52,471 -- 34,362(I) 86,833
Class B Shares, $0.01 par value, 35,000,000 shares authorized,
26,235,475 shares issued and outstanding............................. 262 -- (262)(J) --
Warrants and options................................................... 18,976 -- -- 18,976
Net unrealized gains (losses) on "available-for-sale" investments...... (141) -- -- (141)
Additional paid-in capital............................................. 902,487 861,476 114,578(K) 1,878,541
Retained earnings (deficit)............................................ 28,072 (53,772) (68,212)(L) (93,912)
----------- ----------- ------------ ------------
Total shareholders' equity......................................... 1,002,171 808,028 80,215 1,890,414
----------- ----------- ------------ ------------
Total liabilities and shareholders' equity......................... $ 2,171,628 $ 1,495,026 $ 111,285 $3,777,939
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
F-2
<PAGE>
STARWOOD FINANCIAL INC.
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS--POST-PROXY TRANSACTIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL(A) PROXY
--------------------- TRANSACTIONS POST-PROXY
STARWOOD PRO FORMA TRANSACTIONS
FINANCIAL TRINET ADJUSTMENTS PRO FORMA
---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
(NOTE 3)
REVENUE:
Interest income............................................. $ 101,926 $ 3,279 $ -- $ 105,205
Operating lease/rental income............................... 7,450 78,573 1,046(c) 87,069
Other income................................................ 5,303 4,576 -- 9,879
---------- --------- ------------ ------------
Total revenue........................................... 114,679 86,428 1,046 202,153
---------- --------- ------------ ------------
EXPENSES:
Interest expense............................................ 40,249 22,171 1,049(d) 63,469
Depreciation and amortization............................... 2,730 14,264 529(e) 17,523
Property operating costs.................................... -- 4,034 -- 4,034
General and administrative.................................. 1,669 6,307 2,510(f) 10,486
Provision for possible credit losses........................ 2,250 -- -- 2,250
Advisory fees............................................... 9,681 -- (9,681)(g) --
---------- --------- ------------ ------------
Total expenses.......................................... 56,579 46,776 (5,593) 97,762
---------- --------- ------------ ------------
Income before minority interest and gain on sale of real
estate.................................................... 58,100 39,652 6,639 104,391
Minority interest........................................... -- (81) -- (81)
Gain on sales of real estate................................ -- 1,153 (1,153)(h) --
---------- --------- ------------ ------------
Net income from continuing operations....................... $ 58,100 $ 40,724 $ 5,486 $ 104,310
Preferred dividends......................................... (10,615) (7,839) -- (18,454)
---------- --------- ------------ ------------
Net income from continuing operations allocable to common
shareholders.............................................. $ 47,485 $ 32,885 $ 5,486 $ 85,856
---------- --------- ------------ ------------
---------- --------- ------------ ------------
Net income from continuing operations allocable to Class A
shares.................................................... $ 47,010 $ 85,856
---------- ------------
---------- ------------
BASIC EARNINGS PER SHARE:
Basic earnings per common share............................. $ 0.90 $ 0.99
---------- ------------
---------- ------------
Weighted average number of common shares outstanding........ 52,459 86,661
---------- ------------
---------- ------------
DILUTED EARNINGS PER SHARE:
Diluted earnings per common share........................... $ 0.84 $ 0.94
---------- ------------
---------- ------------
Weighted average number of common shares outstanding........ 56,588 91,148
---------- ------------
---------- ------------
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
F-3
<PAGE>
STARWOOD FINANCIAL INC.
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS--POST-PROXY TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRE-PROXY TRANSACTIONS
PRO FORMA (B) PROXY
---------------------- TRANSACTIONS POST-PROXY
STARWOOD PRO FORMA TRANSACTIONS
FINANCIAL TRINET ADJUSTMENTS PRO FORMA
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
(NOTE 3)
REVENUE:
Interest income.............................................. $ 132,284 $ 6,007 $ -- $ 138,291
Operating lease/rental income................................ 15,604 156,042 2,199(c) 173,845
Other income................................................. 3,080 6,696 -- 9,776
---------- ---------- ------------ ------------
Total revenue............................................ 150,968 168,745 2,199 321,912
---------- ---------- ------------ ------------
EXPENSES:
Interest expense............................................. 50,558 45,555 2,297(d) 98,410
Depreciation and amortization................................ 5,466 28,736 851(e) 35,053
Property operating costs..................................... -- 7,651 -- 7,651
General and administrative................................... 3,029 12,720 5,021(f) 20,770
Provision for possible credit losses......................... 2,750 -- -- 2,750
Advisory fees................................................ 13,638 -- (13,638)(g) --
Stock option compensation expense............................ 5,985 -- -- 5,985
Special charge............................................... -- 2,990 -- 2,990
---------- ---------- ------------ ------------
Total expenses........................................... 81,426 97,652 (5,469) 173,609
---------- ---------- ------------ ------------
Income before minority interest.............................. 69,542 71,093 7,668 148,303
Minority interest............................................ -- (128) -- (128)
---------- ---------- ------------ ------------
Net income from continuing operations........................ $ 69,542 $ 70,965 $ 7,668 $ 148,175
Preferred dividends.......................................... (944) (15,678) -- (16,622)
---------- ---------- ------------ ------------
Net income from continuing operations allocable to common
shareholders............................................... $ 68,598 $ 55,287 $ 7,668 $ 131,553
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Net income from continuing operations allocable to Class A
Shares..................................................... $ 67,912 $ 131,553
---------- ------------
---------- ------------
BASIC EARNINGS PER SHARE:
Basic earnings per common share.............................. $ 1.30 $ 1.52
---------- ------------
---------- ------------
Weighted average number of common shares outstanding......... 52,408 86,598
---------- ------------
---------- ------------
DILUTED EARNINGS PER SHARE:
Diluted earnings per common share............................ $ 1.24 $ 1.46
---------- ------------
---------- ------------
Weighted average number of common shares outstanding......... 55,203 90,565
---------- ------------
---------- ------------
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
F-4
<PAGE>
STARWOOD FINANCIAL INC.
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS
POST-PROXY TRANSACTIONS
(UNAUDITED AND IN THOUSANDS)
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited Pro Forma Consolidating Balance Sheet as of June
30, 1999 and Pro Forma Consolidating Statements of Operations for the three
month period ended June 30, 1999 and the year ended December 31, 1998 have been
prepared to reflect the consummation of: (1) the merger of STW Holdings I, Inc.,
the indirect owner of Starwood Financial's external advisor, with a wholly-owned
subsidiary of Starwood Financial (the "advisor transaction"); (2) the
distribution to all prior Class A shareholders of Starwood Financial of their
pro-rata share of one million Class A shares (the "special stock dividend"); (3)
the conversion of all of the outstanding Class B shares to Class A shares at the
existing 49-to-1 conversion ratio (the "Class B conversion"); and (4) the merger
of TriNet Corporate Realty Trust, Inc. with a newly-formed, wholly-owned
subsidiary of Starwood Financial (the "TriNet merger") (collectively, the
advisor transaction, the Class B conversion and the TriNet merger are referred
to herein as the "proxy transactions"). The pro forma financial information is
based on the historical financial statements adjusted for the pre-proxy
transactions and should be read in conjunction with the notes and management's
assumptions thereto. The Pro Forma Consolidating Balance Sheet was prepared as
if the proxy transactions described above occurred as of June 30, 1999. The Pro
Forma Consolidating Statements of Operations for the six months ended June 30,
1999 and for the year ended December 31, 1998 were prepared as if the proxy
transactions had occurred on January 1, 1998. The pro forma information
contained herein is unaudited and not necessarily indicative of the consolidated
operating results which actually would have occurred if the proxy transactions
had occurred on January 1, 1998, nor does it purport to represent the future
financial position of the combined companies or the results of combined
operations for future periods.
The TriNet merger will be accounted for as a purchase. For accounting
purposes, the advisor transaction is not considered the acquisition of a
"business" for purposes of applying Accounting Principles Board Opinion No. 16,
"Business Combinations" and, therefore, the market value of the common shares
issued in excess of the fair value of the net tangible assets acquired will be
charged to operating income rather than capitalized as goodwill. Because
Starwood Financial's stock prior to the transaction was largely held by
affiliates of Starwood Capital Group, L.L.C. and, as a result, the stock was not
widely traded relative to the amount of shares outstanding, the pro forma
financial information contained herein was prepared utilizing a stock price of
$28.14 per TriNet share, which was the average stock price of TriNet during the
five-day period before and after the TriNet merger was agreed to and announced.
The incorporation merger to change the legal structure of Starwood Financial
from a business trust to a corporation (which is electing REIT status) will be
treated as a transfer of assets and liabilities which are under common control.
Accordingly, the assets and liabilities transferred from the Starwood Financial
Trust to Starwood Financial Inc. will be reflected at their predecessor basis
and no gain or loss will be recognized.
During the year ended December 31, 1998, both Starwood Financial and TriNet
completed certain investment and financing transactions which require pro forma
adjustments. In order to clearly delineate the effects of the proxy transactions
from the effects of these previously consummated transactions, separate
pre-proxy transactions pro forma operating statements for the year ended
December 31, 1998 for both companies have been prepared and are included
elsewhere in this proxy statement.
F-5
<PAGE>
STARWOOD FINANCIAL INC.
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS
POST-PROXY TRANSACTIONS
(UNAUDITED AND IN THOUSANDS) (CONTINUED)
NOTE 2--ADJUSTMENTS TO PRO FORMA CONSOLIDATING BALANCE SHEET
(A) Reflects the historical balance sheet of Starwood Financial Trust and
TriNet Corporate Realty Trust, Inc., as set forth on the entities' quarterly
reports on Form 10-Q. Except for the proxy transactions, there were no material
pre-proxy transactions consummated by Starwood Financial or TriNet not already
reflected in the historical balance sheet as of June 30, 1999. As a result, no
pre-proxy transactions pro forma adjustments need to be made for purposes of
deriving the post-proxy transactions pro forma balance sheet.
(B) Represents the excess of acquisition cost over TriNet historical cost
basis incurred by Starwood Financial to acquire the assets of TriNet based upon
the estimated market price of the consideration to be paid (including the common
stock, preferred stock and assets acquired/liabilities assumed) as of the time
the TriNet merger was agreed to and announced.
(C) The following schedule summarizes the pro forma sources and uses of
funds in connection with the proxy transactions:
<TABLE>
<S> <C>
Estimated transaction costs....................................... $ 23,800
Change in control payments to TriNet executives................... 8,652
Pro forma draws on the combined company's credit facilities (see
note 2(G))...................................................... (32,452)
---------
$ --
---------
---------
</TABLE>
(D) Represents the elimination of the deferred rent receivable previously
recorded by TriNet to reflect operating lease/rental income on the straight-line
method for periods prior to the TriNet merger. Subsequent to the TriNet merger,
operating lease/rental income from existing leases on the TriNet assets will be
reflected on the straight-line method over the period from the merger date
through the remaining term of the lease.
(E) Represents the historical cost of fixed assets (primarily office and
computer equipment and software) and other miscellaneous assets as of June 30,
1999 being acquired in connection with the advisor merger and the elimination of
TriNet's interest rate protection agreements and other miscellaneous assets in
purchase accounting as follows:
<TABLE>
<S> <C>
Net assets acquired in connection with the advisor transaction.... $ 364
Elimination of a portion of TriNet's other assets in purchase
accounting...................................................... (13,361)
---------
$ (12,997)
---------
---------
</TABLE>
(F) Represents purchase accounting adjustments in connection with the
TriNet merger.
(G) Represents additional draws on the combined company's credit facilities
to consummate the proxy transactions.
(H) Represents the elimination of TriNet's common shares at par upon
consummation of the TriNet merger.
F-6
<PAGE>
STARWOOD FINANCIAL INC.
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS
POST-PROXY TRANSACTIONS
(UNAUDITED AND IN THOUSANDS) (CONTINUED)
NOTE 2--ADJUSTMENTS TO PRO FORMA CONSOLIDATING BALANCE SHEET (CONTINUED)
(I) Represents adjustments to reflect the effects of the proxy transactions
at par value as follows:
<TABLE>
<S> <C>
Issuance of shares in advisor transaction.......................... $ 4,000
Issuance of shares pursuant to special stock dividend.............. 1,000
Issuance of shares upon conversion of Class B shares
(49-to-1 conversion ratio)....................................... 535
Issuance of shares in TriNet merger................................ 28,827
---------
$ 34,362
---------
---------
</TABLE>
(J) Represents the elimination of the Class B shares at par value upon
conversion of all existing Class B shares to Class A shares at the existing
49-to-1 conversion ratio.
(K) Represents the following adjustments to Additional Paid-In Capital for
the proxy transactions:
<TABLE>
<S> <C>
Issuance of shares in advisor transaction......................... $ 93,878
Issuance of shares pursuant to the special stock dividend......... 23,470
Issuance of shares upon conversion of Class B shares
(49-to-1 conversion ratio)...................................... (273)
Decrease in additional paid-in capital from the TriNet merger..... (2,497)
---------
$ 114,578
---------
---------
</TABLE>
(L) Represents the following adjustments to Retained Earnings as a result
of the proxy transactions:
<TABLE>
<S> <C>
Charge to earnings for advisor transaction........................ $ (97,514)
Fair value of shares issued in connection with special stock
dividend........................................................ (24,470)
Elimination of TriNet's retained deficit in purchase accounting... 53,772
---------
$ (68,212)
---------
---------
</TABLE>
As previously discussed, the advisor transaction transaction was not
considered to represent the acquisition of a "business" for purposes of applying
APB Opinion No. 16, Business Combinations. As a result, upon the consummation of
the advisor transaction, the above amount will be recorded as an operating
expense on Starwood Financial's consolidated statement of operations. Since the
intent of the accompanying pro forma consolidating statements of operations for
the six-month period ended June 30, 1999 and the year ended December 31, 1998 is
to reflect the expected continuing impact of the pro forma transactions
described in Note 1, the one-time charge discussed above has been excluded.
NOTE 3--ADJUSTMENTS TO PRO FORMA CONSOLIDATING STATEMENTS OF OPERATIONS
(a) Reflects the historical statement of operations of Starwood Financial
and TriNet, as set forth on each of the company's quarterly reports on Form 10-Q
for the six-month period ended June 30, 1999. Except for the proxy transactions,
there were no significant transactions consummated by Starwood Financial or
TriNet which are not already materially reflected in the respective companies'
historical statement of operations for the six-month period ended June 30, 1999.
As a result, no pre-proxy
F-7
<PAGE>
STARWOOD FINANCIAL INC.
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
UNAUDITED PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS
POST-PROXY TRANSACTIONS
(UNAUDITED AND IN THOUSANDS) (CONTINUED)
NOTE 3--ADJUSTMENTS TO PRO FORMA CONSOLIDATING STATEMENTS OF OPERATIONS
(CONTINUED)
transaction pro forma adjustments need to be made for purposes of deriving the
post-proxy transactions Pro Forma Statement of Operations for the six-month
period ended June 30, 1999.
(b) During the year ended December 31, 1998, both Starwood Financial and
TriNet completed certain investment and financing transactions which require pro
forma adjustments. In order to clearly delineate the effects of the proxy
transactions from the effects of these previously-consummated transactions,
separate pre-proxy transaction pro forma operating statements for the year ended
December 31, 1998 for both companies have been prepared and are included
elsewhere in this prospectus.
(c) Represents the adjustment for revenue differences as a result of
recalculating operating lease/ rental income on a straight-line method under
purchase accounting for the TriNet merger.
(d) Represents additional interest expense relating to additional draws on
the combined company's credit facilities to consummate the proxy transactions
(see G in Note 2).
(e) Represents the amounts necessary to adjust depreciation for the change
in basis as a result of application of purchase accounting for the TriNet
merger.
(f) Represents estimated general and administrative costs previously borne
by the advisor which will now be borne directly by the combined company
subsequent to the proxy transactions. For this purpose, estimates were prepared
using current salary levels for personnel of the advisor at June 30, 1999 who
will become employees of the combined company upon consummation of the advisor
transaction. Such costs exceed historical levels due to increased personnel
count. Components of such costs are as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
Employee compensation..................................... $2,042 $4,083
Rent...................................................... 300 602
Other administrative expenses............................. 168 336
-------------- -----------------
Total................................................. $2,510 $5,021
-------------- -----------------
-------------- -----------------
</TABLE>
(g) Represents the elimination of advisory fees paid to Starwood
Financial's external advisor no longer applicable as a result of the
consummation of the advisor transaction. As discussed in Note 2 (L), the excess
of the fair value of the stock issued in the advisor transaction over the net
tangible assets assumed will be recorded as an operating expense on Starwood
Financial's consolidated statement of operations. Since the intent of the
accompanying pro forma consolidating statements of operations for the six-month
period ended June 30, 1999 and the year ended December 31, 1998 is to reflect
the expected continuing impact of the pro forma transactions described in Note
1, the one-time charge discussed above has been excluded. The aggregate advisory
fees reflected in Starwood Financial's pro forma operating results for 1998 do
not reflect a full year of such fees because: (1) the advisory agreement was not
effective until March 18, 1998, the date upon which the recapitalization
transactions were consummated; (2) following the recapitalization transactions,
there was a 90-day contractual waiver of the advisory fees; and (3) incentive
fees for 1998 were lower than for more recent periods because of increasing net
income at Starwood Financial, which has the effect of increasing the incentive
fees.
(h) Represents the elimination of non-recurring gains relating to the
disposition of assets during the first quarter of 1999.
F-8
<PAGE>
STARWOOD FINANCIAL TRUST
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS--PRE-PROXY TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
PRE-PROXY COMPANY
HISTORICAL TRANSACTIONS PRE-PROXY
STARWOOD PRO FORMA TRANSACTIONS
FINANCIAL ADJUSTMENTS PRO FORMA
---------- ------------ ------------
<S> <C> <C> <C>
NOTE 3
REVENUE:
Interest income........................................................... $ 112,914 $ 19,370(a) $ 132,284
Operating lease/rental income............................................. 12,378 3,226(b) 15,604
Other income.............................................................. 2,804 276(c) 3,080
---------- ------------ ------------
Total revenue......................................................... 128,096 22,872 150,968
---------- ------------ ------------
EXPENSES:
Interest expense.......................................................... 44,697 5,861(d) 50,558
Operating lease depreciation.............................................. 4,287 1,179(e) 5,466
General and administrative................................................ 2,583 446(f) 3,029
Provision for possible credit losses...................................... 2,750 -- 2,750
Advisory fees............................................................. 7,837 5,801(g) 13,638
Stock option compensation expense......................................... 5,985 -- 5,985
---------- ------------ ------------
Total expenses........................................................ 68,139 13,287 81,426
---------- ------------ ------------
Income before minority interest........................................... 59,957 9,585 69,542
Minority interest......................................................... (54) 54(h) --
---------- ------------ ------------
Net income................................................................ $ 59,903 $ 9,639 $ 69,542
Preferred dividends....................................................... (944) -- (944)
---------- ------------ ------------
Net income allocable to common shareholders............................... $ 58,959 $ 9,639 $ 68,598
---------- ------------ ------------
---------- ------------ ------------
Net income allocable to Class A shares.................................... $ 58,369 $ 67,912
---------- ------------
---------- ------------
BASIC EARNINGS PER SHARE:
Basic earnings per Class A share.......................................... $ 1.40 $ 1.30
---------- ------------
---------- ------------
Weighted average number of Class A shares outstanding..................... 41,607 52,408
---------- ------------
---------- ------------
DILUTED EARNINGS PER SHARE:
Diluted earnings per Class A share........................................ $ 1.36 $ 1.24
---------- ------------
---------- ------------
Weighted average number of Class A shares outstanding..................... 43,460 55,203
---------- ------------
---------- ------------
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
F-9
<PAGE>
STARWOOD FINANCIAL TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
PRE-PROXY TRANSACTIONS
(UNAUDITED AND IN THOUSANDS) (CONTINUED)
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited pro forma consolidating statement of operations
is presented as if the Recapitalization Transactions (as defined in Note 4 to
Starwood Financial's historical consolidated financial statements incorporated
by reference into this joint proxy statement and prospectus) with the
predecessor entities were completed on January 1, 1998.
The pro forma financial statements should be read in conjunction with the
related historical financial statements and notes thereto of which these
financial statements are a part. In management's opinion, all adjustments
necessary to reflect the effects of the Recapitalization Transactions have been
made.
The unaudited pro forma consolidating financial statements are not
necessarily indicative of what the actual results of operations of Starwood
Financial would have been assuming that the recapitalization transactions had
been completed as of January 1, 1998, nor are they indicative of the results of
operations for future periods.
NOTE 2--RECAPITALIZATION TRANSACTIONS
As more fully discussed in Note 4 to Starwood Financial's historical
consolidated financial statements of Starwood Financial for the year ending
December 31, 1998, located herein, pursuant to a series of transactions
beginning in March 1994 and ending in the quarter ended March 31, 1998, Starwood
Financial consummated certain transactions and entered into agreements which
significantly recapitalized and expanded its capital resources as well as
modified future operations.
NOTE 3--ADJUSTMENTS TO PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
(a) Represents the actual interest income earned on the assets contributed
by the predecessor partnerships for the period from January 1, 1998 through
March 17, 1998 (the day immediately preceding the Recapitalization Transactions)
and adjusted to recognize revenue on the contributed real estate-related loan
investments to reflect the amortization effects of an increased basis of assets
acquired over contributor's historical cost which is amortized into post
transaction income using the effective interest method. This adjustment was
calculated as follows:
<TABLE>
<S> <C>
Interest income recognized by Starwood Mezzanine Investors, L.P.
("Starwood Mezzanine") during the predecessor period............. $ 4,325
Interest income recognized by Starwood Opportunity Fund IV, L.P.
("SOF IV") during the predecessor period......................... 15,045
---------
Total adjustment to interest income................................ $ 19,370
---------
---------
</TABLE>
(b) Represents actual rental income earned by the predecessor entity (SOF
IV) for the period from January 1, 1998 through March 17, 1998 on contributed
real estate subject to operating leases.
(c) Represents the aggregate actual other income earned by Starwood
Mezzanine ($63) and SOF IV ($213) during the period from January 1, 1998 through
March 17, 1998, related to those assets contributed in the recapitalization
transactions.
F-10
<PAGE>
STARWOOD FINANCIAL TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
PRE-PROXY TRANSACTIONS
(UNAUDITED AND IN THOUSANDS) (CONTINUED)
NOTE 3--ADJUSTMENTS TO PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
(CONTINUED)
(d) Represents an adjustment to reflect the estimated interest expense for
the period from January 1, 1998 through March 17, 1998 which would have been
incurred under Starwood Financial's new bank credit agreements, including
amortization of loan fees and legal costs, for an aggregate of $350.0 million in
borrowings and draws by Starwood Financial upon closing of the Recapitalization
Transactions.
(e) Represents additional depreciation on contributed real estate subject
to operating leases for the period from January 1, 1998 through March 17, 1998.
(f) Represents the estimated additional general and administrative expenses
(i.e., legal, insurance costs, etc.) for the period from January 1, 1998 through
March 17, 1998, which would have been incurred by Starwood Financial in
connection with the increase in overall operations as a result of consummation
of the Recapitalization Transactions.
(g) Represents the pro forma base and incentive advisory fees which would
have been earned under the terms of the advisory agreement for the period from
January 1, 1998 through March 17, 1998. The aggregate advisory fees reflected in
pro forma operating results for 1998 do not reflect a full year of such fees
because: (1) the advisory agreement was not effective until March 18, 1998, the
date upon which the recapitalization transactions were consummated; (2)
following the recapitalization transactions, there was a 90-day contractual
waiver of the advisory fees; and (3) incentive fees for 1998 were lower than for
more recent periods because of increasing net income at Starwood Financial,
which has the effect of increasing the incentive fees.
(h) Represents the adjustment to eliminate the minority interests allocated
to the units in the APMT Limited Partnership currently held by Starwood
Mezzanine which were converted to Class A shares.
F-11
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS--PRE-PROXY TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRE PROXY TRINET
TRANSACTIONS PRE-PROXY
HISTORICAL PRO FORMA TRANSACTIONS
TRINET ADJUSTMENTS PRO FORMA
---------- ------------ ------------
<S> <C> <C> <C> <C>
NOTE 2
REVENUE:
Interest income....................................................... $ 3,176 $ 2,831 (c) $ 6,007
Operating lease/rental income......................................... 153,155 2,887 (a)(e) 156,042
Other income.......................................................... 6,484 212 (b)(e)(f) 6,696
---------- ------------ ------------
Total revenue....................................................... 162,815 5,930 168,745
---------- ------------ ------------
EXPENSES:
Interest expense...................................................... 40,535 5,020 (d) 45,555
Depreciation and amortization......................................... 28,035 701 (a)(e) 28,736
Property operating costs.............................................. 7,466 185 (a)(e) 7,651
General and administrative............................................ 12,720 -- 12,720
Special charge........................................................ 2,990 -- 2,990
---------- ------------ ------------
Total expenses...................................................... 91,746 5,906 97,652
---------- ------------ ------------
Income before minority interest, gain/(loss) on sales of real estate
and extraordinary items............................................. 71,069 24 71,093
Minority interest..................................................... (128) -- (128)
Provision for assets held for sale.................................... (5,662) 5,662 (h) --
(Loss)/gain on sales of real estate................................... (1,436) 1,436 (e) --
---------- ------------ ------------
Income before extraordinary items..................................... 63,843 7,122 70,965
Extraordinary loss from early extinguishment of debt.................. (1,272) 1,272 (g) --
---------- ------------ ------------
Net income............................................................ 62,571 8,394 70,965
Preferred dividends................................................... (15,678) -- (15,678)
---------- ------------ ------------
Net income allocable to common shares................................. $ 46,893 $ 8,394 $ 55,287
---------- ------------ ------------
---------- ------------ ------------
BASIC EARNINGS PER SHARE:
Basic earnings available per common share before extraordinary
items............................................................... $ 1.97 $ 2.23
---------- ------------
---------- ------------
Basic earnings available per common share............................. $ 1.92 $ 2.23
---------- ------------
---------- ------------
Weighted average number of common shares outstanding.................. 24,387 24,760
---------- ------------
---------- ------------
DILUTED EARNINGS PER SHARE:
Diluted earnings available per common share before extraordinary
items............................................................... $ 1.96 $ 2.22
---------- ------------
---------- ------------
Diluted earnings available per common share........................... $ 1.91 $ 2.22
---------- ------------
---------- ------------
Weighted average number of common shares outstanding.................. 24,504 24,877
---------- ------------
---------- ------------
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
F-12
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS--PRE-PROXY TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED AND IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION
The unaudited pro forma consolidated statement of operations for the year
ended December 31, 1998 is presented as if each of the following had occurred on
January 1, 1998: (1) the acquisition of the properties known as 161 Inverness
Drive West, Concord Farms Office Park, certain properties acquired in three
transactions and held in a 96.5% owned consolidated partnership known as TriNet
Property Partners, L.P. ("TriNet Property Partners"), the Vazza portfolio, 1661
Page Mill Road, 6000 Connection Drive, 960 Northpoint Parkway, 14493 Sunset
Hills Road and 6665 MacArthur Boulevard; (2) the acquisition of properties held
in the TriNet's unconsolidated joint ventures including W9/TriNet Poydras, LLC
("Poydras"), a 50% owned limited liability company, Corporate Technology
Associates LLC ("CTC I"), a 95% owned limited liability company, Sierra Land
Ventures ("Sierra"), a 95% owned limited liability company, Corporate Technology
Centre Associates II LLC ("CTC II"), a 50% owned limited liability company, and
TriNet Milpitas Associates, LLC ("Milpitas"), a 50% owned limited liability
company; (3) pro forma interest expense adjusted for changes in the balance of
the revolving credit facility resulting from pay downs related to various equity
offerings and proceeds from property dispositions, offset by increases resulting
from borrowings related to property acquisitions and contributions to the
various equity and debt investments in joint ventures; and (4) the disposition
by the Company of the properties known as 4472 and 4580 Steelway Boulevard, 600
North Kilbourn Avenue, 2424 Manhattan Boulevard, 4500 Tchoupitoulas Street, 2701
Artline Drive, 8000 Greenwell Springs Road, 100 Terrace Plaza, 700 Terrace Point
Drive, and 3900 Airline Highway (collectively, the "Pre-Proxy Events") which are
more fully discussed in the Company's December 31, 1998 Annual Report on Form
10-K filed with the Securities and Exchange Commission.
Such pro forma information is based upon the historical consolidated results
of operations of TriNet for the year ended December 31, 1998, after giving
effect to the Pre-Proxy Events described above. The pro forma condensed
consolidated statements of operations should be read in conjunction with the
historical financial statements and notes thereto of Trinet included in TriNet's
Form 10-K for the year ended December 31, 1998.
The unaudited pro forma consolidated statement of operations is not
necessarily indicative of what the actual results of operations of TriNet's
would have been assuming the transactions had been completed as set forth above,
nor does it purport to represent TriNet's results of operations for future
periods.
F-13
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS--PRE-PROXY TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED AND IN THOUSANDS) (CONTINUED)
NOTE 2 -- ADJUSTMENTS TO PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
The following adjustments, (a) through (g), have been made to TriNet's
historical statement of operations to reflect the pro forma consolidating
statement of operations for the year ended December 31, 1998. These adjustments
have been summarized in Note 3.
(a) Reflects revenues and expenses for the properties acquired in 1998 by
TriNet for the period January 1, 1998 through the date of acquisition, as
follows:
<TABLE>
<CAPTION>
OPERATING
LEASE/ PROPERTY
RENTAL OPERATING
PROPERTY/TRANSACTION ACQUISITION DATE INCOME COSTS DEPRECIATION
- ----------------------------------------------------- --------------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
161 Inverness Drive West............................. January 20, 1998 $ 324 $ -- $ 47
Concord Farms Office Park............................ January 30, 1998 243 65 44
TriNet Property Partners Transaction 1............... February 25, 1998 244 37 42
TriNet Property Partners Transaction 2............... March 31, 1998 313 101 36
TriNet Property Partners Transaction 3............... April 30, 1998 296 -- 47
Vazza Transaction.................................... June 18, 1998 2,026 14 449
1661 Page Mill Road.................................. June 26, 1998 802 -- 213
6000 Connection Drive................................ June 30, 1998 2,404 134 530
960 Northpoint Parkway............................... July 22, 1998 624 -- 118
11493 Sunset Hills Road.............................. August 12, 1998 1,676 -- 337
6665 McCarthur Boulevard............................. May 11, 1998 933 -- --
----------- ----- ------
$ 9,885 $ 351 $ 1,863
----------- ----- ------
----------- ----- ------
</TABLE>
(b) Represents pro forma joint venture income allocated to the Company from
the pro forma equity investments in unconsolidated joint ventures for the period
January 1, 1998 through the date of acquisition:
<TABLE>
<CAPTION>
JOINT ALLOCATED
FORMATION VENTURE PERCENT JOINT VENTURE
JOINT VENTURE ACQUISITION DATE INCOME OWNERSHIP INCOME
- -------------------------------------------------------- ------------------ --------- --------------- -------------
<S> <C> <C> <C> <C>
Poydras................................................. March 12, 1998 $ (1,610) 50% $ (805)
CTC I................................................... March 26, 1998 2 95% 2
Sierra.................................................. June 30, 1998 18 95% 17
CTC II.................................................. August 14, 1998 (1,290) 50% (645)
Milpitas................................................ August 18, 1998 2,996 50% 1,498
--------- ------
$ 116 $ 67
--------- ------
--------- ------
</TABLE>
(c) Represents pro forma interest income earned on loans made to
unconsolidated joint ventures in 1998 for the period January 1, 1998 to the date
of issuance. The pro forma adjustment consist of $749 and $2,082 of additional
pro forma interest income for Poydras and CTC II, respectively.
F-14
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS--PRE-PROXY TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED AND IN THOUSANDS) (CONTINUED)
NOTE 2 -- ADJUSTMENTS TO PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
(CONTINUED)
(d) The pro forma interest expense adjustment for 1998 reflects interest
expense on mortgage debt assumed with certain acquisitions plus additional
borrowings from TriNet's credit facility to fund certain property acquisitions
and investments in joint ventures less reductions in interest expense due to the
pay down of TriNet's credit facility resulting from certain property
dispositions, equity offerings, capitalization of interest and amortization of
loan costs:
<TABLE>
<S> <C>
Increase in interest expense from the assumption of mortgages relating to the
TriNet Property Partners and the Vazza property portfolios....................... $ 678
Increase in interest expense resulting from additional borrowings on TriNet's
credit facility required to fund 1998 acquisitions............................... 5,465
Increase in interest expense resulting from additional borrowings on TriNet's
credit facility to fund the 1998 investments in joint ventures................... 4,452
Decrease in interest expense resulting from payments made on TriNet's credit
facility from the proceeds of 1998 property dispositions......................... (2,684)
Decrease in interest expense resulting from payments made on TriNet's credit
facility from the proceeds of 1998 equity offerings.............................. (1,111)
Reduction in interest expense resulting from capitalizing interest costs associated
with TriNet's investment in CTC I and Sierra for the period January 1, 1998
through the date of acquisition.................................................. (1,482)
Reduction in interest expense resulting from a net decrease in loan cost
amortization due to the replacement of the $200 million credit facility with the
$350 million credit facility..................................................... (298)
---------
Total TriNet interest expense adjustment for pre-proxy transactions................ $ 5,020
---------
---------
</TABLE>
(e) Reflects the reduction in revenues and expenses for properties disposed
during 1998 by TriNet from January 1, 1998 to the disposition date.
<TABLE>
<CAPTION>
OPERATING GAIN/
LEASE/ PROPERTY (LOSS)
DISPOSITION RENTAL OTHER OPERATING ON SALE OF
PROPERTY/TRANSACTION DATE INCOME INCOME COSTS DEPRECIATION REAL ESTATE
- ---------------------------- ---------------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
GATX Logistics.............. March 27, 1998 $ 418 $ -- $ 5 $ 73 $ 1,115
600 North Kilbourn Avenue... December 18, 1998 443 -- 4 92 1,696
Louisiana Retail
Portfolio.................. December 22, 1998 4,043 -- 8 409 (483)
8000 Greenwell Springs
Road....................... December 23, 1998 178 73 147 61 (2,837)
SPX Corporation............. December 29, 1998 1,916 -- 2 527 (927)
----------- --- ----- ------ -----------
Total $ 6,998 $ 73 $ 166 $ 1,162 $ (1,436)
----------- --- ----- ------ -----------
----------- --- ----- ------ -----------
</TABLE>
(f) Represents pro forma management fees earned by TriNet from tenants in
properties acquired during 1998 for the period from January 1, 1998 to the date
of acquisition.
(g) Represents pro forma adjustments to eliminate extraordinary loss which
is not a component of income from continuing operations.
F-15
<PAGE>
TRINET CORPORATE REALTY TRUST, INC.
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS--PRE-PROXY TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED AND IN THOUSANDS) (CONTINUED)
NOTE 2 -- ADJUSTMENTS TO PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
(CONTINUED)
(h) Adjustment to reflect the elimination of a non-recurring charge
relating to properties sold in the first quarter of 1999.
NOTE 3--SUMMARY OF PRO FORMA ADJUSTMENTS
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------------------------------------------------------------------
(B)(C) (D) (F) (G)(H)
(A) JOINT VENTURE INTEREST (E) MANAGEMENT NON-
ACQUISITIONS INVESTMENTS EXPENSE DISPOSITIONS FEES RECURRING TOTAL
------------- --------------- ----------- ------------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Interest income............ $ -- $ 2,831 $ -- $ -- $ -- $ -- $ 2,831
Operating lease/rental
income................... 9,885 -- -- (6,998) -- -- 2,887
Other income............... -- 67 -- (73) 218 -- 212
------ ------ ----------- ------------- ----- ----------- ---------
Total revenue........ 9,885 2,898 -- (7,071) 218 -- 5,930
------ ------ ----------- ------------- ----- ----------- ---------
EXPENSES:
Interest expense........... -- -- 5,020 -- -- -- 5,020
Depreciation and
amortization............. 1,863 -- -- (1,162) -- -- 701
Property operating costs... 351 -- -- (166) -- -- 185
General and
administrative........... -- -- -- -- -- -- --
Special charge............. -- -- -- -- -- -- --
------ ------ ----------- ------------- ----- ----------- ---------
Total expenses....... 2,214 -- 5,020 (1,328) -- -- 5,906
------ ------ ----------- ------------- ----- ----------- ---------
Income (loss) before
minority interest,
gain/(loss) on sales of
real estate and
extraordinary items...... 7,671 2,898 (5,020) (5,743) 218 -- 24
Minority interest.......... -- -- -- -- -- -- --
Provision for assets held
for sale................. -- -- -- -- -- 5,662 5,662
Gain (loss) on sales of
real estate.............. -- -- -- 1,436 -- -- 1,436
Extraordinary charge from
early extinguishment of
debt..................... -- -- -- -- -- 1,272 1,272
------ ------ ----------- ------------- ----- ----------- ---------
Net income (loss).......... $ 7,671 $ 2,898 $ (5,020) $ (4,307) $ 218 $ 6,934 $ 8,394
------ ------ ----------- ------------- ----- ----------- ---------
------ ------ ----------- ------------- ----- ----------- ---------
</TABLE>
F-16
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 15, 1999
BY AND AMONG
STARWOOD FINANCIAL TRUST,
ST MERGER SUB, INC.
AND
TRINET CORPORATE REALTY TRUST, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C> <C> <C>
ARTICLE I THE MERGER.................................................................... A-2
Section 1.1. The Merger................................................................ A-2
Section 1.2. Closing................................................................... A-2
Section 1.3. Effective Time............................................................ A-2
Section 1.4. Charter and Bylaws........................................................ A-3
Section 1.5. Directors................................................................. A-3
Section 1.6. Officers.................................................................. A-3
Section 1.7. Election Not to Proceed With Incorporation Merger......................... A-3
ARTICLE II EFFECTS OF THE MERGER; EXCHANGE OF CERTIFICATES............................... A-4
Section 2.1. Effect on Stock........................................................... A-4
(a) Stock Owned by TriNet or Its Subsidiaries................................. A-4
(b) Conversion of TriNet Stock into New Starwood Stock........................ A-4
(c) Shares of New Starwood and Starwood Sub Stock............................. A-4
Section 2.2. Exchange of Certificates.................................................. A-5
(a) Exchange Agent............................................................ A-5
(b) Starwood to Provide Merger Consideration.................................. A-5
(c) Exchange Procedure........................................................ A-5
(d) Record Dates; Distributions with Respect to Unexchanged Shares............ A-5
(e) No Further Ownership Rights in TriNet Capital Stock....................... A-6
(f) Unclaimed Merger Consideration............................................ A-6
(g) No Fractional Shares...................................................... A-7
(h) Withholding............................................................... A-7
(i) No Dissenters' Rights..................................................... A-7
(j) Adjustments to Prevent Dilution........................................... A-7
ARTICLE III REPRESENTATIONS AND WARRANTIES................................................ A-8
Section 3.1. Representations and Warranties of TriNet.................................. A-8
(a) Organization, Standing and Corporate Power of TriNet...................... A-8
(b) TriNet Subsidiaries; Interests in Other Persons........................... A-8
(c) Capital Structure......................................................... A-9
(d) Authority; Noncontravention; Consents..................................... A-9
(e) SEC Documents; Financial Statements; Undisclosed Liabilities.............. A-10
(f) Absence of Certain Changes or Events...................................... A-11
(g) Litigation................................................................ A-11
(h) Absence of Changes in Benefit Plans; ERISA Compliance..................... A-12
(i) Taxes..................................................................... A-13
(j) No Loans or Payments to Employees, Officers or Directors.................. A-14
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
------------
<S> <C> <C> <C>
(k) Brokers; Schedule of Fees and Expenses.................................... A-14
(l) Compliance with Laws...................................................... A-14
(m) Contracts; Debt Instruments............................................... A-14
(n) Environmental Matters..................................................... A-15
(o) TriNet Properties......................................................... A-16
(p) Opinion of Financial Advisor.............................................. A-18
(q) State Takeover Statutes; Rights Agreement................................. A-18
(r) Investment Company Act of 1940............................................ A-18
(s) Proxy Statement and Registration Statement................................ A-18
(t) Vote Required............................................................. A-18
(u) Year 2000 Issues.......................................................... A-18
Section 3.2. Representations and Warranties of Starwood and Starwood Sub............... A-19
(a) Organization, Standing and Corporate Power of Starwood.................... A-19
(b) Starwood Subsidiaries; Interests in Other Persons......................... A-19
(c) Capital Structure......................................................... A-21
(d) Authority; Noncontravention; Consents..................................... A-22
(e) SEC Documents; Financial Statements; Undisclosed Liabilities.............. A-23
(f) Absence of Certain Changes or Events...................................... A-24
(g) Litigation................................................................ A-24
(h) Absence of Changes in Benefit Plans; ERISA Compliance..................... A-25
(i) Taxes..................................................................... A-26
(j) No Loans or Payments to Employees, Officers or Directors.................. A-26
(k) Brokers; Schedule of Fees and Expenses.................................... A-27
(l) Compliance with Laws...................................................... A-27
(m) Contracts; Debt Instruments............................................... A-27
(n) Environmental Matters..................................................... A-27
(o) Starwood Properties....................................................... A-28
(p) Opinion of Financial Advisor.............................................. A-30
(q) State Takeover Statutes................................................... A-30
(r) 1940 Act.................................................................. A-30
(s) Proxy Statement and Registration Statement................................ A-30
(t) Vote Required............................................................. A-30
(u) Year 2000 Issues.......................................................... A-31
(v) Operations of Starwood Sub and New Starwood............................... A-31
(w) No Ownership of TriNet Stock.............................................. A-31
ARTICLE IV COVENANTS..................................................................... A-31
Section 4.1. Conduct of Business by TriNet............................................. A-31
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
------------
<S> <C> <C> <C>
Section 4.2. Conduct of Business by Starwood........................................... A-33
Section 4.3. Other Actions............................................................. A-36
ARTICLE V ADDITIONAL COVENANTS.......................................................... A-36
Preparation of the Registration Statement and the Proxy Statement;
Section 5.1. Shareholders' Meetings; Consents........................................ A-36
Section 5.2. Access to Information; Confidentiality.................................... A-37
Section 5.3. Commercially Reasonable Efforts; Notification............................. A-38
Section 5.4. Affiliates................................................................ A-39
Section 5.5. Tax Treatment............................................................. A-39
Section 5.6. No Solicitation of Transactions........................................... A-39
Section 5.7. Public Announcements...................................................... A-40
Section 5.8. AMEX De-Listing; NYSE Listing............................................. A-40
Section 5.9. Letters of Accountants.................................................... A-40
Section 5.10. Transfer and Gains Taxes; Shareholder Demand Letters...................... A-40
Section 5.11. Benefit Plans and Other Employee Arrangements............................. A-41
(a) Benefit Plans............................................................. A-41
(b) Stock Incentive Plans..................................................... A-41
Section 5.12. Indemnification; Directors' and Officers' Insurance....................... A-42
Section 5.13. The TriNet Rights Plan.................................................... A-44
Section 5.14. Coordination of Dividends................................................. A-44
Section 5.15. [Intentionally deleted.].................................................. A-44
Section 5.16. Environmental Reports..................................................... A-44
ARTICLE VI CONDITIONS PRECEDENT.......................................................... A-44
Section 6.1. Conditions to Each Party's Obligation to Effect the Merger................ A-44
(a) Shareholder Approvals..................................................... A-44
(b) Listing of Shares......................................................... A-44
(c) Registration Statement.................................................... A-45
(d) No Injunctions or Restraints.............................................. A-45
(e) Incorporation Merger and Advisor Transaction.............................. A-45
Section 6.2. Conditions to Obligations of Starwood..................................... A-45
(a) Representations and Warranties............................................ A-45
(b) Performance of Obligations of TriNet...................................... A-45
(c) Material Adverse Effect................................................... A-45
(d) Opinions Relating to REIT Status.......................................... A-46
(e) Other Tax Opinion......................................................... A-46
(f) Consents.................................................................. A-46
Section 6.3. Conditions to Obligation of TriNet........................................ A-46
</TABLE>
A-iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
------------
<S> <C> <C> <C>
(a) Representations and Warranties............................................ A-46
(b) Performance of Obligations of Starwood.................................... A-46
(c) Material Adverse Effect................................................... A-46
(d) Opinions Relating to REIT and Partnership Status.......................... A-46
(e) Other Tax Opinion......................................................... A-47
(f) Consents.................................................................. A-47
(g) Incorporation Merger Representations...................................... A-47
(h) Advisor Transaction Representations....................................... A-47
(i) Lock-Up Agreements; Stockholders' Agreement............................... A-47
(j) Election of REIT Status................................................... A-47
ARTICLE VII BOARD ACTIONS................................................................. A-47
Section 7.1. Board Actions............................................................. A-47
Section 7.2. TriNet Subsidiary Boards.................................................. A-48
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER............................................. A-48
Section 8.1. Termination............................................................... A-48
Section 8.2. Expenses.................................................................. A-49
Section 8.3. Effect of Termination..................................................... A-52
Section 8.4. Amendment................................................................. A-53
Section 8.5. Extension; Waiver......................................................... A-53
ARTICLE IX GENERAL PROVISIONS............................................................ A-53
Section 9.1. Survival.................................................................. A-53
Section 9.2. Notices................................................................... A-53
Section 9.3. Interpretation............................................................ A-54
Section 9.4. Counterparts.............................................................. A-54
Section 9.5. Entire Agreement; No Third-Party Beneficiaries............................ A-54
Section 9.6. GOVERNING LAW............................................................. A-54
Section 9.7. Assignment................................................................ A-54
Section 9.8. Enforcement............................................................... A-54
Section 9.9. Exhibits; Disclosure Letters.............................................. A-55
ARTICLE X CERTAIN DEFINITIONS........................................................... A-55
Section 10.1. Certain Definitions....................................................... A-55
1940 Act................................................................................................. A-18
Additional Acceleration Event............................................................................ A-36
Advisor Affiliate Lock-Up Agreement...................................................................... A-2
Advisor Transaction...................................................................................... A-1
Advisor Transaction Agreement............................................................................ A-1
affiliate................................................................................................ A-55
Agreement................................................................................................ A-1
</TABLE>
A-iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AMEX..................................................................................................... A-40
Ancillary Agreements..................................................................................... A-55
A-50,
Base Amount.............................................................................................. A-51
Bear, Stearns............................................................................................ A-28
Bylaws................................................................................................... A-3
Certificate.............................................................................................. A-4
change of control........................................................................................ A-58
Charter.................................................................................................. A-3
Closing.................................................................................................. A-2
Closing Date............................................................................................. A-3
Code..................................................................................................... A-1
Confidentiality Agreement................................................................................ A-39
Defaulted TriNet Lease................................................................................... A-45
Effective Time........................................................................................... A-2
Employee Plan............................................................................................ A-58
Environmental Law........................................................................................ A-15
ERISA.................................................................................................... A-12
Event of Default......................................................................................... A-36
Exchange Act............................................................................................. A-10
Exchange Agent........................................................................................... A-5
Exchange Ratio........................................................................................... A-4
Final TriNet Dividend.................................................................................... A-5
GAAP..................................................................................................... A-11
GECC..................................................................................................... A-36
Governmental Entity...................................................................................... A-10
Greenhill................................................................................................ A-14
Hazardous Materials...................................................................................... A-15
Incorporation Merger..................................................................................... A-1
Incorporation Merger Agreement........................................................................... A-1
indebtedness............................................................................................. A-15
Indemnified Liabilities.................................................................................. A-42
Indemnified Parties...................................................................................... A-42
Indemnifying Parties..................................................................................... A-42
Irrevocable Proxies...................................................................................... A-49
Knowledge................................................................................................ A-58
Law...................................................................................................... A-58
</TABLE>
A-v
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Laws..................................................................................................... A-10
LF Offshore Fund......................................................................................... A-23
LF Onshore Fund.......................................................................................... A-23
LF Securities Purchase Agreement......................................................................... A-23
Liens.................................................................................................... A-8
Lock-Up Agreements....................................................................................... A-2
A-41,
Market Price............................................................................................. A-44
Merger................................................................................................... A-1
Merger Consideration..................................................................................... A-4
MGCL..................................................................................................... A-2
New Starwood............................................................................................. A-1
New Starwood Articles Supplementary...................................................................... A-4
New Starwood Board....................................................................................... A-3
New Starwood Common Stock................................................................................ A-1
New Starwood Preferred Stock............................................................................. A-4
New Starwood Series B Preferred Stock.................................................................... A-4
New Starwood Series C Preferred Stock.................................................................... A-4
New Starwood Series D Preferred Stock.................................................................... A-4
Offshore Fund Warrant.................................................................................... A-22
Onshore Fund Warrant..................................................................................... A-22
Option Standstill Agreement.............................................................................. A-2
Optionholder............................................................................................. A-41
Person................................................................................................... A-58
Proxy Statement.......................................................................................... A-10
Qualifying Income........................................................................................ A-52
Registration Statement................................................................................... A-10
REIT..................................................................................................... A-1
REIT Requirements........................................................................................ A-52
Rights Agreement......................................................................................... A-18
SDAT..................................................................................................... A-2
Securities Act........................................................................................... A-10
SFA...................................................................................................... A-1
SFA II................................................................................................... A-1
Shareholder Agreement.................................................................................... A-2
Starwood................................................................................................. A-1
Starwood Advisor Transaction Shareholder Approval........................................................ A-31
Starwood Affiliate Lock-Up Agreement..................................................................... A-2
</TABLE>
A-vi
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
Starwood Benefit Plan.................................................................................... A-25
Starwood Break-Up Expenses............................................................................... A-50
Starwood Break-Up Fee.................................................................................... A-50
Starwood Break-Up Fee Tax Opinion........................................................................ A-50
Starwood Class A Common Shares........................................................................... A-21
Starwood Class B Common Shares........................................................................... A-1
Starwood CMBS............................................................................................ A-20
Starwood Competing Transaction........................................................................... A-41
Starwood Disclosure Letter............................................................................... A-19
Starwood Encumbrances.................................................................................... A-29
Starwood ERISA Affiliate................................................................................. A-25
Starwood Expense Fee Base Amount......................................................................... A-50
Starwood Filed SEC Documents............................................................................. A-24
Starwood Financial Statement Date........................................................................ A-24
Starwood Incorporation Merger Shareholder Approval....................................................... A-30
Starwood Lease........................................................................................... A-29
Starwood Loans........................................................................................... A-20
Starwood Material Adverse Effect......................................................................... A-19
Starwood Merger Shareholder Approval..................................................................... A-32
Starwood Office Space Leases............................................................................. A-28
Starwood Pledged Ground Lease............................................................................ A-20
Starwood Properties...................................................................................... A-30
Starwood Rent Roll....................................................................................... A-29
Starwood SEC Documents................................................................................... A-23
Starwood Series A Preferred Shares....................................................................... A-22
Starwood Shareholder Approvals........................................................................... A-32
Starwood Shareholders Meeting............................................................................ A-38
Starwood Stock Options................................................................................... A-22
Starwood Stock Plan...................................................................................... A-22
Starwood Sub............................................................................................. A-1
Starwood Subsidiary...................................................................................... A-58
Starwood Tax Protection Agreement........................................................................ A-27
Starwood Warrants........................................................................................ A-23
Stock Dividend........................................................................................... A-4
Subsidiary............................................................................................... A-58
Superior TriNet Competing Transaction.................................................................... A-48
Surviving Corporation.................................................................................... A-1
</TABLE>
A-vii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Takeover Statute......................................................................................... A-38
Tax Return............................................................................................... A-13
Taxes or Tax............................................................................................. A-13
Taxing Authority......................................................................................... A-13
Transfer and Gains Taxes................................................................................. A-40
TriNet................................................................................................... A-1
TriNet Benefit Plan...................................................................................... A-12
TriNet Break-Up Expenses................................................................................. A-52
TriNet Break-Up Fee...................................................................................... A-52
TriNet Break-Up Fee Tax Opinion.......................................................................... A-52
TriNet Common Stock...................................................................................... A-1
TriNet Competing Transaction............................................................................. A-41
TriNet Disclosure Letter................................................................................. A-8
TriNet Encumbrances...................................................................................... A-16
TriNet ERISA Affiliate................................................................................... A-12
TriNet Expense Fee Base Amount........................................................................... A-52
TriNet Filed SEC Documents............................................................................... A-11
TriNet Financial Statement Date.......................................................................... A-11
TriNet Lease............................................................................................. A-17
TriNet Managed Subsidiary................................................................................ A-55
TriNet Management Company Owners......................................................................... A-2
TriNet Management Company Stock Purchase Agreement....................................................... A-2
TriNet Material Adverse Effect........................................................................... A-8
TriNet Non-Managed Subsidiary............................................................................ A-58
TriNet Office Space Lease................................................................................ A-16
TriNet Preferred Stock................................................................................... A-1
TriNet Properties........................................................................................ A-16
TriNet Proxy Default..................................................................................... A-49
TriNet Rent Roll......................................................................................... A-17
TriNet Revolver.......................................................................................... A-32
TriNet SEC Documents..................................................................................... A-10
TriNet Series A Preferred Stock.......................................................................... A-1
TriNet Series B Preferred Stock.......................................................................... A-1
TriNet Series C Preferred Stock.......................................................................... A-1
TriNet Shareholder Approvals............................................................................. A-18
TriNet Shareholders Meeting.............................................................................. A-37
TriNet Stock Options..................................................................................... A-9
</TABLE>
A-viii
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
TriNet Stock Plans....................................................................................... A-9
TriNet Subsidiary........................................................................................ A-58
TriNet Tax Protection Agreement.......................................................................... A-15
Year 2000 Ready.......................................................................................... A-19
</TABLE>
A-ix
<PAGE>
INDEX OF EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Schedule A Starwood shareholders executing Starwood Shareholder Agreement
Schedule B Starwood shareholders executing Starwood Affiliate Lock-Up Agreements
Schedule C Persons executing Advisor Affiliate Lock-Up Agreements
Schedule D Persons Executing Option Standstill Agreements
Schedule E TriNet Management Company Owners
Schedule F Directors of New Starwood
Schedule G Directors of the Surviving Corporation
Schedule H Officers of New Starwood
Schedule I Officers of the Surviving Corporation
Exhibit A Incorporation Merger Agreement
Exhibit B Advisor Transaction Agreement
Exhibit C Form of Starwood Shareholder Agreement
Exhibit D Form of Starwood Affiliate Lock-Up Agreement
Exhibit E Form of Advisor Affiliate Lock-Up Agreement
Exhibit F Form of Option Standstill Agreement
Exhibit G TriNet Management Company Stock Purchase Agreement
Exhibit H Form of Charter of the Surviving Corporation
Exhibit I Form of Bylaws of the Surviving Corporation
Exhibit J Form of Charter of New Starwood
Exhibit K Form of Bylaws of New Starwood
Exhibit L Form of Articles Supplementary for each class of New Starwood Preferred Stock
Exhibit M Form of Katten Muchin & Zavis Tax Opinion
Exhibit N Form of Mayer, Brown & Platt LLP Tax Opinion
Exhibit O Form of Rogers & Wells LLP Tax Opinion
Exhibit P Form of Paul, Weiss, Rifkind, Wharton & Garrison Tax Opinion
Exhibit Q Form of Affiliate Letter
</TABLE>
A-x
<PAGE>
AGREEMENT AND PLAN OF MERGER ("AGREEMENT"), dated as of June 15, 1999, by and
among STARWOOD FINANCIAL TRUST, a Maryland real estate investment trust
("STARWOOD"), ST MERGER SUB, INC., a Maryland corporation ("STARWOOD SUB"), and
TRINET CORPORATE REALTY TRUST, INC., a Maryland corporation ("TRINET").
RECITALS
A. The Boards of Trustees or Directors, as the case may be, of Starwood,
Starwood Sub and TriNet each have determined that it is advisable and in the
best interest of their respective companies and shareholders that upon the terms
and subject to the conditions set forth in this Agreement, Starwood Sub will
merge with and into TriNet, with TriNet being the surviving corporation (the
"SURVIVING CORPORATION"), in a merger (the "MERGER") in which each issued and
outstanding share of common stock, par value $.01 per share, of TriNet (the
"TRINET COMMON STOCK"), each issued and outstanding share of 9 3/8% Series A
Cumulative Redeemable Preferred Stock, par value $.01 per share, of TriNet (the
"TRINET SERIES A PREFERRED STOCK"), each issued and outstanding share of 9.2%
Series B Cumulative Redeemable Preferred Stock, par value $.01 per share, of
TriNet (the "TRINET SERIES B PREFERRED STOCK") and each issued and outstanding
share of 8% Series C Cumulative Redeemable Preferred Stock, par value $.01 per
share, of TriNet (the "TRINET SERIES C PREFERRED STOCK," and together with the
TriNet Series A Preferred Stock and the TriNet Series B Preferred Stock, the
"TRINET PREFERRED STOCK") will be converted into the applicable Merger
Consideration (as defined below).
B. The parties intend that for federal income tax purposes the Merger will
qualify as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "CODE"), and that, following the Merger,
Starwood will continue to be subject to taxation as a real estate investment
trust (a "REIT") and TriNet will be a qualified REIT subsidiary of Starwood, in
each case within the meaning of the Code.
C. Prior to the consummation of the Merger, Starwood intends to merge with
and into Starwood Financial, Inc., a newly formed Maryland corporation ("NEW
STARWOOD"), for the purpose of changing Starwood's form from a Maryland real
estate investment trust to a Maryland corporation (the "INCORPORATION MERGER"),
all in accordance with the terms of the Agreement and Plan of Merger, dated the
date hereof, between New Starwood and Starwood, a copy of which is attached as
EXHIBIT A hereto (the "INCORPORATION MERGER AGREEMENT"). As part of the
Incorporation Merger, the Class B Common Shares of beneficial interest, par
value $.01 per share, of Starwood ("STARWOOD CLASS B COMMON SHARES") will be
converted into shares of common stock, par value $.001 per share, of New
Starwood ("NEW STARWOOD COMMON STOCK") on the basis of 49 Starwood Class B
Common Shares for one share of New Starwood Common Stock. Upon consummation of
the Incorporation Merger, New Starwood will succeed to all of Starwood's rights,
obligations and liabilities under this Agreement.
D. Contemporaneously with the consummation of the Merger, (i) STW Holdings
I, Inc., a Delaware corporation which owns 99.9% of the membership interests of
Starwood Advisors II, LLC, a Delaware limited liability company ("SFA II"),
which in turn owns 99.9% of the membership interests of Starwood Advisors, LLC,
a Delaware limited liability company ("SFA"), will merge with and into a
subsidiary of New Starwood, with such subsidiary of New Starwood being the
surviving corporation and (ii) Starwood Capital Group, LLC, a Connecticut
limited liability company which owns 0.1% of the membership interests of each of
SFA and SFA II, will contribute those interests to New Starwood, in accordance
with the terms of the Agreement and Plan of Merger and Interest Contribution
Agreement, dated the date hereof, a copy of which is attached as EXHIBIT B
hereto (the "ADVISOR TRANSACTION AGREEMENT"). The transactions contemplated by
the Advisor Agreement are referred to herein as the "ADVISOR TRANSACTION." Upon
consummation of the Incorporation Merger, New Starwood will succeed to all of
Starwood's rights, obligations and liabilities under the Advisor Transaction
Agreement.
E. Contemporaneously with the execution and delivery of this Agreement,
certain holders of Starwood Common Stock named in SCHEDULE A hereto have entered
into an agreement with Starwood and TriNet, substantially in the form of EXHIBIT
C hereto (the "SHAREHOLDER AGREEMENT"), pursuant to which, among other things,
those holders have granted to TriNet irrevocable proxies to vote their shares in
favor
<PAGE>
of the Merger, this Agreement, the Incorporation Merger, the Incorporation
Merger Agreement, the Advisor Transaction and the Advisor Transaction Agreement
and against any proposal which would compete with the Merger.
F. Contemporaneously with the execution and delivery of this Agreement, (i)
the Persons listed on SCHEDULE B hereto have entered into agreements, each
substantially in the form of EXHIBIT D hereto (each a "STARWOOD AFFILIATE
LOCK-UP AGREEMENT"), in which such Persons have agreed to certain restrictions
on transfers of shares of New Starwood Common Stock by such Persons, (ii) the
Persons listed on SCHEDULE C hereto have entered into agreements, each
substantially in the form of EXHIBIT E hereto (each an "ADVISOR AFFILIATE
LOCK-UP AGREEMENT" and each such agreement together with each Starwood Affiliate
Lock-Up Agreement, the "LOCK-UP AGREEMENTS"), in which such Persons agreed to
certain restrictions on transfers of shares of New Starwood Common Stock by such
Persons and (iii) the Persons listed on SCHEDULE D hereto have entered into
agreements, each substantially in the form of EXHIBIT F hereto (each an "OPTION
STANDSTILL AGREEMENT") in which such Persons have agreed to certain restrictions
on exercises of options to purchase TriNet Common Stock by such Persons.
G. Contemporaneously with the execution and delivery of this Agreement, the
persons named in SCHEDULE E hereto (the "TRINET MANAGEMENT COMPANY OWNERS") have
entered into a stock purchase agreement, a copy of which is attached as EXHIBIT
G hereto (the "TRINET MANAGEMENT COMPANY STOCK PURCHASE AGREEMENT") pursuant to
which the TriNet Management Company Owners have agreed to sell to the purchasers
named therein, and such purchasers have agreed to acquire, all of the interests
of the TriNet Management Company Owners in TriNet Management Operating Company,
Inc.
AGREEMENT
In consideration of the representations, warranties, covenants and
agreements contained in this Agreement, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1. THE MERGER.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time (as hereinafter defined), Starwood Sub shall be
merged with and into TriNet in accordance with the Maryland General Corporation
Law (the "MGCL"), whereupon the separate corporate existence of Starwood Sub
shall cease and TriNet shall continue as the Surviving Corporation.
(b) The Merger shall have the effects set forth in the MGCL. Accordingly,
from and after the Effective Time, the Surviving Corporation shall possess all
the rights, privileges, powers and franchises and be subject to all of the
restrictions, disabilities, liabilities and duties of Starwood Sub and TriNet.
Section 1.2. CLOSING. The closing of the Merger (the "CLOSING") will take
place at 10:00 a.m. New York City time on the fifth business day after
satisfaction or waiver of the conditions set forth in Article VI (the "CLOSING
DATE"), at the offices of Rogers & Wells LLP, 200 Park Avenue, New York, New
York 10166, unless another date or place is agreed to in writing by the parties.
Section 1.3. EFFECTIVE TIME. On the Closing Date, the parties shall
execute and file Articles of Merger or other appropriate documents in accordance
with the MGCL, and shall make all other filings or recordings required with
respect to the Merger under the MGCL. The Merger shall become effective upon
acceptance for record of the Articles of Merger by the State Department of
Assessments and Taxation of Maryland (the "SDAT") or at such other time or times
as may be agreed by Starwood, Starwood Sub and TriNet and specified in the
Articles of Merger but not exceeding 30 days after acceptance of the Articles of
Merger for record by the SDAT (the time the Merger becomes effective being the
"EFFECTIVE TIME"), it
A-2
<PAGE>
being understood that the parties shall cause the Effective Time to occur as
soon as practicable after the Closing Date.
Section 1.4. CHARTER AND BYLAWS. The charter and bylaws of Starwood Sub,
substantially in the forms set forth in EXHIBITS H and I hereto, shall, by
amendment of the charter and bylaws of TriNet in the manner provided by Maryland
law, become the charter (the "CHARTER") and bylaws (the "BYLAWS") of the
Surviving Corporation upon the Effective Time until further amended in
accordance with applicable Maryland law. The charter and bylaws of New Starwood,
substantially in the forms set forth in EXHIBITS J and K hereto, shall continue
to be in effect as the charter and bylaws of New Starwood as of and after the
Effective Time until amended in accordance with Maryland law.
Section 1.5. DIRECTORS. Immediately following the Effective Time, the
Board of Directors of New Starwood (the "NEW STARWOOD BOARD") and certain
committees of the New Starwood Board shall consist of the persons named on
SCHEDULE F hereto, each of whom shall be a member of the class indicated on
SCHEDULE F. Immediately following the Effective Time, the Board of Directors of
the Surviving Corporation shall consist of the persons named on SCHEDULE G
hereto. If any person referred to in the preceding sentences should for any
reason be unable or unwilling to serve, such person's replacement shall be
selected before the Effective Time by mutual agreement of Starwood, Starwood Sub
and TriNet or after the Effective Time by the New Starwood Board.
Section 1.6. OFFICERS. The executive officers of New Starwood immediately
following the Effective Time shall include the persons named on SCHEDULE H
hereto; the executive officers of the Surviving Corporation immediately
following the Effective Time shall include the persons named on Schedule I
hereto. Each executive officer shall hold the position indicated on SCHEDULES H
AND/OR I hereto. If any such person should for any reason be unable or unwilling
to serve, such person's replacement shall be selected before the Effective Time
by mutual agreement of Starwood, Starwood Sub and TriNet or after the Effective
Time by the New Starwood Board.
Section 1.7. ELECTION NOT TO PROCEED WITH INCORPORATION
MERGER. Notwithstanding anything in this Agreement to the contrary, if after
the date of this Agreement and before the mailing of the Proxy Statement (as
defined in Section 3.1(d)) Starwood reasonably determines that the consummation
of the Incorporation Merger would have an adverse impact on Starwood, Starwood
may elect not to proceed with the Incorporation Merger and Starwood shall
provide prompt written notice to TriNet of any such determination. In such
event, (i) all references in this Agreement and the exhibits hereto to "New
Starwood" shall be deemed to refer to and become references to Starwood and all
references to shares of common or preferred stock of New Starwood shall be
deemed to refer to and become references to common shares of beneficial interest
and preferred shares of beneficial interest of Starwood in each case MUTATIS
MUTANDIS and (ii) Starwood shall submit to its shareholders a proposal to amend
its declaration of trust and bylaws in the manner provided by Maryland law to
substantially conform such declaration of trust and bylaws, to the extent
permitted under applicable Maryland law governing Maryland real estate
investment trusts, to the forms of charter and bylaws of New Starwood,
respectively, set forth in EXHIBITS J and K hereto, including, without
limitation, to eliminate the Starwood Class B Common Shares and cause the
conversion of all Starwood Class B Common Shares into Starwood Class A Common
Shares on the basis of 49 Starwood Class B Common Shares for one Starwood Class
A Common Share and make such other changes as Starwood and TriNet mutually
agree. Starwood and TriNet agree to cooperate and work together in good faith to
amend and restate this Agreement and the exhibits hereto to give effect to any
determination made by Starwood in accordance with this Section 1.7.
A-3
<PAGE>
ARTICLE II
EFFECTS OF THE MERGER;
EXCHANGE OF CERTIFICATES
Section 2.1. EFFECT ON STOCK.
(a) STOCK OWNED BY TRINET OR ITS SUBSIDIARIES. As of the Effective Time,
any shares of capital stock of TriNet that are owned by TriNet or any TriNet
Subsidiary (as defined herein) automatically shall be cancelled and retired and
all rights with respect thereto shall cease to exist, and no consideration shall
be delivered in exchange therefor.
(b) CONVERSION OF TRINET STOCK INTO NEW STARWOOD STOCK. At the Effective
Time, except as provided in Section 2.1(a), (A) each issued and outstanding
share of TriNet Common Stock shall be converted by virtue of the Merger,
automatically and without any action on the part of the holder thereof, into
1.15 (the "EXCHANGE RATIO") fully paid and nonassessable shares of New Starwood
Common Stock, (B) each issued and outstanding share of TriNet Series A Preferred
Stock shall, by virtue of the Merger, automatically and without any action on
the part of the holder thereof, be converted into and continue to exist as one
fully paid and nonassessable share of 9 3/8% Series B Cumulative Redeemable
Preferred Stock, par value $.001 per share, of New Starwood ("NEW STARWOOD
SERIES B PREFERRED STOCK"), (C) each issued and outstanding share of TriNet
Series B Preferred Stock shall, by virtue of the Merger automatically and
without any action on the part of the holder thereof, be converted into and
continue to exist as one fully paid and nonassessable share of 9.2% Series C
Cumulative Redeemable Preferred Stock, par value $.001 per share, of New
Starwood ("NEW STARWOOD SERIES C PREFERRED STOCK") and (D) each issued and
outstanding share of TriNet Series C Preferred Stock shall, by virtue of the
Merger, automatically and without any action on the part of the holder thereof,
be converted into and continue to exist as one fully paid and nonassessable
share of 8% Series D Cumulative Redeemable Preferred Stock, par value $.001 per
share, of New Starwood ("NEW STARWOOD SERIES D PREFERRED STOCK"), and together
with the New Starwood Series B Preferred Stock and the New Starwood Series C
Preferred Stock, the "NEW STARWOOD PREFERRED STOCK"). The preferences, other
rights, voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of each
class of New Starwood Preferred Stock shall be as set forth in the Articles
Supplementary of New Starwood attached hereto as EXHIBIT L (the "NEW STARWOOD
ARTICLES SUPPLEMENTARY"), and are identical to the preferences, other rights,
voting powers, restrictions, limitations at to dividends and other
distributions, qualifications and terms and conditions of redemption of the
corresponding series of TriNet Preferred Stock except for the additional voting
rights of each class of New Starwood Preferred Stock. At the Effective Time,
each holder of a certificate representing any shares of TriNet Common Stock or
TriNet Preferred Stock (or affidavit of loss in lieu thereof) (a "CERTIFICATE")
shall cease to have any rights with respect thereto, except the right to
receive, upon surrender of such Certificate in accordance with Section 2.2(c), a
certificate or certificates representing the shares of New Starwood Common Stock
or New Starwood Preferred Stock, as applicable, into which those shares are
converted pursuant to this Section 2.1(b) and any cash in lieu of fractional
shares of New Starwood Common Stock to be issued or paid in consideration
therefor upon surrender of such certificate (the "MERGER CONSIDERATION") and any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.2(d), in each case without interest and less any required withholding
taxes. Notwithstanding the foregoing, the right of each TriNet shareholder to
receive shares of stock of New Starwood under this Section 2.1 will be subject
to the ownership limitations and other related provisions contained in New
Starwood's charter and bylaws.
(c) SHARES OF NEW STARWOOD AND STARWOOD SUB STOCK. Prior to the Effective
Time, the Board of Directors of Starwood will declare a stock dividend (the
"STOCK DIVIDEND") of a total of one million shares of New Starwood Common Stock
payable prior to the Effective Time pro rata to all holders of record of New
Starwood Common Stock as of a record date prior to the Effective Time to be
determined by New Starwood, with a provision for a cash payment in lieu of
fractional shares equal to the arithmetic mean of
A-4
<PAGE>
the closing sales price per share of the New Starwood Common Stock on the
principal stock exchange on which New Starwood Common Stock is then listed on
each of the three trading days immediately after the payment date for the Stock
Dividend. Upon the Effective Time, each share of stock of New Starwood
(including, but not limited to, shares of New Starwood outstanding as a result
of the Stock Dividend) and each share of stock of Starwood Sub outstanding
immediately prior to the Effective Time shall remain outstanding and shall
represent one share of validly issued, fully paid and nonassessable stock of the
same class and designation.
Section 2.2. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Starwood shall appoint a
bank or trust company that is reasonably acceptable to TriNet to act as exchange
agent (the "EXCHANGE AGENT") for the exchange of certificates representing
shares of stock of New Starwood for Certificates representing issued and
outstanding shares of TriNet Common Stock and TriNet Preferred Stock.
(b) STARWOOD TO PROVIDE MERGER CONSIDERATION. Starwood shall provide, or
cause to be provided, to the Exchange Agent on and after the Effective Time from
time to time as required pursuant to Section 2.2(c) and 2.2(g), for the benefit
of the holders of TriNet Common Stock and TriNet Preferred Stock, certificates
representing the shares of New Starwood Common Stock and New Starwood Preferred
Stock into which the issued and outstanding shares of TriNet Common Stock and
TriNet Preferred Stock are converted pursuant to Section 2.1(b), together with
the cash payable in respect of fractional shares pursuant to Section 2.2(g).
(c) EXCHANGE PROCEDURE. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
Certificate or Certificates whose shares were converted into the Merger
Consideration pursuant to Section 2.1, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in a form and have such other provisions as Starwood may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the applicable Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Starwood, together with such letter
of transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be entitled
to receive in exchange therefor the applicable Merger Consideration and any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.2(d), and the Certificate so surrendered shall forthwith be cancelled.
In the event of a transfer of ownership of TriNet Common Stock or TriNet
Preferred Stock which is not registered in the transfer records of TriNet,
payment may be made to a person other than the person in whose name the
Certificate so surrendered is registered if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such payment either shall pay any transfer or other taxes required by reason of
such payment being made to a person other than the registered holder of such
Certificate or establish to the satisfaction of Starwood that such tax or taxes
have been paid or are not applicable. Until surrendered as contemplated by this
Section 2.2, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the applicable
Merger Consideration, without interest, into which the shares theretofore
represented by such Certificate shall have been converted pursuant to Section
2.1 and any dividends or other distributions to which such holder is entitled
pursuant to Section 2.2(d). No interest will be paid or will accrue on the
applicable Merger Consideration upon the surrender of any Certificate or on any
amount payable pursuant to Section 2.2(d) or Section 2.2(g).
(d) RECORD DATES; DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES.
(i) To the extent reasonably necessary to ensure satisfaction of the
requirements of Section 857(a)(1) of the Code and to avoid the imposition of
federal income taxes for the taxable year of TriNet ending at the Effective
Time, TriNet shall authorize a dividend (the "FINAL TRINET DIVIDEND") to
A-5
<PAGE>
holders of shares of TriNet Common Stock, the record date for which shall be
the close of business on the last business day prior to the Effective Time,
in an amount sufficient to permit TriNet to satisfy such requirements. The
aggregate amount required by TriNet to pay any Final TriNet Dividend will be
deposited with the Exchange Agent by TriNet upon the Effective Time. If
TriNet determines it necessary to declare the Final TriNet Dividend, it
shall notify Starwood at least 10 days prior to the date for the TriNet
Shareholders Meeting (as defined in Section 5.1(b)), and Starwood shall
declare a dividend per share to holders of Starwood Common Stock (or New
Starwood Common Stock, if payable after the effective time of the
Incorporation Merger), the record date for which shall be the close of
business on the last business day prior to the Effective Time, in an amount
per share equal to the quotient obtained by dividing (x) the Final TriNet
Dividend per share of TriNet Common Stock paid by TriNet by (y) the Exchange
Ratio. The dividends payable hereunder to holders of TriNet Common Stock
shall be paid by the Exchange Agent upon presentation of the Certificates of
TriNet Common Stock for exchange in accordance with this Article II.
(ii) All shares of New Starwood Common Stock to be issued pursuant to
the Merger shall be deemed issued and outstanding as of the Effective Time
and whenever a dividend or other distribution is declared by New Starwood in
respect of the New Starwood Common Stock, the record date for which is at or
after the Effective Time, that declaration shall include dividends or other
distributions in respect of all shares of New Starwood Common Stock issuable
pursuant to this Agreement. Notwithstanding the foregoing, no dividends or
other distributions with respect to New Starwood Common Stock or New
Starwood Preferred Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Certificate with respect to the
shares represented thereby, and no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to Section 2.2(g), in each case
until the surrender of such Certificate in accordance with this Article II.
Subject to the effect of applicable abandoned property, escheat or similar
laws, in addition to the payment of any Final TriNet Dividend under Section
2.2(d)(i), following surrender of any such Certificate there shall be paid
to the holder of such Certificate without interest, (A) at the time of such
surrender, the amount of any cash payable in lieu of any fractional share of
TriNet Common Stock to which such holder is entitled pursuant to Section
2.2(g) and (B) if such Certificate is exchangeable for one or more whole
shares of New Starwood Common Stock or New Starwood Preferred Stock, (x) at
the time of such surrender, the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such whole shares of New Starwood Common Stock or New Starwood Preferred
Stock, and (y) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to
such surrender and with a payment date subsequent to such surrender payable
with respect to such whole shares of New Starwood Common Stock or New
Starwood Preferred Stock.
(e) NO FURTHER OWNERSHIP RIGHTS IN TRINET CAPITAL STOCK. All Merger
Consideration paid upon the surrender of Certificates in accordance with the
terms of this Article II (and any cash paid pursuant to Section 2.2(g)) shall be
deemed to have been paid in full satisfaction of all rights pertaining to the
shares of TriNet Common Stock and TriNet Preferred Stock theretofore represented
by such Certificates; subject, however, to the obligation of TriNet to pay,
without interest, any dividends, including any Final TriNet Dividend, or make
any other distributions with a record date prior to the Effective Time which may
have been declared or paid by TriNet on such shares in accordance with the terms
of this Agreement or prior to the date of this Agreement and which remain unpaid
at the Effective Time and have not been paid prior to such surrender, and there
shall be no further registration of transfers on the stock transfer books of
TriNet of the shares of TriNet Common Stock or TriNet Preferred Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are properly presented to New Starwood they shall be
cancelled and exchanged as provided in this Article II.
(f) UNCLAIMED MERGER CONSIDERATION. Any portion of the Merger
Consideration delivered to the Exchange Agent pursuant to this Agreement that
remains unclaimed for 12 months after the Effective
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Time shall be redelivered by the Exchange Agent to New Starwood, upon demand,
and any holders of Certificates who have not theretofore complied with Section
2.2(b) shall thereafter look only to New Starwood for delivery of the Merger
Consideration, subject to applicable abandoned property, escheat and other
similar laws. New Starwood shall have no liability to any holder of shares of
TriNet Common Stock or TriNet Preferred Stock for Merger Consideration delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law. Any Merger Consideration remaining unclaimed by any holder of
shares of TriNet Common Stock or TriNet Preferred Stock on the day immediately
prior to the time such amounts otherwise would escheat to or become the property
of any governmental entity shall, to the extent permitted by law, become the
property of New Starwood, free and clear of any claim or interest of any Persons
previously entitled thereto.
(g) NO FRACTIONAL SHARES.
(i) No certificates or scrip representing fractional shares of New
Starwood Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote, to receive dividends or to any other rights of a
stockholder of New Starwood.
(ii) Notwithstanding any other provision of this Agreement, each holder
of shares of TriNet Common Stock who would otherwise have been entitled to
receive a fraction of a share of New Starwood Common Stock (after taking
into account all Certificates delivered by such holder) shall receive, from
the Exchange Agent upon surrender of such holder's Certificates in
accordance with Section 2.1, a cash payment in lieu of such fractional
shares of New Starwood Common Stock equal to the same fractional proportion
of the arithmetic mean of the closing sales price per share of the New
Starwood Common Stock on the principal stock exchange on which the New
Starwood Common Stock is then listed (less, if New Starwood Common Stock is
trading CUM DIVIDEND on any of those days, the amount of the dividend, if
any, declared by Starwood pursuant to Section 2.2(d)) on each of the three
trading days immediately after the Closing Date.
(h) WITHHOLDING. New Starwood or the Exchange Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement to any holder of shares of TriNet Common Stock or TriNet
Preferred Stock such amounts as New Starwood or the Exchange Agent is required
to deduct and withhold with respect to the making of such payment under the
Code, or any provision of state, local or foreign tax law. To the extent that
amounts are so withheld by New Starwood or the Exchange Agent, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of the shares of TriNet Common Stock or TriNet Preferred Stock, as
the case may be, in respect of which such deduction and withholding was made by
New Starwood or the Exchange Agent.
(i) NO DISSENTERS' RIGHTS. No dissenters' or appraisal rights shall be
available with respect to the Merger.
(j) ADJUSTMENTS TO PREVENT DILUTION. In the event that TriNet changes the
number of shares of TriNet Common Stock or securities convertible or
exchangeable into or exercisable for such shares, or Starwood or New Starwood
changes the number of shares of New Starwood Common Stock or securities
convertible or exchangeable into or exercisable for shares of New Starwood
Common Stock, issued and outstanding prior to the Effective Time as a result of
a reclassification, stock split (including a reverse split), stock dividend or
distribution, recapitalization, merger, subdivision, issuer tender or exchange
offer, or other similar transaction involving TriNet, Starwood or New Starwood,
the Merger Consideration and the Exchange Ratio shall be equitably adjusted.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. REPRESENTATIONS AND WARRANTIES OF TRINET. Except as set forth
in the letter of even date herewith (with sections organized in accordance with
Section 9.9) signed by the President or Chief Executive Officer and the Chief
Financial Officer of TriNet and delivered to Starwood prior to the execution of
this Agreement (the "TRINET DISCLOSURE LETTER"), TriNet represents and warrants
to Starwood as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER OF TRINET. TriNet is a
corporation duly organized and validly existing under the laws of the State of
Maryland and has the requisite corporate power and authority to carry on its
business as now being conducted. TriNet is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership, leasing of its properties or management of properties
for others makes such qualification or licensing necessary, except where the
failure to be so qualified or licensed, individually or in the aggregate, would
not have a material adverse effect on the business, properties, financial
condition or results of operations of TriNet and the TriNet Subsidiaries, taken
as a whole (a "TRINET MATERIAL ADVERSE EFFECT"; for purposes of this agreement,
however, "TriNet Material Adverse Effect" does not include any such effect
directly resulting from or directly attributable to (i) the execution of this
Agreement and each Ancillary Agreement to which TriNet is a party or the
proposed consummation of the transactions contemplated by this Agreement and
each Ancillary Agreement to which TriNet is a party or the public announcement
thereof and (ii) changes in the U.S. economy, the U.S. securities markets, the
real estate industry or the real estate finance industry that generally affect,
to the same extent, all participants in the industries in which TriNet operates,
or changes in law.
(b) TRINET SUBSIDIARIES; INTERESTS IN OTHER PERSONS.
(i) Section 3.1(b)(i) of the TriNet Disclosure Letter sets forth each
TriNet Subsidiary and the ownership interest therein of TriNet and each
other TriNet Subsidiary. All the outstanding shares of capital stock of each
TriNet Subsidiary that is a corporation have been duly authorized and
validly issued and are fully paid and nonassessable and are not subject to
any preemptive rights, and are owned by TriNet, by another TriNet Subsidiary
or by TriNet and another TriNet Subsidiary, free and clear of all pledges,
claims, liens, charges, encumbrances and security interests of any kind or
nature whatsoever (collectively, "LIENS"), and equity interests in each
TriNet Subsidiary that is a partnership, limited liability company or trust
have been duly authorized, validly issued, and are owned by TriNet, by
another TriNet Subsidiary or by TriNet and another TriNet Subsidiary free
and clear of all Liens. Each TriNet Subsidiary is duly organized and validly
existing under the laws of its jurisdiction of organization and has the
requisite power and authority to carry on its business as now being
conducted. Each TriNet Subsidiary is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of
its business or the ownership, leasing of its properties or management of
properties for others makes such qualification or licensing necessary,
except where the failure to be so qualified or licensed, individually or in
the aggregate, would not reasonably be expected to result in a TriNet
Material Adverse Effect.
(ii) Except for the capital stock of, or other equity interests in, the
TriNet Subsidiaries, TriNet does not own, directly or indirectly (including
through any TriNet Subsidiary), any capital stock or other equity interest,
with a fair market value as of the date of this Agreement greater than
$1,000,000 in any Person or which represents 5% or more of the outstanding
voting power, capital stock or other ownership interest of any class in any
Person. Section 3.1(b)(ii) of the TriNet Disclosure Letter indicates each
TriNet Managed Subsidiary. Neither TriNet nor any TriNet Subsidiary is in
default of any provision of any material documents governing or otherwise
relating to its rights in any TriNet Subsidiary other than such defaults
that would not, individually or in the aggregate, reasonably be expected to
result in a TriNet Material Adverse Effect. All such documents, other than
the charter and
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bylaws of any TriNet Subsidiary which is a corporation, are set forth in
Section 3.1(b)(ii) of the TriNet Disclosure Letter and are in full force and
effect and true and correct copies of all such documents have been
previously delivered or made available to Starwood.
(iii) There are no outstanding contractual obligations of TriNet or any
TriNet Subsidiary to repurchase, redeem or otherwise acquire any shares of
stock of TriNet or any capital stock, voting securities or other ownership
interests in TriNet or any TriNet Subsidiary, and there are no outstanding
contractual obligations of TriNet or any TriNet Subsidiary to make any
investment of $500,000 or more, individually, or more than $2,000,000 in the
aggregate during the 12 months after the Effective Time (in each case, in
the form of a loan, capital contribution or otherwise) in any Person (other
than a TriNet Subsidiary).
(c) CAPITAL STRUCTURE. The authorized stock of TriNet consists of
40,000,000 shares of TriNet Common Stock, 15,000,000 shares of TriNet Preferred
Stock and 25,000,000 shares of excess stock, par value $.01 per share. As of
June 1, 1999, (i) 24,946,094 shares of TriNet Common Stock, 2,000,000 shares of
TriNet Series A Preferred Stock, 1,300,000 shares of TriNet Series B Preferred
Stock and 4,000,000 shares of TriNet Series C Preferred Stock constitute all of
the issued and outstanding shares of stock of TriNet, (ii) no options to
purchase shares of TriNet Common Stock were available for issuance under
TriNet's 1993 Stock Incentive Plan, (iii) options to purchase 11,084 shares of
TriNet Common Stock were available for issuance under TriNet's 1995 Stock
Incentive Plan, (iv) options to purchase 620,577 shares of TriNet Common Stock
were available for issuance under TriNet's 1997 Stock Incentive Plan (the 1993
Stock Incentive Plan, the 1995 Stock Incentive Plan and the 1997 Stock Incentive
Plan are collectively referred to as the "TRINET STOCK PLANS"), (v) no shares of
TriNet Common Stock were issued but had not yet vested under restricted stock
grants made pursuant to the TriNet Stock Plans, (vi) 1,615,225 shares of TriNet
Common Stock were reserved for issuance upon exercise of outstanding stock
options to purchase shares of TriNet Common Stock granted to employees and
directors of TriNet under the TriNet Stock Plans (the "TRINET STOCK OPTIONS")
and (vii) 500,000 shares of TriNet's Series D Junior Participating Preferred
Stock were reserved for issuance pursuant to the Rights Agreement (as defined in
Section 3.1(q)). On the date of this Agreement, except as set forth above in
this Section 3.1(c), no shares of stock or other voting securities of TriNet
were issued, reserved for issuance or outstanding. There are no outstanding
stock appreciation rights relating to the capital stock of TriNet. All
outstanding shares of stock of TriNet are duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights. There are no bonds,
debentures, notes or other indebtedness of TriNet having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which shareholders of TriNet may vote. Except as set forth in
this Section 3.1(c), there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which TriNet or any TriNet Subsidiary is a party or by which such entity is
bound, obligating TriNet or any TriNet Subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock,
voting securities or other ownership interests of TriNet or any TriNet
Subsidiary or obligating TriNet or any TriNet Subsidiary to issue, grant, extend
or enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking other than to TriNet or a TriNet
Subsidiary other than to a wholly owned TriNet Subsidiary; Section 3.1(c) of the
TriNet Disclosure Letter sets forth the amount of any such securities issuable
by TriNet on an agreement by agreement basis.
(d) AUTHORITY; NONCONTRAVENTION; CONSENTS. TriNet has the requisite
corporate power and authority to enter into this Agreement and each Ancillary
Agreement to which TriNet is a party and, subject to receipt of the TriNet
Shareholder Approval, to consummate the transactions contemplated by this
Agreement (including the Ancillary Agreements to which TriNet is a party). The
execution and delivery of this Agreement and any other agreement contemplated by
this Agreement (including the Ancillary Agreements to which TriNet is a party)
by TriNet and the consummation by TriNet of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action on the
part of TriNet, subject to receipt of the TriNet Shareholder Approval. This
Agreement and each Ancillary Agreement to which TriNet is a party have been duly
executed and delivered by TriNet and constitute the
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valid and binding obligations of TriNet enforceable against TriNet in accordance
with their terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and to general principles of equity. The execution
and delivery of this Agreement and each Ancillary Agreement to which TriNet is a
party by TriNet does not, and the consummation of the transactions contemplated
hereby and thereby and compliance by TriNet with the provisions of this
Agreement and each Ancillary Agreement to which TriNet is a party does not and
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any material obligation or to loss
of a material benefit under, or result in the creation of any Lien upon any of
the properties or assets of TriNet or any TriNet Subsidiary under, (i) the
charter or bylaws of TriNet or the comparable charter or organizational
documents or partnership or similar agreement (as the case may be) of any TriNet
Subsidiary, each as amended, restated or supplemented to the date of this
Agreement; (ii) any loan or credit agreement, note, bond, mortgage, indenture,
reciprocal easement agreement, lease or other agreement, instrument, permit,
concession, contract, franchise or license applicable to TriNet or any TriNet
Subsidiary or their respective properties or assets or (iii) subject to the
governmental filings and other matters referred to in the following sentence,
any judgment, order, decree, statute, law, ordinance, rule or regulation
(collectively, "LAWS") applicable to TriNet, any TriNet Subsidiary or their
respective properties or assets, other than, in the case of clause (ii) or
(iii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) reasonably be expected to result
in a TriNet Material Adverse Effect or (y) materially delay or prevent the
consummation of the Merger. No consent, approval, order or authorization of, or
registration, declaration or filing with, any federal, state or local government
or any court, administrative or regulatory agency or commission or other
governmental authority or agency (a "GOVERNMENTAL ENTITY"), is required by or
with respect to TriNet or any TriNet Subsidiary in connection with the execution
and delivery of this Agreement or any Ancillary Agreement to which TriNet is a
party or the other agreements contemplated by this Agreement by TriNet or the
consummation by TriNet and the TriNet Subsidiaries of any of the other
transactions contemplated hereby and thereby, except for (i) the filing with the
SEC of (x) a joint proxy statement relating to the approval by TriNet's
shareholders and Starwood's shareholders of the transactions contemplated by
this Agreement and, as to Starwood's shareholders, the Incorporation Merger
Agreement and the Advisor Transaction Agreement (as amended or supplemented from
time to time, the "PROXY STATEMENT") and a registration statement relating to
the issuance of the Merger Consideration and the New Starwood Common Stock to be
issued in the Advisor Transaction (the "REGISTRATION STATEMENT"), and (y) such
reports under Section 13 and 16 of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), as may be required in connection with this
Agreement and the transactions contemplated by this Agreement, (ii) the
acceptance for record of the Articles of Merger for the Merger by the SDAT,
(iii) such filings as may be required in connection with the payment of any
Transfer and Gains Taxes (as defined below), and (iv) such other consents,
approvals, orders, authorizations, registrations, declarations and filings as
are set forth in Section 3.1(d) of the TriNet Disclosure Letter or (A) as may be
required under (x) federal, state, local or foreign environmental laws or (y)
the "blue sky" laws of various states or (B) which, if not obtained or made,
would not prevent or delay in any material respect the consummation of any of
the transactions contemplated by this Agreement or any Ancillary Agreement or
otherwise prevent TriNet from performing its obligations hereunder or thereunder
in any material respect or be reasonably expected to result, individually or in
the aggregate, in a TriNet Material Adverse Effect.
(e) SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. TriNet
has filed all reports, schedules, forms, statements and other documents required
to be filed with the SEC since January 1, 1996 (collectively, the "TRINET SEC
DOCUMENTS"). All of the TriNet SEC Documents (other than preliminary materials
or materials that were subsequently amended), as of their respective filing
dates, complied in all material respects with all applicable requirements of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), and the Exchange Act
and, in each case, the rules and regulations promulgated thereunder applicable
to such TriNet SEC Documents. None of the TriNet SEC Documents at the time of
filing contained any untrue statement of a material fact or omitted to state any
material fact required to be
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stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except to the
extent such statements have been amended, modified or superseded by later filed
TriNet SEC Documents. None of the TriNet SEC Documents is, as of the date
hereof, the subject of any confidential treatment request by TriNet. Except to
the extent such statements have been amended, modified or superseded by later
TriNet Filed SEC Documents (as defined below), the consolidated financial
statements of TriNet, as applicable, included in the TriNet SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles ("GAAP") (except, in the case of interim financial statements, as
permitted by the applicable rules and regulations of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly presented in all material respects, in accordance with
the applicable requirements of GAAP, the consolidated financial position of
TriNet and the TriNet Subsidiaries taken as a whole, as of the dates thereof and
the consolidated results of operations and cash flows for the periods then ended
(subject, in the case of interim financial statements, to normal year-end
adjustments). Except as set forth in the TriNet SEC Documents filed with the SEC
prior to the date of this Agreement (the "TRINET FILED SEC DOCUMENTS"), neither
TriNet nor any TriNet Managed Subsidiary has, nor, to TriNet's Knowledge, does
any TriNet Non-Managed Subsidiary have, any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) required by GAAP to
be set forth on a consolidated balance sheet of TriNet or in the notes thereto
and which, individually or in the aggregate, would reasonably be expected to
result in a TriNet Material Adverse Effect.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
TriNet Filed SEC Documents since December 31, 1998 (the "TRINET FINANCIAL
STATEMENT DATE") and to the date of this Agreement, TriNet, the TriNet Managed
Subsidiaries and, to TriNet's Knowledge, the TriNet Non-Managed Subsidiaries
have conducted their business only in the ordinary course and there has not been
(i) any events which have occurred or circumstances which have arisen that,
individually or in the aggregate have resulted in or would reasonably be
expected to result in a TriNet Material Adverse Effect, (ii) any declaration,
setting aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to any of TriNet's stock, except for (A) regular
quarterly dividends on the TriNet Common Stock not in excess of $.65 per share
of TriNet Common Stock, (B) regular quarterly dividends on TriNet Series A
Preferred Stock not in excess of $.585938 per share of TriNet Series A Preferred
Stock, (C) regular quarterly dividends on TriNet Series B Preferred Stock not in
excess of $.575 per share of TriNet Series B Preferred Stock, (D) regular
quarterly dividends on TriNet Series C Preferred Stock not in excess of $.50 per
share of TriNet Series C Preferred Stock and (E) any distributions by any TriNet
Subsidiaries to other TriNet Subsidiaries or to TriNet, (iii) any split,
combination or reclassification of any of TriNet's stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for, or giving the right to acquire by exchange or exercise,
shares of its stock or any issuance of an ownership interest in, any TriNet
Subsidiary that is not wholly owned by TriNet, (iv) any damage, destruction or
loss, whether or not covered by insurance, that individually or in the aggregate
has resulted in or would reasonably be expected to result in a TriNet Material
Adverse Effect or (v) any change in accounting methods, principles or practices
materially affecting its assets, liabilities or business, except insofar as may
have been disclosed in the TriNet SEC Documents filed with the SEC prior to the
date of this Agreement or required by a change in applicable Law or GAAP. All
dividends on TriNet Common Stock and TriNet Preferred Stock which have been
declared prior to the date of this Agreement have been paid in full, except for
(i) the dividend in the amount of $.65 per share that is payable to holders of
record of TriNet Common Stock on June 30, 1999 and the dividends in the amount
of $.585938, $.575 and $.50 that is payable to holders of record on June 15,
1999 of TriNet Series A Preferred Stock, TriNet Series B Preferred Stock and
TriNet Series C Preferred Stock, respectively, and (ii) dividends which the
failure to pay has not resulted in and would not reasonably be expected to
result in a TriNet Material Adverse Effect.
(g) LITIGATION. Except as disclosed in the TriNet Filed SEC Documents, and
other than personal injury and other routine tort litigation arising from the
ordinary course of operations of TriNet and the
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TriNet Subsidiaries which are covered by adequate insurance, there is no suit,
action or proceeding pending (in which service of process has been received by
an employee of TriNet) or, to the Knowledge of TriNet, threatened against or
affecting TriNet or any TriNet Managed Subsidiary or, to the Knowledge of
TriNet, any TriNet Non-Managed Subsidiary that, individually or in the
aggregate, would reasonably be expected to (i) result in a TriNet Material
Adverse Effect or (ii) prevent the consummation of any of the transactions
contemplated herein, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against TriNet or any
TriNet Managed Subsidiary or to the Knowledge of TriNet any TriNet Non-Managed
Subsidiary having or that would have, any such effect. Section 3.1(g) of the
TriNet Disclosure Letter lists and briefly describes each litigation pending
against TriNet, any TriNet Managed Subsidiary or, to the Knowledge of TriNet,
any TriNet Non-Managed Subsidiary, other than personal injury and routine tort
litigation arising from the ordinary course of business of TriNet and the TriNet
Subsidiaries, which would reasonably be expected to result in a TriNet Material
Adverse Effect.
(h) ABSENCE OF CHANGES IN BENEFIT PLANS; ERISA COMPLIANCE.
(i) Except as disclosed in the TriNet Filed SEC Documents, since the
TriNet Financial Statement Date, there has not been any adoption or
amendment in any material respect, or the undertaking of any additional
obligation, by TriNet, any TriNet Subsidiary or any TriNet ERISA Affiliate
(as defined below) of any TriNet Benefit Plan (as defined below). For
purposes of this Agreement, "TRINET BENEFIT PLAN" shall mean any Employee
Plan sponsored or maintained by TriNet, any TriNet Subsidiary or any TriNet
ERISA Affiliate, or with respect to which TriNet, any TriNet Subsidiary or
any TriNet ERISA Affiliate has any obligation to contribute, has liability
under or is otherwise a party to, or which otherwise provides benefits for
any current or former employees, officers, directors or other independent
contractors (or their dependents and beneficiaries) of TriNet or any TriNet
Subsidiary. For purposes of this Agreement, "TRINET ERISA AFFILIATE" means
any entity required to be aggregated with any of TriNet or any TriNet
Subsidiary under Sections 414(b), (c), (m) or (o) of the Code or Section
4001 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Section 3.1(h)(i) of the TriNet Disclosure Letter sets forth each
TriNet Benefit Plan.
(ii) Except as described in the TriNet Filed SEC Documents or as would
not reasonably be expected to result in a TriNet Material Adverse Effect,
(A) all TriNet Benefit Plans, including any such plan that is an "employee
benefit plan" as defined in Section 3(3) of ERISA, have been made available
to Starwood and are in compliance with the terms of such plan and all
applicable requirements of law, including ERISA and the Code and, without
limitation, the requirements of ERISA and all tax rules for which favorable
tax treatment is intended, and (B) there are no liabilities or obligations
with respect to any such TriNet Benefit Plan, whether accrued, contingent or
otherwise (other than obligations by TriNet and the TriNet Subsidiaries to
make contributions, and for such plan to pay benefits and administrative
costs, incurred in the ordinary course), nor to the Knowledge of TriNet are
any such liabilities or obligations expected to be incurred. The execution
of, and performance of the transactions contemplated in, this Agreement will
not (either alone or together with the occurrence of any additional or
subsequent events) constitute an event under any TriNet Benefit Plan,
policy, program, arrangement or agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any employee or director, will
not result in any "golden parachute payments" being due (as defined for
purposes of Section 280G of the Code), or result in any breach or violation
of, or a default under, any of the TriNet Benefit Plans. The only severance
agreements or severance policies applicable to TriNet or the TriNet
Subsidiaries are the agreements and policies specifically referred to in
Section 3.1(h)(ii) of the TriNet Disclosure Letter.
(iii) Without limiting the foregoing, each TriNet Benefit Plan which is
intended to be tax-qualified under Section 401(a) of the Code has been
determined by the IRS to be so qualified and
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such determination has not been modified, revoked or limited, and no
circumstances have occurred that would adversely affect the tax-qualified
status of any such plan. No TriNet Benefit Plan is or has ever been subject
to Part III of Subtitle B of Title I of ERISA or Title IV of ERISA or
Section 412 of the Code. None of TriNet or any TriNet Subsidiary, or any
"party in interest" (as defined in Section 3(14) of ERISA) or any
"disqualified person" (as defined in Section 4975 of the Code) with respect
to any TriNet Benefit Plan, has engaged in a non-exempt "prohibited
transaction" within the meaning of Section 4975 of the Code or Section 406
of ERISA that would reasonably be expected to result in a TriNet Material
Adverse Effect. No TriNet Benefit Plan provides for health or life insurance
for employees after termination of employment (except as required by law).
(iv) All of the TriNet Stock Options issued under the TriNet 1997 Stock
Incentive Plan have been issued to directors of TriNet.
(i) TAXES.
(i) Each of TriNet, each TriNet Managed Subsidiary and, to the
Knowledge of TriNet, each TriNet Non-Managed Subsidiary has timely filed all
Tax Returns and reports required to be filed by it (after giving effect to
any filing extension properly granted by a Governmental Entity having
authority to do so). Each such Tax Return is true, correct and complete in
all material respects except as disclosed in writing to Starwood. TriNet,
each TriNet Managed Subsidiary and to the Knowledge of TriNet, each TriNet
Non-Managed Subsidiary has paid (or TriNet has paid on their behalf), within
the time and manner prescribed by law, all Taxes that are due and payable
except as otherwise disclosed in writing to Starwood. The United States
federal income Tax Returns of TriNet, each TriNet Managed Subsidiary and, to
the Knowledge of TriNet, each TriNet Non-Managed Subsidiary have not been
audited by any Governmental Entity responsible for tax matters (a "TAXING
AUTHORITY"). There are no audits by any Taxing Authority currently being
conducted with regard to Taxes or Tax Returns of TriNet, any TriNet Managed
Subsidiary or, to the Knowledge of TriNet, any TriNet Non-Managed
Subsidiary, and, to the Knowledge of TriNet, there are no pending audits or
current inquiries being made by any Taxing Authority with respect to any
Taxes or Tax Returns. The most recent financial statements contained in the
TriNet SEC Documents filed with the SEC prior to the date of this Agreement
reflect an adequate reserve for all material Taxes (including real estate
taxes) payable by TriNet, by each TriNet Managed Subsidiary and, to the
Knowledge of TriNet, each TriNet Non-Managed Subsidiary for all taxable
periods and portions thereof through the date of such financial statements.
Since the TriNet Financial Statement Date, TriNet has incurred no liability
for federal taxes, other than withholding and employment taxes, under the
Code or IRS Notice 88-19. To the Knowledge of TriNet, no event has occurred,
and no condition or circumstance exists, which presents a material risk that
any material Tax described in the preceding sentence will be imposed upon
TriNet or any TriNet Subsidiary. No deficiencies for any Taxes have been
proposed, asserted or assessed against TriNet or any of the TriNet
Subsidiaries and no requests for waivers of the time to assess any such
Taxes have been granted and remain in effect or are pending. As used in this
Agreement, "TAXES" or "TAX" shall mean any federal, state, local or foreign
income, gross receipts, license, payroll, employment withholding, property,
recording, stamp, sales, excise or other tax or similar governmental charges
of any nature whatsoever, together with any penalties, interest or additions
thereto and "TAX RETURN" shall mean any return, declaration, report, claim
for refund, or information return or statement relating to Taxes, including
any schedule or attachment thereto, and including any amendment thereof.
(ii) TriNet (A) for each taxable year beginning with the taxable year
ended on December 31, 1993, has been subject to taxation as a REIT within
the meaning of the Code and has satisfied the requirements to qualify as a
REIT for such years, (B) has operated, and intends to continue to operate,
in such a manner as to qualify as a REIT through the end of its taxable year
ending at the Effective Time and (C) has not taken or omitted to take any
action which could reasonably be expected to result in a challenge to its
status as a REIT, and no such challenge is pending or, to
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TriNet's Knowledge, threatened. Each TriNet Subsidiary which is a
partnership or limited liability company or files Tax Returns as a
partnership for federal income tax purposes has since its acquisition by
TriNet been classified for federal income tax purposes as a partnership or
disregarded entity and not as an association taxable as a corporation, or a
"publicly traded partnership" within the meaning of Section 7704(b) of the
Code that is treated as a corporation for federal income tax purposes under
Section 7704(a) of the Code. Neither TriNet nor any TriNet Subsidiary holds
any asset (x) the disposition of which would be subject to rules similar to
Section 1374 of the Code as announced in IRS Notice 88-19 or (y) that is
subject to a consent filed pursuant to Section 341(f) of the Code and the
regulations thereunder.
(iii) As of the date hereof, TriNet does not have any earnings and
profits attributable to TriNet or any other corporation in any non-REIT year
within the meaning of Section 857 of the Code.
(iv) To the Knowledge of TriNet, TriNet qualifies as a "domestically
controlled" REIT within the meaning of Section 897(h)(4)(B) of the Code, as
of the date hereof.
(j) NO LOANS OR PAYMENTS TO EMPLOYEES, OFFICERS OR DIRECTORS. Except as
disclosed in the TriNet Filed SEC Documents or as otherwise specifically
provided for in this Agreement, there is no (i) loan outstanding from or to any
employee, officer or director of TriNet or any TriNet Subsidiary which, in the
aggregate together with all such loans, has a principal amount in excess of
$500,000, (ii) employment or severance agreement which, in the aggregate
together with all such agreements, provides for payments in excess of $500,000
by TriNet or any TriNet Subsidiary or material consulting contract, or any
material policy, agreement, program or arrangement of TriNet or any TriNet
Subsidiary, (iii) agreement which, in the aggregate together with all other
agreements, requires material payments to be made on a change of control or
otherwise as a result of the consummation of the Merger or any of the other
transactions contemplated by this Agreement with respect to any employee,
officer or director of TriNet or any TriNet Managed Subsidiary or, to the
Knowledge of TriNet, any TriNet Non-Managed Subsidiary or (iv) any agreement to
appoint or nominate any person as a director of TriNet, any TriNet Managed
Subsidiary or, to the Knowledge of TriNet, any TriNet Non-Managed Subsidiary.
(k) BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment banker,
financial advisor or other person, other than Greenhill & Co., LLC
("GREENHILL"), the fees and expenses of which, as set forth in a letter
agreement between TriNet and such financial advisor, have previously been
disclosed to Starwood and will be paid by TriNet, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the Merger or any of the other transactions contemplated by this Agreement
based upon arrangements made by or on behalf of TriNet or any TriNet Subsidiary.
(l) COMPLIANCE WITH LAWS. Except as disclosed in the TriNet Filed SEC
Documents, none of TriNet, any of the TriNet Managed Subsidiaries and, to the
Knowledge of TriNet, any of the TriNet Non-Managed Subsidiaries has violated or
failed to comply with any statute, law, ordinance, regulation, rule, judgment,
decree or order of any Governmental Entity applicable to its business,
properties or operations, except for violations and failures to comply that
would not, individually or in the aggregate, reasonably be expected to result in
a TriNet Material Adverse Effect.
(m) CONTRACTS; DEBT INSTRUMENTS.
(i) None of TriNet, any TriNet Managed Subsidiary and, to TriNet's
Knowledge, any TriNet Non-Managed Subsidiary has received written notice
that it is in violation of or in default under, in any material respect (nor
does there exist any condition which upon the passage of time or the giving
of notice or both would cause such a violation of or default under), any
material loan or credit agreement, note, bond, mortgage or indenture or any
material lease, permit, concession, franchise or license, or any material
agreement to acquire real property, or any other material contract,
agreement, arrangement or understanding, to which it is a party or by which
it or any of its properties or assets is bound, except for violations or
defaults that would not, individually or in the aggregate, reasonably be
expected to result in a TriNet Material Adverse Effect.
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(ii) Section 3.1(m)(ii) of the TriNet Disclosure Letter sets forth (A)
a detailed list of all indebtedness of TriNet, the TriNet Managed
Subsidiaries and, to TriNet's Knowledge, the TriNet Non-Managed
Subsidiaries, under which an aggregate principal amount in excess of
$5,000,000 per item is outstanding or may be incurred, other than (i)
indebtedness payable to TriNet or a wholly owned TriNet Subsidiary and (ii)
indebtedness which is reflected in the financial statements set forth in
TriNet Filed SEC Documents and (B) the respective principal amounts
outstanding thereunder or, in the case of financial products the notional
amounts thereof, on March 31, 1999. For purposes of this Section 3.1(m)(ii)
and Section 3.2(m)(ii), "INDEBTEDNESS" shall mean, with respect to any
person, without duplication, (A) all indebtedness of such person for
borrowed money, whether secured or unsecured, (B) all obligations of such
person under conditional sale or other title retention agreements relating
to property purchased by such person, (C) all capitalized lease obligations
of such person, (D) all obligations of such person under interest rate or
currency hedging transactions (valued at the termination value thereof), and
(E) all guarantees of such person of any such indebtedness of any other
person. TriNet has previously delivered or made available to Starwood true
and correct copies of all of the material agreements relating to the
indebtedness disclosed in Section 3.1(m)(ii) of the TriNet Disclosure
Letter.
(iii) None of TriNet, any TriNet Managed Subsidiary and, to TriNet's
Knowledge, any TriNet Non-Managed Subsidiary has entered into or is subject,
directly or indirectly, to any TriNet Tax Protection Agreements. As used
herein, a "TRINET TAX PROTECTION AGREEMENT" is an agreement, oral or
written, (A) that has as one of its purposes to permit a Person to take the
position that such Person could defer federal taxable income that otherwise
might have been recognized upon a transfer of property to TriNet or a TriNet
Subsidiary or attributable to the acquisition or ownership of an interest in
any TriNet Subsidiary that is treated as a partnership for federal income
tax purposes and (B) that (i) prohibits or restricts in any manner the
disposition of any assets of TriNet or any TriNet Subsidiary, (ii) requires
that TriNet or any TriNet Subsidiary maintain, increase or put in place, or
replace, indebtedness, whether or not secured by one or more of the TriNet
Properties or (iii) requires that TriNet or any TriNet Subsidiary offer to
any person or entity at any time the opportunity to guarantee or otherwise
assume, directly or indirectly, the risk of loss for federal income tax
purposes for indebtedness or other liabilities of TriNet or any TriNet
Subsidiary.
(n) ENVIRONMENTAL MATTERS. Except as disclosed in the TriNet Filed SEC
Documents, (i) none of TriNet or the TriNet Subsidiaries or, to TriNet's
Knowledge, any other Person has caused or permitted the presence of any
hazardous substances, hazardous materials, toxic substances or waste materials
(collectively, "HAZARDOUS MATERIALS") or under any of the TriNet Properties and
none of TriNet or the TriNet Subsidiaries has any Knowledge of the presence of
any Hazardous Materials on or under any of the TriNet Properties except to the
extent the presence of such Hazardous Materials would not, individually or in
the aggregate, reasonably be expected to result in a TriNet Material Adverse
Effect, (ii) none of TriNet or any of the TriNet Subsidiaries or, to TriNet's
Knowledge, any other Person, has caused or permitted any unlawful spills,
releases, discharges or disposal of Hazardous Materials to have occurred or be
presently occurring on or from the TriNet Properties as a result of any
construction on or operation or use of such properties and none of TriNet or any
of the TriNet Subsidiaries has any Knowledge of any spills, releases, discharges
or disposal of Hazardous Materials having occurred or presently occurring on,
under or from the TriNet Properties as a result of any construction on or
operation or use of any such property, in each of the foregoing cases, which
presence or occurrence would, individually or in the aggregate, reasonably be
expected to result in a TriNet Material Adverse Effect; (iii) in connection with
the construction on or operation and use of the TriNet Properties, TriNet and
the TriNet Managed Subsidiaries and, to TriNet's Knowledge, the TriNet
Non-Managed Subsidiaries, have not failed to comply in any material respect with
any applicable local, state and federal environmental law, regulation, ordinance
or administrative and judicial orders relating to the generation, recycling,
reuse, sale, storage, handling, transport and disposal of any Hazardous
Materials (any of the foregoing, an "ENVIRONMENTAL LAW"), except to the extent
such failure to comply would not, individually or in the aggregate, reasonably
be expected to result in a TriNet Material
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Adverse Effect. TriNet has previously delivered or made available to Starwood
complete copies of all reports on and results of investigations, testing or
analysis that are in the possession of or available to any of them with respect
to the environmental condition of the TriNet Properties or with respect to
environmental compliance of operations conducted on or from any such Property.
(o) TRINET PROPERTIES.
(i) TriNet, a TriNet Subsidiary or, to the Knowledge of TriNet, a
TriNet Non-Managed Subsidiary owns fee simple title to or has a valid
leasehold interest in, each of the real properties reflected on the most
recent balance sheet of TriNet included in the TriNet Filed SEC Documents or
as identified in Section 3.1(o) of the TriNet Disclosure Letter (the "TRINET
PROPERTIES"), which are all of the real estate properties owned or leased by
them, free and clear of liens, mortgages or deeds of trust, claims against
title, charges which are liens, security interests or other encumbrances on
title, any rights of way, written agreements or reservations of an interest
in title ("TRINET ENCUMBRANCES") except for (a) debt or other liabilities
identified on Section 3.1(m)(ii) of the TriNet Disclosure Letter, (b)
inchoate liens imposed for construction work in progress, (c) mechanics',
workmen's and repairmen's liens (other than inchoate liens for work in
progress) which have heretofore been bonded over or which, individually or
in the aggregate, are not reasonably expected to result in a TriNet Material
Adverse Effect or the discharge of which is the responsibility of a lessee
of the applicable TriNet Property, (d) Taxes not yet due and payable or
which are being contested in good faith with adequate reserves as required
by GAAP, (e) leases entered into in the ordinary course of TriNet's business
and subleases under such leases as tenants only with no options to purchase
except as listed on Section 3.1(o) of the TriNet Disclosure Letter, (f)
matters affecting title to multi-tenant office real estate a portion of
which has been leased to TriNet or a TriNet Subsidiary, as tenants only,
primarily for office purposes (each such lease, a "TRINET OFFICE SPACE
LEASE") and (g) other TriNet Encumbrances, if any, which would not,
individually or in the aggregate, reasonably be expected to result in a
TriNet Material Adverse Effect;
(ii) Valid policies of title insurance have been issued insuring
TriNet's or a TriNet Subsidiary's fee simple title or leasehold estate to
the TriNet Properties (other than leasehold estates consisting of a tenant's
interest under the TriNet Office Space Leases) except as noted therein, and
such policies are, at the date hereof, in full force and effect and no claim
has been made against any such policy which is currently pending which
would, if determined adversely, individually or in the aggregate, reasonably
be expected to result in a TriNet Material Adverse Effect (with respect to
TriNet Non-Managed Subsidiaries, the foregoing representation is made only
to the Knowledge of TriNet);
(iii) None of TriNet and the TriNet Managed Subsidiaries and, to the
Knowledge of TriNet, the TriNet Non-Managed Subsidiaries has received
written notice of any violation of any federal, state or municipal law,
ordinance, order, regulation or requirement affecting any portion of any of
the TriNet Properties issued by any Governmental Entity that has not
otherwise been resolved which would, individually or in the aggregate,
reasonably be expected to result in a TriNet Material Adverse Effect;
(iv) None of TriNet and the TriNet Managed Subsidiaries and, to the
Knowledge of TriNet, the TriNet Non-Managed Subsidiaries has received notice
of or has Knowledge of, any condemnation or rezoning or proceedings that are
pending or to the Knowledge of TriNet and its Subsidiaries, threatened with
respect to any of the TriNet Properties which would, individually or in the
aggregate, reasonably be expected to result in a TriNet Material Adverse
Effect;
(v) Except as would not, individually or in the aggregate, reasonably
be expected to result in a TriNet Material Adverse Effect, each tenant of a
TriNet Property (or subtenant if TriNet or the applicable TriNet Subsidiary
is itself a tenant), owned or leased by TriNet or a TriNet Managed
Subsidiary, or, to the Knowledge of TriNet, a TriNet Property owned or
leased by a TriNet Non-Managed Subsidiary, or, to the Knowledge of TriNet, a
subtenant thereof in which subtenant's rent TriNet or a TriNet Subsidiary
participates or otherwise shares with the tenant, has entered into a lease
or a sublease, if applicable, for the possession of such TriNet Property
(each lease or other right
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of occupancy affecting or relating to a TriNet Property under which TriNet
or a TriNet Subsidiary is the lessor or sublessor is referred to herein as a
"TRINET LEASE"); except as disclosed in the TriNet Filed SEC Documents or
except as would not, individually or in the aggregate, reasonably be
expected to result in a TriNet Material Adverse Effect, each TriNet Lease of
a TriNet Property owned or leased by TriNet or a TriNet Managed Subsidiary,
or, to the Knowledge of TriNet, each TriNet Property owned or leased by a
TriNet Non-Managed Subsidiary, is in full force and effect and none of
TriNet and any of the TriNet Managed Subsidiaries and, to the Knowledge of
TriNet, the TriNet Non-Managed Subsidiaries has received written notice of
any defense to the obligations of the tenant thereunder or any claim
asserted or threatened by any such tenant or guarantor of the tenant's
obligations, which defense or claim, if sustained, would reasonably be
expected to result in a TriNet Material Adverse Effect; and except as would
not individually or in the aggregate reasonably be expected to result in a
TriNet Material Adverse Effect, (a) the lessor under each TriNet Lease of a
TriNet Property owned or leased by TriNet or a TriNet Managed Subsidiary,
or, to the Knowledge of TriNet, each TriNet Property owned or leased by a
TriNet Non-Managed Subsidiary, has complied with its obligations under such
TriNet Lease, (b) as of the date hereof no tenant with respect to any TriNet
Property owned by TriNet, any TriNet Managed Subsidiary or, to the Knowledge
of TriNet, any TriNet Non-Managed Subsidiary is in default in the payment of
fixed, base or minimum rent or other rental obligations payable to TriNet or
a TriNet Subsidiary beyond the expiration of all applicable grace periods
and (c) none of TriNet and any of the TriNet Managed Subsidiaries and, to
the Knowledge of TriNet, the TriNet Non-Managed Subsidiaries has notice of
any default by the tenant under such TriNet Lease;
(vi) The rent roll provided by TriNet to Starwood lists each TriNet
Lease in effect as of the date hereof and, as of the date hereof, the
following information for each TriNet Lease (other than the TriNet Office
Space Leases): (a) tenant's name, (b) rentable square feet, (c) current
rental rate, (d) scheduled rental increases, (e) current expiration date and
(f) to the extent the landlord may be obligated to perform the following
within the five year period after the Effective Time: each existing
obligation of the landlord to construct, add to or expand a building (not
including for this purpose tenant improvements in the ordinary course) and
each option of a tenant of a TriNet Property to require TriNet or any TriNet
Subsidiary to construct, add to or expand a building (the "TRINET RENT
ROLL"). TriNet has made available to Starwood true, correct and complete
copies of all TriNet Leases, including all material amendments,
modifications, supplements, renewals, extensions and guarantees related
thereto, as of the date hereof. Except for discrepancies that, either
individually or in the aggregate, would not reasonably be expected to result
in a TriNet Material Adverse Effect, all information set forth in the TriNet
Rent Roll is true, correct and complete as of the date thereof;
(vii) The mortgages and deeds of trust encumbering the TriNet
Properties are not (i) cross-defaulted to any indebtedness other than
indebtedness of TriNet or any of the TriNet Subsidiaries or (ii)
cross-collateralized to any property not owned by TriNet or any of the
TriNet Subsidiaries;
(viii) TriNet and the TriNet Managed Subsidiaries and, to the Knowledge
of TriNet, the TriNet Non-Managed Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in
such amounts as are customary in the business in which they are engaged and
such insurance is adequate for the value of their properties; all policies
of insurance insuring TriNet and the TriNet Managed Subsidiaries and, to the
Knowledge of TriNet, the TriNet Non-Managed Subsidiaries or their respective
businesses and assets, are in full force and effect except as would not
reasonably be expected to result in a TriNet Material Adverse Effect and
TriNet and the TriNet Managed Subsidiaries and, to the Knowledge of TriNet,
the TriNet Non-Managed Subsidiaries are in compliance with the terms of such
policies and there are no claims by TriNet and the TriNet Managed
Subsidiaries and, to the Knowledge of TriNet, the TriNet Non-Managed
Subsidiaries under any such policy as to which any insurance company is
denying liability or defending under a reservation of rights clause, other
than claims which (i) are for less than $250,000 or as disclosed in Section
3.1(o)(viii) of the TriNet Disclosure Letter or (ii) would not otherwise,
individually or in the
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aggregate, reasonably be expected to result in a TriNet Material Adverse
Effect (it being understood that any such claim which is for an amount in
excess of $250,000 shall not, solely by reason of such fact, be deemed
reasonably likely to have a TriNet Material Adverse Effect); and
(ix) Section 3.1(o)(ix) of the TriNet Disclosure Letter lists each
letter of intent or term sheet executed by TriNet or a TriNet Subsidiary
relating to a proposed TriNet Lease of more than 50,000 square feet, which
imposes a legally binding obligation on TriNet or a TriNet Subsidiary and
which is not otherwise disclosed pursuant to TriNet SEC Filed Documents or
another section of this Agreement or the TriNet Rent Roll.
(p) OPINION OF FINANCIAL ADVISOR. The Board of Directors of TriNet has
received the written opinion of Greenhill dated June 15, 1999 satisfactory to
TriNet and its Board of Directors, a copy of which opinion was provided to
Starwood, to the effect that, as of the date of such opinion, the Exchange Ratio
is fair from a financial point of view to the holders of TriNet Common Stock. It
is agreed and understood that such opinion is for the benefit of TriNet's Board
of Directors and may not be relied upon by Starwood or its affiliates.
(q) STATE TAKEOVER STATUTES; RIGHTS AGREEMENT.
(i) TriNet has taken all actions necessary, if any, to exempt the
Merger, this Agreement and the transactions contemplated by this Agreement
from the operation of any Takeover Statute (as defined below) of the State
of Maryland, including, without limitation, Sections 3-602 and 3-603 of the
MGCL.
(ii) TriNet has taken all actions necessary to ensure that the Rights
Agreement, dated as of February 25, 1998, as amended, between TriNet and
First Chicago Trust Co. of New York, as Rights Agent (the "RIGHTS
AGREEMENT") is inapplicable to this Agreement, the Merger and the other
transactions contemplated hereby.
(r) INVESTMENT COMPANY ACT OF 1940. None of TriNet or any of the TriNet
Subsidiaries is, or at the Effective Time will be, required to be registered
under the Investment Company Act of 1940, as amended (the "1940 ACT").
(s) PROXY STATEMENT AND REGISTRATION STATEMENT. The information furnished
by TriNet for inclusion or incorporation by reference in the Registration
Statement and any amendment or supplement thereto will not, as of the date the
Registration Statement is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. The information furnished by TriNet for inclusion or incorporation
by reference in the Proxy Statement will not, on the date the Proxy Statement is
first mailed or furnished to securityholders of TriNet or Starwood or on the
respective meeting dates, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading. Notwithstanding the foregoing, TriNet makes no representation or
warranty with respect to any information furnished by Starwood for inclusion or
incorporation by reference in any of the foregoing documents.
(t) VOTE REQUIRED. The affirmative vote of the holders of at least
two-thirds of the outstanding shares of TriNet Common Stock is the only vote of
the holders of any class or series of TriNet's stock necessary (under applicable
law or otherwise) to approve the Merger, this Agreement and the other
transactions contemplated hereby (the "TRINET SHAREHOLDER APPROVAL").
(u) YEAR 2000 ISSUES.
(i) To the best Knowledge of TriNet, based on representations and
warranties made by third parties and publicly available information, the
software, hardware and equipment of TriNet owned, leased or licensed by it
and used in the conduct of its business, as well as the elevator systems in
those of TriNet's Properties for which TriNet has the responsibility under
the applicable lease agreements to address Year 2000 compliance, and the
heating, ventilation and air conditioning, fire and safety and
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other automated building systems at those of the TriNet Properties for which
TriNet has the responsibility under the applicable lease agreements to
address Year 2000 compliance are or will be on or before December 31, 1999
Year 2000 Ready, except to the extent that the failure to be Year 2000 Ready
would not reasonably be expected to result in a TriNet Material Adverse
Effect.
(ii) "YEAR 2000 READY" means that the software, hardware, equipment and
systems will: (A) handle properly entered date information involving any and
all dates before, during and/or after January 1, 2000, including accepting
input, providing output and performing date calculations in whole or in
part; (B) operate accurately and without interruption on and in respect of
any and all dates before, during and/or after January 1, 2000 and without
any change in performance; and (C) store and provide properly entered date
input information without creating any ambiguity as to the century.
Section 3.2. REPRESENTATIONS AND WARRANTIES OF STARWOOD AND STARWOOD
SUB. Except as set forth in the letter of even date herewith (with section
references organized in accordance with Section 9.9) signed by the President or
Chief Executive Officer and the Chief Financial Officer of Starwood and
delivered to TriNet prior to the execution of this Agreement (the "STARWOOD
DISCLOSURE LETTER"), each of Starwood and Starwood Sub, jointly and severally,
represents and warrants to TriNet as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER OF STARWOOD. Starwood is a
real estate investment trust duly organized and validly existing under the laws
of the State of Maryland. Starwood Sub is a corporation duly organized and
validly existing under the laws of the State of Maryland. Each of Starwood and
Starwood Sub has the requisite corporate power and authority to carry on its
business as now being conducted. Each of Starwood and Starwood Sub is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership, leasing of
its properties or management of properties for others makes such qualification
or licensing necessary, except where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a material adverse effect on
the business, properties, financial condition or results of operations or
prospects of Starwood and the Starwood Subsidiaries, taken as a whole (a
"Starwood Material Adverse Effect"); for purposes of this agreement, however,
"Starwood Material Adverse Effect" does not include any such effect directly
resulting from or directly attributable to (i) the execution of this Agreement
and each Ancillary Agreement to which Starwood is a party or the proposed
consummation of the transactions contemplated by this Agreement and each
Ancillary Agreement to which Starwood is a party or the public announcement
thereof and (ii) changes in the U.S. economy, the U.S. securities markets, the
real estate industry or the real estate finance industry that generally affect,
to the same extent, all participants in the industries in which Starwood
operates or changes in law.
(b) STARWOOD SUBSIDIARIES; INTERESTS IN OTHER PERSONS.
(i) Section 3.2(b)(i) of the Starwood Disclosure Letter sets forth each
Starwood Subsidiary and the ownership interest therein of Starwood and each
other Starwood Subsidiary. Starwood Sub has no Subsidiaries. All the
outstanding shares of capital stock of each Starwood Subsidiary that is a
corporation have been duly authorized, validly issued and are fully paid and
nonassessable and are not subject to any preemptive rights, and are owned by
Starwood, by another Starwood Subsidiary or by Starwood and another Starwood
Subsidiary, free and clear of all Liens, and all equity interests in each
Starwood Subsidiary that is a partnership or limited liability company or
trust have been duly authorized, validly issued, are not subject to
preemptive rights and are owned by Starwood or by Starwood and another
Starwood Subsidiary free and clear of all Liens. Each Starwood Subsidiary is
duly organized and validly existing under the laws of its jurisdiction of
organization and has the requisite power and authority to carry on its
business as now being conducted. Each Starwood Subsidiary is duly qualified
or licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties or management of properties for others makes such qualification
or licensing necessary, except where the failure to be so qualified or
licensed, individually or in the aggregate, would not reasonably be expected
to result in a Starwood Material Adverse Effect.
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(ii) Except for the capital stock of or other equity interests in the
Starwood Subsidiaries, neither Starwood nor Starwood Sub owns, directly or
indirectly (including through any Starwood Subsidiary), any capital stock or
other equity interest, with a fair market value as of the date of this
Agreement greater than $1,000,000 in any Person or which represents 5% or
more of the outstanding voting power, outstanding capital stock or other
ownership interest of any class in any Person. Neither Starwood nor any
Starwood Subsidiary is in default of any provision of any material documents
governing or otherwise relating to its rights in any Starwood Subsidiary
other than such defaults that would not, individually or in the aggregate,
reasonably be expected to result in a Starwood Material Adverse Effect. All
such documents, other than the charter and bylaws of any Starwood Subsidiary
which is a corporation, are set forth in Section 3.2(b)(ii) of the Starwood
Disclosure Letter and are in full force and effect and true and correct
copies of all such documents have been previously delivered or made
available to TriNet.
(iii) None of Starwood or any Starwood Subsidiary has given any notice
(that is still outstanding) of any monetary or non-monetary default, breach,
violation or event of acceleration and there is no default in the payment of
principal or interest or other monetary default beyond the expiration of any
applicable grace period or, to the Knowledge of Starwood, any non-monetary
default, breach, violation or event of acceleration beyond the expiration of
any applicable grace period existing under any of the loans disclosed in
Section 3.2(b)(iii) of the Starwood Disclosure Letter (the "STARWOOD LOANS")
that could, individually or in the aggregate, reasonably be expected to
result in a Starwood Material Adverse Effect and Starwood has received no
notice of any such default, breach or violation. None of Starwood or any
Starwood Subsidiary has received any written notice of any default, breach
or violation by Starwood or a Starwood Subsidiary of any of the terms of any
Starwood Loans, and to the Knowledge of Starwood, no such default, breach or
violation exists, except, in either instance, for such defaults, breaches or
violations that could not, individually or in the aggregate, reasonably be
expected to result in a Starwood Material Adverse Effect, and, to the
Knowledge of Starwood, no person has any right of offset against Starwood or
a Starwood Subsidiary in respect of any Starwood Loans which would,
individually or in the aggregate, reasonably be expected to result in a
Starwood Material Adverse Effect. To the Knowledge of Starwood, there is no
monetary default or any material default, breach, violation or event of
acceleration under (x) by the applicable borrower, any loan or security
ranking in priority senior to any Starwood Loans (y) by the applicable
tenant, any ground lease mortgaged or pledged to Starwood or a Starwood
Subsidiary as security for a Starwood Loan (each such ground lease, a
"STARWOOD PLEDGED GROUND LEASE") or (z) by the applicable pledgor, any
partnership agreement, limited liability company agreement or other
governing documentation for any entity in which less than all of ownership
interests have been pledged to Starwood or a Starwood Subsidiary to secure a
Starwood Loan, which would, individually or in the aggregate, reasonably be
expected to result in any circumstance under (x), (y) or (z) reasonably be
expected to result in a Starwood Material Adverse Effect. Starwood or a
Starwood Subsidiary owns each Starwood Loan free and clear of all liens and
encumbrances, except for liens securing debt and participations which are
listed in Section 3.2(b)(iii) of the Starwood Disclosure Letter. Starwood
has made available to TriNet true, correct and complete copies of (A) all
material documents evidencing or securing the Starwood Loans, except that
with respect to Starwood Loans which are in the nature of collateralized
mortgage backed securities ("STARWOOD CMBS"), Starwood has made such items
available only to the extent in Starwood's files, (B) all intercreditor and
similar agreements with lenders whose loans are senior to the Starwood
Loans, except that with respect to the Starwood CMBS and Starwood Loans in
the nature of a participation interest, such items are made available only
to the extent in Starwood's files, (C) to the extent in Starwood's files,
all documents evidencing or securing such senior loans and, to the extent in
Starwood's files, the Starwood Pledged Ground Leases, (D) all participation
agreements relating to Starwood Loans which consist of loan participations
except that with respect to the Starwood CMBS and items described in (C)
above and (E) below, such items are made available only to the extent in
Starwood's files, (E) to the extent in Starwood's files, all partnership
agreements of partnerships interests in which have been pledged as security
for any Starwood Loan and (F) all
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material amendments and modifications of the foregoing documents described
in clauses (A), (B), (C), (D) and (E) above, except with respect to the
Starwood CMBS and Starwood Loans in the nature of a participation interest,
such items are made available only to the extent in Starwood's files.
Section 3.2(b)(iii) of the Starwood Disclosure Letter sets forth a list, as
of the date hereof unless otherwise indicated, of the following: (A) all
loans (including loan participations) held by Starwood or any of its
Subsidiaries and the holder of, and borrower with respect to, each such loan
(except with respect to Starwood CMBS), (B) the outstanding principal
balance of each such loan (the term "principal balance" to include, for this
purpose, all accrued and unpaid interest, other than interest accrued during
the current month or other payment period), except with respect to Starwood
CMBS, only the principal balance of the Starwood CMBS is indicated), (C) in
the case of any loan which entitles the lender to a share of cash flow or
revenues, the amount received by Starwood or its Subsidiary in the year
ended December 31, 1998 on account of such cash flow or revenues, (D) with
respect to Starwood Loans which are in the nature of a participation
interest in which Starwood and the participants participate in payments
thereunder entirely on a PARI PASSU basis, the percentage interest of
Starwood or the applicable Starwood Subsidiary, (E) the amount of any
remaining monetary commitments of Starwood and its Subsidiaries with respect
to such loans, (F) the amount of impounds or reserves deposited with
Starwood or a Starwood Subsidiary by a borrower or other obligor in respect
of a Starwood Loan, (G) to the Knowledge of Starwood, the outstanding
principal balance as of April 30, 1999 of loans senior to the Starwood Loans
and (H) a general description of the categories of collateral securing each
Starwood Loan. To the Knowledge of Starwood, each Starwood Loan (other than
Starwood CMBS and Starwood participations, as to which the representation is
made only to the Knowledge of Starwood) is secured by valid, perfected
security interests or liens the invalidity or nonperfection of which would
not, individually or in the aggregate, reasonably be expected to result in a
Starwood Material Adverse Effect, subject only to senior loans identified
elsewhere in this Agreement or in Starwood's files, to the extent such files
were made available to TriNet (or which were otherwise made available to
TriNet) and indebtedness described in the Starwood Disclosure Letter and to
Starwood Encumbrances. None of Starwood, any of its Subsidiaries, and, to
the Knowledge of Starwood, the lead lender in respect of any Starwood Loan
which consists of a loan participation, has waived the borrower's
obligations with respect to any Starwood Loan which would be reasonably
expected to result in a Starwood Material Adverse Effect. To the Knowledge
of Starwood, no property which serves as security (or the equity interests
with respect to which serve as security) for any Starwood Loan has been
affected by any casualty which has not been fully restored or by any
condemnation or eminent domain proceeding which would be reasonably expected
to result in a Starwood Material Adverse Effect. Representations and
Warranties in this Agreement as to Starwood CMBS and participations are
qualified by the Knowledge of Starwood to the extent relating to the loans
underlying such assets.
(iv) There are no outstanding contractual obligations of Starwood or
any Starwood Subsidiary to repurchase, redeem or otherwise acquire any
shares of beneficial interest, stock or other ownership interests in
Starwood or any Starwood Subsidiary, and, other than the Starwood Loans,
there are no outstanding contractual obligations of Starwood or any Starwood
Subsidiary to make any investment of $500,000 or more, individually, or more
than $2,000,000 in the aggregate during the 12 months after the Effective
Time (in each case, in the form of a loan, capital contribution or
otherwise) in any Person.
(c) CAPITAL STRUCTURE. The authorized shares of beneficial interest of
Starwood consists of 109,400,000 shares of beneficial interest, of which
70,000,000 shares are designated Class A Common Shares, par value $1.00 per
share (the "STARWOOD CLASS A COMMON SHARES"), and 35,000,000 shares are
designated Class B Common Shares, par value $.01 per share (the "STARWOOD CLASS
B COMMON SHARES") and 4,400,000 shares are designated preferred shares, par
value $.01 per share. As of June 1, 1999, (i) 52,470,951 Starwood Class A Common
Shares, 26,235,475 Starwood Class B Common Shares and 4,400,000 9.5% Series A
Preferred Shares of Starwood ("STARWOOD SERIES A PREFERRED SHARES") constitute
all
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of the issued and outstanding shares of beneficial interest of Starwood, (ii)
options to purchase 5,439,884 Starwood Class A Common Shares (the "STARWOOD
STOCK OPTIONS") were available for grant under Starwood's 1996 Long-Term
Incentive Plan (as amended and restated as of March 13, 1998) (the "STARWOOD
STOCK PLAN"), of which 2,427,603 options to purchase Starwood Class A Common
Shares are outstanding, (iii) 2,975,400 of Starwood Class A Common Shares were
reserved for issuance upon the exercise of warrants issued to Lazard Freres Real
Estate Fund II, L.P. (the "LF ONSHORE FUND") pursuant to a Securities Purchase
Agreement (the "F SECURITIES PURCHASE AGREEMENT"), dated December 15, 1998, by
and among Starwood, LF Mortgage REIT, LF Onshore Fund and Lazard Freres Real
Estate Offshore Fund II, L.P. (the "LF Offshore Fund") (the "ONSHORE FUND
WARRANT"), (iv) 3,024,600 shares of Starwood Class A Common Shares were reserved
for issuance upon the exercise of warrants issued to the LF Offshore Fund
pursuant to the LF Securities Purchase Agreement (the "OFFSHORE FUND WARRANT")
and together with the Onshore Fund Warrant, the "STARWOOD WARRANTS") and (v)
535,418 Starwood Class A Common Shares were reserved for issuance upon
conversion of the outstanding Starwood Class B Common Shares. The authorized
stock of Starwood Sub consists of 1,000 shares of common stock, par value $.01
per share, all of which are outstanding and held by Starwood on the date hereof.
On the date of this Agreement, except as set forth in this Section 3.2(c), no
shares of beneficial interest, stock or other voting securities of Starwood or
Starwood Sub were issued, reserved for issuance or outstanding. There are no
outstanding share appreciation rights relating to the beneficial interest or
stock of Starwood or Starwood Sub. All outstanding shares of beneficial interest
or stock of Starwood and Starwood Sub are, and all shares which may be issued
pursuant to this Agreement will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights. There
are no bonds, debentures, notes or other indebtedness of Starwood or Starwood
Sub having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which shareholders of
Starwood may vote. Starwood Class B Common Shares may be converted for Starwood
Class A Common Shares on the basis of one Starwood Class A Common Share for 49
Starwood Class B Common Shares at the option of the holder of Starwood Class B
Common Shares. Except as set forth in this Section 3.2(c), and except for the
Starwood Stock Options, the Starwood Warrants and the Starwood Class B Common
Shares as of the date of this Agreement there are no outstanding securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which Starwood or any Starwood Subsidiary is a party
or by which such entity is bound, obligating Starwood or any Starwood Subsidiary
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of beneficial interest, stock, voting securities or other ownership
interests of Starwood or of any Starwood Subsidiary or obligating Starwood or
any Starwood Subsidiary to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or undertaking,
other than to Starwood or a wholly owned Starwood Subsidiary; Section 3.2(c) of
the Starwood Disclosure Letter sets forth the amount of any such securities
issuable by Starwood on an agreement by agreement basis.
(d) AUTHORITY; NONCONTRAVENTION; CONSENTS. Starwood has the requisite
corporate power and authority to enter into this Agreement, the Incorporation
Merger Agreement and the Advisor Transaction Agreement and each other Ancillary
Agreement to which Starwood is a party and, subject to receipt of the Starwood
Shareholder Approvals, to consummate the transactions contemplated by this
Agreement, the Incorporation Merger Agreement, the Advisor Transaction Agreement
and each other Ancillary Agreement to which Starwood is a party. Starwood Sub
has the requisite corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement, the Incorporation Merger Agreement, the Advisor
Transaction Agreement and each other Ancillary Agreement to which Starwood is a
party by Starwood and the consummation by Starwood of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
action on the part of Starwood, subject to receipt of the Starwood Shareholder
Approvals. The execution and delivery of this Agreement by Starwood Sub and the
consummation by Starwood Sub of the transactions contemplated hereby have been
duly authorized by all necessary action on the part of Starwood Sub. This
Agreement, the Incorporation Merger Agreement, the Advisor Transaction Agreement
and each other Ancillary Agreement to which Starwood is a party have been duly
executed and
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delivered by Starwood and, in the case of this Agreement, by Starwood Sub, and
constitute the valid and binding obligations of Starwood and Starwood Sub, as
applicable, and are enforceable against Starwood and Starwood Sub, as
applicable, in accordance with their terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and to general principles of
equity. The execution and delivery of this Agreement, the Incorporation Merger
Agreement, the Advisor Transaction Agreement and each other Ancillary Agreement
to which Starwood is a party by Starwood and the execution and delivery of this
Agreement by Starwood Sub do not, and the consummation of the transactions
contemplated hereby and thereby and compliance by Starwood and Starwood Sub, as
applicable, with the provisions of this Agreement, the Incorporation Merger
Agreement, the Advisor Transaction Agreement and each other Ancillary Agreement
to which Starwood is a party do not and will not conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or result in the creation
of any Lien upon any of the properties or assets of Starwood or any Starwood
Subsidiary under, (i) subject to receipt of the Starwood Shareholder Approvals,
the amended and restated declaration of trust or the amended and restated bylaws
of Starwood or the comparable charter or organizational documents or partnership
or similar agreement (as the case may be) of any Starwood Subsidiary, each as
amended, restated or supplemented to the date of this Agreement, (ii) any loan
or credit agreement, note, bond, mortgage, indenture, reciprocal easement
agreement, lease or other agreement, instrument, permit, concession, contract,
franchise or license applicable to Starwood or any Starwood Subsidiary or their
respective properties or assets or (iii) subject to the governmental filings and
other matters referred to in the following sentence, any Laws applicable to
Starwood or any Starwood Subsidiary or their respective properties or assets,
other than, in the case of clause (ii) or (iii), any such conflicts, violations,
defaults, rights or Liens that individually or in the aggregate would not (x)
reasonably be expected to result in a Starwood Material Adverse Effect or (y)
materially delay or prevent the consummation of the Merger, the Incorporation
Merger and the Advisor Transaction. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity is
required by or with respect to Starwood or any Starwood Subsidiary in connection
with the execution and delivery of this Agreement, the Incorporation Merger
Agreement, the Advisor Transaction Agreement and each other Ancillary Agreement
to which Starwood is a party, by Starwood or Starwood Sub or the consummation by
Starwood or the Starwood Subsidiaries of any of the transactions contemplated
hereby and thereby, except for (i) the filing with the SEC of (x) the Proxy
Statement and the Registration Statement and (y) such reports under Sections 13
and 16 of the Exchange Act as may be required in connection with this Agreement
and the transactions contemplated by this Agreement, (ii) the acceptance for
record of the Articles of Merger for the Merger by the SDAT, (iii) such filings
as may be required in connection with the payment of any Transfer and Gains
Taxes, and (iv) such other consents, approvals, orders, authorizations,
registrations, declarations and filings as are set forth in Section 3.2(d) of
the Starwood Disclosure Letter or (A) as may be required under (x) federal,
state or local environmental laws or (y) the "blue sky" laws of various states
or (B) which, if not obtained or made, would not prevent or delay in any
material respect the consummation of the Merger or any of the transactions
contemplated by this Agreement or any Ancillary Agreement or otherwise prevent
Starwood from performing its obligations hereunder or thereunder in any material
respect or be reasonably expected to result in, individually or in the
aggregate, a Starwood Material Adverse Effect.
(e) SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. Starwood
has filed all reports, schedules, forms, statements and other documents required
to be filed with the SEC since March 18, 1998 (collectively, the "STARWOOD SEC
DOCUMENTS"). All of the Starwood SEC Documents (other than preliminary materials
or materials that were subsequently amended), as of their respective filing
dates, complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act and, in each case, the rules and regulations
promulgated thereunder applicable to such Starwood SEC Documents. None of the
Starwood SEC Documents at the time of filing contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to
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make the statements therein, in light of the circumstances under which they were
made, not misleading, except to the extent such statements have been amended,
modified or superseded by later filed Starwood SEC Documents. None of the
Starwood SEC Documents is, as of the date hereof, the subject of any
confidential treatment request by Starwood. Except to the extent such statements
have been amended, modified or superseded by later Starwood Filed SEC Documents
(as defined below), the consolidated financial statements of Starwood, as
applicable, included in the Starwood SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (except, in the case of interim financial statements, as
permitted by the applicable rules and regulations of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly presented in all material respects, in accordance with
the applicable requirements of GAAP, the consolidated financial position of
Starwood and the Starwood Subsidiaries, taken as a whole, as of the dates
thereof and the consolidated results of operations and cash flows for the
periods then ended (subject, in the case of interim financial statements, to
normal year-end adjustments). Except as set forth in the Starwood SEC Documents
filed with the SEC prior to the date of this Agreement (the "STARWOOD FILED SEC
DOCUMENTS"), neither Starwood nor any Starwood Subsidiary has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
required by GAAP to be set forth on a consolidated balance sheet of Starwood or
in the notes thereto and which, individually or in the aggregate, would
reasonably be expected to result in a Starwood Material Adverse Effect.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
Starwood Filed SEC Documents, since December 31, 1998 (the "STARWOOD FINANCIAL
STATEMENT DATE") and to the date of this Agreement, Starwood and the Starwood
Subsidiaries have conducted their business only in the ordinary course and there
has not been (i) any events which have occurred or circumstances which have
arisen that, individually or in the aggregate have resulted in or would
reasonably be expected to result in a Starwood Material Adverse Effect, nor has
there been any occurrence or circumstance that with the passage of time would
reasonably be expected to result in a Starwood Material Adverse Change, (ii) any
declaration, setting aside or payment of any dividend or distribution (whether
in cash, stock or property) with respect to any of Starwood's beneficial
interest or Starwood Sub's stock, except for (A) regular quarterly dividends not
in excess of $.42 per Starwood Class A Common Share, (B) regular quarterly
dividends not in excess of $200,000 in the aggregate for all Starwood Class B
Common Shares, (C) regularly quarterly dividends not in excess of $4.75 Starwood
Series A Preferred Share and (D) any distributions by any Starwood Subsidiaries
to other Starwood Subsidiaries or to Starwood, in each case, with customary
record and payment dates, (iii) any split, combination or reclassification of
any of Starwood's beneficial interest or Starwood Sub's stock or any issuance or
the authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for, or giving the right to acquire by exchange or
exercise, shares of its stock or any issuance of an ownership interest in any
Starwood Subsidiary that is not wholly owned by Starwood, (iv) any damage,
destruction or loss, whether or not covered by insurance, that, individually or
in the aggregate, has resulted in or would reasonably be expected to result in a
Starwood Material Adverse Effect or (v) any change in accounting methods,
principles or practices by Starwood or any Starwood Subsidiary materially
affecting its assets, liabilities or business, except insofar as may have been
required by a change in applicable Law or GAAP. All dividends on Starwood Common
Stock and Starwood Preferred Stock which have been declared prior to the date of
this Agreement have been paid in full.
(g) LITIGATION. Except as disclosed in the Starwood Filed SEC Documents
and other than personal injury and other routine tort litigation arising from
the ordinary course of operations of Starwood and the Starwood Subsidiaries
which are covered by adequate insurance, there is no suit, action or proceeding
pending (in which service of process has been received by an employee of
Starwood) or, to the Knowledge of Starwood and Starwood Sub, threatened against
or affecting Starwood or any Starwood Subsidiary that, individually or in the
aggregate, could reasonably be expected to (i) result in a Starwood Material
Adverse Effect or (ii) prevent the consummation of any of the transactions
contemplated by this Agreement, the
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Advisor Transaction Agreement or the Incorporation Merger Agreement or any other
Ancillary Agreement, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against Starwood or
any Starwood Subsidiary having, or that would have, any such effect. Section
3.2(g) of the Starwood Disclosure Letter lists and briefly describes each
litigation pending as of the date hereof against Starwood or any Starwood
Subsidiary other than personal injury and routine tort litigation arising from
the ordinary course of business of Starwood and the Starwood Subsidiaries, which
would reasonably be expected to result in a Starwood Material Adverse Effect.
(h) ABSENCE OF CHANGES IN BENEFIT PLANS; ERISA COMPLIANCE.
(i) Except as disclosed in the Starwood Filed SEC Documents since the
Starwood Financial Statement Date, there has not been any adoption or
amendment in any material respect, or the undertaking of any additional
obligation by Starwood, any Starwood Subsidiary or any Starwood ERISA
Affiliate (as defined below) of any Starwood Benefit Plan (as defined
below). For purposes of this Agreement, "STARWOOD BENEFIT PLAN" shall mean
any Employee Plan sponsored or maintained by Starwood, any Starwood
Subsidiary or any Starwood ERISA Affiliate, or with respect to which
Starwood, any Starwood Subsidiary or any Starwood ERISA Affiliate has any
obligation to contribute, has liability under or is otherwise a party to, or
which otherwise provides benefits for any current or former employees,
officers, directors or other independent contractors (or their dependents
and beneficiaries) of Starwood or any Starwood Subsidiary. For purposes of
this Agreement, "STARWOOD ERISA AFFILIATE" means any entity required to be
aggregated with any of Starwood or any Starwood Subsidiary under Sections
414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA. Section
3.2(h)(i) of the Starwood Disclosure Letter sets forth each Starwood Benefit
Plan.
(ii) Except as described in the Starwood Filed SEC Documents or as
would not reasonably be expected to result in a Starwood Material Adverse
Effect, (A) all Starwood Benefit Plans, including any such plan that is an
"employee benefit plan" as defined in Section 3(3) of ERISA, have been made
available to TriNet and are in compliance with the terms of such plan and
all applicable requirements of law, including ERISA and the Code and,
without limitation, the requirements of ERISA and all tax rules for which
favorable tax treatment is intended, and (B) there are no liabilities or
obligations with respect to any such Starwood Benefit Plan, whether accrued,
contingent or otherwise (other than obligations by Starwood and the Starwood
Subsidiaries to make contributions, and for such plan to pay benefits and
administrative costs, incurred in the ordinary course), nor to the Knowledge
of Starwood are any such liabilities or obligations expected to be incurred.
The execution of, and performance of the transactions contemplated in, this
Agreement will not (either alone or together with the occurrence of any
additional or subsequent events) constitute an event under any Starwood
Benefit Plan, policy, program, arrangement or agreement, trust or loan that
will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase
in benefits or obligation to fund benefits with respect to any employee or
director, will not result in any "golden parachute payments" being due (as
defined for purposes of Section 280G of the Code), or result in any breach
or violation of, or a default under, any of the Starwood Benefit Plans. The
only severance agreements or severance policies applicable to Starwood or
the Starwood Subsidiaries are the agreements and policies specifically
referred to in Section 3.2(h)(ii) of the Starwood Disclosure Letter.
(iii) Without limiting the foregoing, each Starwood Benefit Plan which
is intended to be tax-qualified under Section 401(a) of the Code has been
determined by the IRS to be so qualified and such determination has not been
modified, revoked or limited, and no circumstances have occurred that would
adversely affect the tax-qualified status of any such plan. No Starwood
Benefit Plan is or has ever been subject to Part III of Subtitle B of Title
I of ERISA or Title IV of ERISA or Section 412 of the Code. None of Starwood
or any Starwood Subsidiary, or any "party in interest" (as defined in
Section 3(14) of ERISA) or any "disqualified person" (as defined in Section
4975 of the Code) with respect to any Starwood Benefit Plan, has engaged in
a non-exempt "prohibited transaction" within the meaning of Section 4975 of
the Code or Section 406 of ERISA that would reasonably be expected
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to result in a Starwood Material Adverse Effect. No Starwood Benefit Plan
provides for health or life insurance for employees after termination of
employment (except as required by law).
(i) TAXES.
(i) Each of Starwood and each Starwood Subsidiary has timely filed with
the appropriate taxing authority all Tax Returns and reports required to be
filed by it (after giving effect to any filing extension properly granted by
a Governmental Entity having authority to do so). Each such Tax Return is
true, correct and complete in all material respects. Starwood and each
Starwood Subsidiary has paid (or Starwood has paid on their behalf), within
the time and manner prescribed by law, all Taxes that are due and payable.
The United States federal income Tax Returns of Starwood and each Starwood
Subsidiary have not been audited by any Taxing Authority. There are no
audits by any Taxing Authority currently being conducted with regard to
Taxes or Tax Returns of Starwood or any Starwood Subsidiary, and to the
Knowledge of Starwood, there are no pending audits or current inquiries
being made by any Taxing Authority with respect to any Taxes or Tax Returns.
The most recent financial statements contained in the Starwood SEC Documents
filed with the SEC prior to the date of this Agreement reflect an adequate
reserve for all material Taxes (including real estate Taxes) payable by
Starwood and each Starwood Subsidiary for all taxable periods and portions
thereof through the date of such financial statements. Since the Starwood
Financial Statement Date, Starwood has incurred no liability for federal
taxes, other than withholding and employment taxes, under the Code or IRS
Notice 88-19. To the Knowledge of Starwood, no event has occurred, and no
condition or circumstance exists, which presents a material risk that any
material Tax described in the preceding sentence will be imposed upon
Starwood or any Starwood Subsidiary. No deficiencies for any Taxes have been
proposed, asserted or assessed against Starwood or any of the Starwood
Subsidiaries and no requests for waivers of the time to assess any such
Taxes have been granted and remain in effect or are pending.
(ii) Starwood (A) for its taxable year ended on December 31, 1998 has
satisfied the requirements to qualify for taxation as a REIT under the Code
for such year, (B) has operated, and intends to continue to operate, in such
a manner as to qualify as a REIT and (C) has not taken or omitted to take
any action which could reasonably be expected to result in a challenge to
its status as a REIT, and no such challenge is pending or, to Starwood's
Knowledge, threatened. Each Starwood Subsidiary which is a partnership or
limited liability company or files Tax Returns as a partnership for federal
income tax purposes has since its acquisition by Starwood been classified
for federal income tax purposes as a partnership or disregarded entity and
not as an association taxable as a corporation or a "publicly traded
partnership" within the meaning of Section 7704(b) of the Code that is
treated as a corporation for federal income tax purposes under Section
7704(a) of the Code. Starwood distributed all of its earnings and profits
accumulated in non-REIT years (within the meaning of Section 857 of the
Code) on or before December 31, 1998. Neither Starwood nor any Starwood
Subsidiary holds any assets the disposition of which would be subject to
rules similar to Section 1374 of the Code as announced in IRS Notice 88-19.
(iii) To the best Knowledge and belief of Starwood, Starwood qualifies
as a "domestically controlled" REIT within the meaning of Section
897(h)(4)(B) of the Code, as of the date hereof.
(j) NO LOANS OR PAYMENTS TO EMPLOYEES, OFFICERS OR DIRECTORS. Except as
disclosed in the Starwood Filed SEC Documents or as otherwise specifically
provided for in this Agreement, there is no (i) loan outstanding from or to any
employee, officer, director or trustee of Starwood or any Starwood Subsidiary
which, in the aggregate together with all such loans, has a principal amount in
excess of $500,000, (ii) employment or severance agreement which, in the
aggregate together with all such agreements, provides for payments in excess of
$500,000 by Starwood or any Starwood Subsidiary or material consulting contract,
policy, agreement, program or arrangement of Starwood or any Starwood
Subsidiary, (iii) agreements which, in the aggregate together with all other
agreements, requires material payments to be made on a change of control or
otherwise as a result of the consummation of any of the transactions
contemplated by this Agreement with respect to any employee, officer, director
or trustee of Starwood or any Starwood Subsidiary or (iv) any agreement to
appoint or nominate any person as a director of Starwood, New Starwood or any
Starwood Subsidiary.
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(k) BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment banker,
financial advisor or other person, other than Bear, Stearns & Co., Inc. ("BEAR,
STEARNS"), Bank of America Securities LLC and Houlihan Lokey Howard & Zukin, the
fees and expenses of which, as set forth in letter agreements between Starwood
and each such financial advisor, have previously been disclosed to TriNet and
will be paid by Starwood, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the Merger or
any of the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Starwood or any other Starwood Subsidiary.
(l) COMPLIANCE WITH LAWS. Except as disclosed in the Starwood Filed SEC
Documents, none of Starwood or any of the Starwood Subsidiaries has violated or
failed to comply with any statute, law, ordinance, regulation, rule, judgment,
decree or order of any Governmental Entity applicable to its business,
properties or operations, except for violations and failures to comply that
would not, individually or in the aggregate, reasonably be expected to result in
a Starwood Material Adverse Effect.
(m) CONTRACTS; DEBT INSTRUMENTS.
(i) None of Starwood or any Starwood Subsidiary has received written
notice that it is in violation of or in default under, in any material
respect (nor does there exist any condition which upon the passage of time
or the giving of notice or both would cause such a violation of or default
under), any material loan or credit agreement, note, bond, mortgage,
indenture or any material lease, permit, concession, franchise or license,
or any material agreement to acquire real property, or any other material
contract, agreement, arrangement or understanding, to which it is a party or
by which it or any of its properties or assets is bound, except for
violations or defaults that would not, individually or in the aggregate,
reasonably be expected to result in a Starwood Material Adverse Effect.
(ii) Section 3.2(m)(ii) of the Starwood Disclosure Letter sets forth
(A) a detailed list of all indebtedness of Starwood and the Starwood
Subsidiaries under which an aggregate principal amount in excess of
$5,000,000 per item is outstanding or may be incurred other than (i)
indebtedness payable to Starwood or a wholly owned Starwood Subsidiary and
(ii) indebtedness which is reflected in the financial statements set forth
in the Starwood Filed SEC Documents, and (B) the respective principal
amounts outstanding thereunder or, in the case of financial products the
notional amounts thereof, on March 31, 1999. Starwood has previously
delivered to TriNet true and correct copies of all of the agreements
relating to the indebtedness disclosed in Section 3.2(m)(ii) of the Starwood
Disclosure Letter.
(iii) None of Starwood or any Starwood Subsidiary has entered into or
is subject, directly or indirectly, to any Starwood Tax Protection
Agreements. As used herein, a "STARWOOD TAX PROTECTION AGREEMENT" is an
agreement, oral or written, (A) that has as one of its purposes to permit a
Person to take the position that such Person could defer federal taxable
income that otherwise might have been recognized upon a transfer of property
to Starwood or a Starwood Subsidiary or attributable to the acquisition or
ownership of an interest in any Starwood Subsidiary that is treated as a
partnership for federal income tax purposes and (B) that (i) prohibits or
restricts in any manner the disposition of any assets of Starwood or any
Starwood Subsidiary, (ii) requires that Starwood or any Starwood Subsidiary
maintain, increase or put in place, or replace, indebtedness, whether or not
secured by one or more of the Starwood Properties or (iii) requires that
Starwood or any Starwood Subsidiary offer to any person or entity at any
time the opportunity to guarantee or otherwise assume, directly or
indirectly, the risk of loss for federal income tax purposes for
indebtedness or other liabilities of Starwood or any Starwood Subsidiary.
(n) ENVIRONMENTAL MATTERS. Except as disclosed in the Starwood Filed SEC
Documents, (i) none of Starwood or the Starwood Subsidiaries or, to Starwood's
Knowledge, any other Person has caused or permitted the presence of any
Hazardous Materials on or under any of the Starwood Properties or any of the
properties securing the Starwood Loans and none of Starwood or the Starwood
Subsidiaries has any Knowledge of the presence of any Hazardous Materials on or
under any of the Starwood Properties or any
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of the properties securing the Starwood Loans except to the extent the presence
of such Hazardous Materials, individually or in the aggregate, would not
reasonably be expected to result in a Starwood Material Adverse Effect, (ii)
none of Starwood, any of the Starwood Subsidiaries or, to Starwood's Knowledge,
any other Person, has caused or permitted any unlawful spills, releases,
discharges or disposal of Hazardous Materials to have occurred or be presently
occurring on or from the Starwood Properties or any of the properties securing
the Starwood Loans as a result of any construction on or operation or use of
such properties and none of Starwood or the Starwood Subsidiaries has any
Knowledge of any spills, releases, discharges or disposal of Hazardous Materials
having occurred or presently occurring on, under or from the Starwood Properties
or any of the properties securing the Starwood Loans as a result of any
construction on or operation or use of any such property, in each of the
foregoing cases, which presence or occurrence would, individually or in the
aggregate, reasonably be expected to result in a Starwood Material Adverse
Effect; (iii) in connection with the construction on or operation and use of the
Starwood Properties, Starwood and the Starwood Subsidiaries and, to Starwood's
Knowledge, the owners or operators of the properties securing the Starwood Loans
have not failed to comply in any material respect with any applicable
Environmental Law, except to the extent such failure to comply, individually or
in the aggregate, would not reasonably be expected to result in a Starwood
Material Adverse Effect. Starwood has previously delivered or made available to
TriNet complete copies of all reports on and results of investigations, testing
or analysis that are in the possession of or available to any of them with
respect to the environmental condition of the Starwood Properties or with
respect to environmental compliance of operations conducted on or from any such
Property.
(o) STARWOOD PROPERTIES.
(i) Starwood or a Starwood Subsidiary owns fee simple title to or has a
valid leasehold interest in, each of the real properties reflected on the
most recent balance sheet of Starwood included in the Starwood Filed SEC
Documents or as identified in Section 3.2(o) of the Starwood Disclosure
Letter (the "STARWOOD PROPERTIES"), which are all of the real estate
properties owned or leased by them, free and clear of liens, mortgages or
deeds of trust, claims against title, charges which are liens, security
interests or other encumbrances on title, any rights of way, written
agreements or reservations of an interest in title ("STARWOOD ENCUMBRANCES")
except for (a) debt or other liabilities identified on Section 3.1(m)(ii) of
the Starwood Disclosure Letter, (b) inchoate liens imposed for construction
work in progress, (c) mechanics', workmen's and repairmen's liens (other
than inchoate liens for work in progress) which have heretofore been bonded
over or which, individually or in the aggregate, are not reasonably expected
to result in a Starwood Material Adverse Effect or the discharge of which is
the responsibility of a lessee of the applicable Starwood Property, (d)
Taxes not yet due and payable or which are being contested in good faith
with adequate reserves as required by GAAP, (e) leases entered into in the
ordinary course of Starwood's business and subleases under such leases as
tenants only with no options to purchase except as listed on Section 3.2(o)
of the Starwood Disclosure Letter, (f) matters affecting title to
multi-tenant office real estate a portion of which has been leased to
Starwood or a Starwood Subsidiary, as tenants, primarily for office purposes
(each such lease, a "STARWOOD OFFICE SPACE LEASES") and (g) other Starwood
Encumbrances, if any, which, individually or in the aggregate, would not,
individually or in the aggregate, reasonably be expected to result in a
Starwood Material Adverse Effect;
(ii) Valid policies of title insurance have been issued (or, in the
case of title policies with regard to Starwood Loans secured by real estate
mortgages or deeds of trust, if not issued, the insurer is obligated to
issue a title policy with respect thereto) insuring (i) Starwood's or a
Starwood Subsidiary's fee simple title or leasehold estate to the Starwood
Properties, (other than leaseholds with respect to Starwood Office Space
Leases) and (ii) the real estate mortgages or deeds of trust pertaining to
Starwood Loans (other than Starwood CMBS and participations) originated by
Starwood or a Starwood Subsidiary or, to the Knowledge of Starwood, any
other Starwood Loans or Starwood participations (excluding Starwood CMBS)
secured by a real estate mortgage or deed of trust, and except as noted
therein, and such policies are, at the date hereof, in full force and effect
and no claim
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has been made against any such policy which is currently pending which
would, if decided adversely, individually or in the aggregate, reasonably be
expected to result in a Starwood Material Adverse Effect;
(iii) None of Starwood or the Starwood Subsidiaries has received
written notice of any violation of any federal, state or municipal law,
ordinance, order, regulation or requirement affecting any portion of any of
the Starwood Properties issued by any Governmental Entity that has not
otherwise been resolved which would, individually or in the aggregate,
reasonably be expected to result in a Starwood Material Adverse Effect;
(iv) None of Starwood or the Starwood Subsidiaries has received notice
of or has Knowledge of, any condemnation or rezoning or proceedings that are
pending or, to the Knowledge of Starwood, threatened with respect to any of
the Starwood Properties which would, individually or in the aggregate,
reasonably be expected to result in a Starwood Material Adverse Effect;
(v) Except as would not, individually or in the aggregate, reasonably
be expected to result in a Starwood Material Adverse Effect, each tenant (or
subtenant if Starwood or a Starwood Subsidiary is itself a tenant), of a
Starwood Property owned or leased by Starwood or the applicable Starwood
Subsidiary, or, to the Knowledge of Starwood, a subtenant thereof in which
subtenant's rent Starwood or a Starwood Subsidiary participates or otherwise
shares with the tenant, has entered into a lease or a sublease, if
applicable, for the possession of such Starwood Property (each lease or
other right of occupancy affecting or relating to a Starwood Property under
which Starwood or a Starwood Subsidiary is the lessor is referred to herein
as a "STARWOOD LEASE"); except as disclosed in the Starwood Filed SEC
Documents, each Starwood Lease owned or leased by Starwood or a Starwood
Subsidiary, is in full force and effect and none of Starwood or the Starwood
Subsidiaries has received written notice of any defense to the obligations
of the tenant thereunder or any claim asserted or threatened by any such
tenant or guarantor of the tenant's obligations, which defense or claim, if
sustained, would be reasonably expected to result in a Starwood Material
Adverse Effect; and except as would not individually or in the aggregate
reasonably be expected to result in a Starwood Material Adverse Effect, (a)
the lessor under each Starwood Lease owned or leased by Starwood or a
Starwood Subsidiary, has complied with its obligations under such Starwood
Lease, (b) no tenant with respect to any Starwood Property owned or leased
by Starwood or any Starwood Subsidiary is in default in the payment of
fixed, base or minimum rent or other rental obligation payable to Starwood
or a Starwood Subsidiary beyond the expiration of any applicable grace or
cure period and (c) none of Starwood or the Starwood Subsidiaries has notice
of any default by the tenant under such Starwood Lease;
(vi) The mortgages and deeds of trust encumbering the Starwood
Properties are not (i) cross-defaulted to any indebtedness other than
indebtedness of Starwood or any of the Starwood Subsidiaries or (ii)
cross-collateralized to any property not owned by Starwood or any of the
Starwood Subsidiaries;
(vii) The rent roll provided by Starwood to TriNet lists each Starwood
Lease in effect as of the date hereof and the following information as of
the date hereof for each Starwood Lease (other than Starwood Office Space
Leases): (a) tenant's name, (b) rentable square feet, (c) current rental
rate, (d) scheduled rental increases, (e) current expiration date and (f) to
the extent the landlord may be obligated to perform the following within
five years after the Effective Time: each obligation of the landlord to
construct, add to or expand a building (not including for this purpose
tenant improvements in the ordinary course) and each option of a tenant of a
Starwood Property to require Starwood or any Starwood Subsidiary to
construct, add to or expand a building (the "STARWOOD RENT ROLL"). Starwood
has made available to TriNet true, correct and complete copies of all
Starwood Leases, including all material amendments, modifications,
supplements, renewals, extensions and guarantees related thereto, as of the
date hereof. Except for discrepancies that, either individually or in the
aggregate, would not reasonably be expected to result in a Starwood Material
Adverse Effect, all
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information set forth in the Starwood Rent Roll is true, correct and
complete as of the date thereof; and
(viii) Starwood and the Starwood Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are customary in the business in which they are engaged and
such insurance is adequate for the value of their properties; all policies
of insurance insuring Starwood and the Starwood Subsidiaries or their
respective businesses and assets, are in full force and effect except as
would not reasonably be expected to result in a Starwood Material Adverse
Effect; Starwood and the Starwood Subsidiaries are in compliance with the
terms of such policies and there are no claims by Starwood or the Starwood
Subsidiaries under any such policy as to which any insurance company is
denying liability or defending under a reservation of rights clause, other
than claims which (i) are for less than $250,000 or as disclosed in Section
3.2(o)(vii) of the Starwood Disclosure Letter or (ii) would not otherwise,
individually or in the aggregate, reasonably be expected to result in a
Starwood Material Adverse Effect (it being understood that any such claim
which is for an amount in excess of $250,000 shall not, solely by reason of
such fact, be deemed reasonably likely to result in a Starwood Material
Adverse Effect).
(p) OPINION OF FINANCIAL ADVISOR. The Board of Trustees of Starwood has
received the opinion of Bear Stearns, Starwood's financial advisor, satisfactory
to Starwood's Board of Trustees, a written copy of which was or, upon receipt by
Starwood's Board of Trustees will be, provided to TriNet, to the effect that, as
of the date of such opinion, the Exchange Ratio is fair to Starwood from a
financial point of view. It is agreed and understood that such opinion is for
the benefit of Starwood's Board of Trustees and may not be relied upon by TriNet
or its affiliates.
(q) STATE TAKEOVER STATUTES. Starwood and Starwood Sub each has taken all
actions necessary, if any, to exempt the Merger, this Agreement and the
transactions contemplated by this Agreement from the operation of any Takeover
Statute of the State of Maryland, including, without limitation, Sections 3-602
and 3-603 of the MGCL.
(r) 1940 ACT. None of Starwood or any of the Starwood Subsidiaries is, or
at the Effective Time will be, required to be registered under the 1940 Act.
(s) PROXY STATEMENT AND REGISTRATION STATEMENT. The information furnished
by Starwood and Starwood Sub for inclusion or incorporation by reference in the
Registration Statement and any amendment or supplement thereto will not, as of
the date the Registration Statement is declared effective by the SEC, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order the make the statements
therein not misleading. The information furnished by Starwood for inclusion or
incorporation by reference in the Proxy Statement will not, on the dates the
Proxy Statement first is mailed or furnished to securityholders of TriNet or
Starwood or on the respective meeting dates, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading. Notwithstanding the foregoing, Starwood and
Starwood Sub make no representation or warranty with respect to any information
furnished by TriNet for inclusion or incorporation by reference in any of the
foregoing documents.
(t) VOTE REQUIRED. The affirmative vote of the holders of at least
two-thirds of the outstanding Starwood Class A Common Shares and Starwood Class
B Common Shares voting as a single class is the only vote of the holders of any
class or series of Starwood's beneficial interest necessary (under applicable
law or otherwise) to approve the Merger, this Agreement, the Incorporation
Merger and the Incorporation Merger Agreement (the "STARWOOD MERGER SHAREHOLDER
APPROVAL" and the "STARWOOD INCORPORATION MERGER SHAREHOLDER APPROVAL"). The
approval of a majority of the outstanding Starwood Class A Common Shares and
Starwood Class B Common Shares voting as a single class is the only vote of the
holders of any class or series of Starwood's beneficial interest necessary
(under applicable law or otherwise) to approve the
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Advisor Transaction and the Advisor Transaction Agreement (the "STARWOOD ADVISOR
TRANSACTION SHAREHOLDER APPROVAL") and together with the Starwood Merger
Shareholder Approval and the Starwood Incorporation Merger Shareholder Approval,
the "STARWOOD SHAREHOLDER APPROVALS").
(u) YEAR 2000 ISSUES.
(i) To the best Knowledge of Starwood and Starwood Sub, based on
representations and warranties made by third parties and publicly available
information, the software, hardware and equipment of Starwood owned, leased
or licensed by it and used in the conduct of its business, as well as the
elevator systems in those of the Starwood Properties for which Starwood has
the responsibility under the applicable lease agreements to address Year
2000 compliance, and the heating ventilation and air conditioning, fire and
safety and other automated building systems at those of the Starwood
Properties for which Starwood has the responsibility under the applicable
lease agreements to address Year 2000 compliance are or will be on or before
December 31, 1999 Year 2000 Ready, except to the extent that the failure to
be Year 2000 Ready would not reasonably be expected to result in a Starwood
Material Adverse Effect.
(v) OPERATIONS OF STARWOOD SUB AND NEW STARWOOD. Each of New Starwood and
Starwood Sub was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement and the Incorporation Merger and has not engaged
in any business activities or conducted any operations other than in conjunction
with such transactions.
(w) NO OWNERSHIP OF TRINET STOCK. As of the date of this Agreement, none
of Starwood and the Starwood Subsidiaries owns, and as of the Closing Date
(immediately prior to the Effective Time), none of Starwood and the Starwood
Subsidiaries will own, any shares of capital stock of TriNet.
ARTICLE IV
COVENANTS
Section 4.1. CONDUCT OF BUSINESS BY TRINET. Except as set forth in Section
4.1 of the TriNet Disclosure Letter, and as contemplated by this Agreement and
the Ancillary Agreements to which TriNet is a party, during the period from the
date of this Agreement to the earlier of (i) the termination of this Agreement
and (ii) the Effective Time, TriNet shall, and shall cause each of the TriNet
Managed Subsidiaries and shall use commercially reasonable efforts to cause each
TriNet Non-Managed Subsidiary to, carry on its businesses in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted
and, to the extent consistent therewith, use commercially reasonable efforts to
preserve intact in all material respects its current business organization,
goodwill, ongoing businesses and TriNet's status as a REIT within the meaning of
the Code. Without limiting the generality of the foregoing, from the date of
this Agreement to the earlier of (i) the termination of this Agreement and (ii)
the Effective Time, except as set forth in Section 4.1 of the TriNet Disclosure
Letter, and as contemplated by this Agreement and the Ancillary Agreements,
TriNet shall not (and shall not authorize, commit or agree to) and shall cause
the TriNet Managed Subsidiaries and shall use commercially reasonable efforts to
cause the TriNet Non-Managed Subsidiaries not to (and not to authorize or commit
or agree to):
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of TriNet's stock, or any stock or other equity
interests in any TriNet Subsidiary that is not directly or indirectly wholly
owned by TriNet or any TriNet Subsidiary, except (v) in the case of TriNet, for
regular quarterly dividends not in excess of $.65 per share of TriNet Common
Stock and on and after December 1, 1999 $.70 per share of TriNet Common Stock,
$.585938 per share of TriNet Series A Preferred Stock, $.575 per share of TriNet
Series B Preferred Stock and $.50 per share of TriNet Series C Preferred Stock,
(w) any other distributions by any other wholly owned TriNet Subsidiaries, (x)
the Final TriNet Dividend to be paid pursuant to Section 2.2(d)(i), (y) other
dividends necessary in order for TriNet to maintain its status as a REIT and (z)
required distributions under the organizational documents governing the TriNet
Subsidiaries or under other agreements to which the TriNet Subsidiaries are a
party; (ii) split, combine or reclassify any
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capital stock or partnership interests or issue or authorize the issuance of any
other securities in respect of, in lieu of, or in substitution for, shares of
such stock or partnership interests or (iii) purchase, redeem or otherwise
acquire any shares of stock of TriNet or any options, warrants or rights to
acquire, or security convertible into, shares of stock of TriNet except in
connection with the use of TriNet Common Stock to pay the exercise price or tax
withholding obligation upon the exercise of a TriNet Stock Option issued under
any of the TriNet Stock Plans as presently permitted under those plans;
(b) issue, deliver or sell, or grant any option or other right in respect
of, any shares of capital stock, any other voting or redeemable securities of
TriNet or any TriNet Subsidiary or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting securities or
convertible or redeemable securities except to TriNet or a TriNet Subsidiary,
except as permitted or required in connection with the exercise of outstanding
options under the TriNet Option Plans or under any TriNet dividend reinvestment
plan currently in effect, and except as permitted under Section 4.1(e);
(c) amend TriNet's charter or bylaws, or any other comparable charter or
organizational documents of any TriNet Subsidiary, except as otherwise
contemplated by this Agreement or except for amendments to the organizational
documents of the TriNet Subsidiaries to reflect the admission of new equity
members and for other administrative matters;
(d) merge, consolidate or enter into any other business combination
transaction with any Person;
(e) (i) acquire or agree to acquire by merging or consolidating with, or by
purchasing all or a substantial portion of the equity securities or assets of,
or by any other manner, any business or any corporation, partnership, limited
liability company, joint venture, association, business trust or other business
organization or division thereof or interest therein or any assets; (ii)
mortgage or otherwise encumber or subject to any Lien or sell, lease or
otherwise dispose of any of its material properties or assets or assign or
encumber the right to receive income, dividends, distributions and the like or
agree to do any of the foregoing, other than leases with respect to TriNet
Properties which are entered into in the ordinary course of TriNet's business,
consistent with past practice; or (iii) incur indebtedness for borrowed money or
guarantee any indebtedness of another person, other than a TriNet Subsidiary,
issue or sell any debt securities or warrants or other rights to acquire any
debt securities of TriNet or any TriNet Subsidiary, guarantee any debt
securities of another person, enter into any "keep well" or other agreement to
maintain any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, prepay or
refinance any indebtedness or make any loans, advances or capital contributions
to, or investments in, any other Person other than the TriNet Subsidiaries,
except that TriNet and the TriNet Subsidiaries may borrow and re-borrow, up to
the limits in effect on the date of this Agreement, under the Amended and
Restated Credit Agreement, dated as of June 1, 1998 among TriNet, Morgan
Guaranty Trust Company and the other lenders named therein (the "TRINET
REVOLVER") and TriNet and the TriNet Subsidiaries may refinance indebtedness
outstanding on the date of this Agreement when it matures, provided that the
replacement indebtedness may be prepaid at any time without penalty;
(f) make any election relating to Taxes, other than an election which is
not reasonably expected to affect the amount or timing of items of income, gain,
loss or deductions of greater than $5,000,000 on a cumulative basis or Taxes in
any year of greater than $500,000 (unless such action is required by law or
necessary to preserve TriNet's status as a REIT or any TriNet Subsidiary as a
partnership for federal tax purposes);
(g) (i) change in any material manner any of its methods, principles or
practices of accounting in effect at the TriNet Financial Statement Date, or
(ii) settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy in each case
relating to taxes, or change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of its federal income tax return for the taxable year ended December
31, 1997, except, in the case of clause (i), as may be required by the SEC,
applicable Law or GAAP and, in the case of clause (ii), as may be required by
applicable Law;
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(h) except as otherwise previously agreed to by Starwood in writing, adopt
any new employee benefit plan, incentive plan, severance plan, bonus plan, stock
option or similar plan, grant new stock appreciation rights or amend any
existing plan or rights, or enter into or amend any employment agreement or
similar agreement or arrangement or, except in the ordinary course consistent
with past practice, grant or become obligated to grant any increase in the
compensation of officers or employees, except such changes as are required by
law or which are not more favorable to participants than provisions currently in
effect;
(i) settle any stockholder derivative or class action claims arising out of
or in connection with any of the transactions contemplated by this Agreement;
(j) enter into or amend or otherwise modify any of the material terms of
any agreement or arrangement with persons that are affiliates or, as of the date
hereof, are officers or directors of TriNet or any TriNet Subsidiary without
prior written notice to Starwood and the approval of a majority of the
"independent" members of the Board of Directors of TriNet; or
(k) expend more than $3,000,000 in the aggregate for capital expenditures
or commit to do the foregoing other than those projects, repairs or renovations
in progress on the date hereof or which are required to be performed by TriNet
under a TriNet Lease or existing letter of intent to which TriNet or a TriNet
Subsidiary is a party, in each case as described in Section 4.1(k) of the TriNet
Disclosure Letter, and other than to fund, to the extent necessary, the
operations of the properties in the event of a tenant default.
Section 4.2. CONDUCT OF BUSINESS BY STARWOOD. Except as set forth in
Section 4.2 of the Starwood Disclosure Letter, and as contemplated by this
Agreement and the Ancillary Agreements to which Starwood is a party, during the
period from the date of this Agreement to the earlier of (i) the termination of
this Agreement and (ii) the Effective Time, Starwood shall, and shall cause the
Starwood Subsidiaries to, carry on its and their businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and, to the extent consistent therewith, use commercially reasonable
efforts to preserve intact in all material respects its current business
organization, goodwill, ongoing businesses and Starwood's status as a REIT
within the meaning of the Code. Without limiting the generality of the
foregoing, during the period from the date of this Agreement to the earlier of
(i) the termination of this Agreement and (ii) the Effective Time, except as set
forth in Section 4.2 of the Starwood Disclosure Letter, and as contemplated by
this Agreement and the Ancillary Agreements, Starwood shall not (and shall not
authorize, commit or agree to) and shall cause the Starwood Subsidiaries not to
(and not to authorize or commit or agree to):
(a) (i) declare, set aside or pay any dividends on, or make any
distributions in respect of, any of Starwood's shares of beneficial interest or
any stock or other equity interests in any Starwood Subsidiary that is not
directly or indirectly wholly owned by Starwood except (u) in the case of
Starwood, for aggregate dividends on Starwood's common shares of beneficial
interest not in excess of the greater of (A) 100% of the consolidated funds from
operations of Starwood and the Starwood Subsidiaries and (B) 100% of the
consolidated REIT taxable income of Starwood and the Starwood Subsidiaries, in
each case for the applicable dividend period, and for dividends required to be
paid on Starwood's preferred shares of beneficial interest in accordance with
their terms, (v) any distributions by any other wholly owned Starwood
Subsidiary, (w) dividends payable by Starwood pursuant to Section 2.2(d)(i), (x)
other dividends necessary in order for Starwood to maintain its status as a REIT
and (z) required distributions under the organizational documents governing the
Starwood Subsidiaries or under other agreements to which the Starwood
Subsidiaries are a party; (ii) split, combine or reclassify any shares of
beneficial interest or partnership interests or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for such
shares of beneficial interest or partnership interests, except pursuant to the
Advisor Transaction and the Incorporation Merger or (iii) purchase, redeem or
otherwise acquire any shares of beneficial interest of Starwood or any options,
warrants or rights to acquire, or security convertible into, shares of
beneficial interest of Starwood, except in connection with the use of Starwood
Common Stock to pay the exercise price or withholding tax obligation upon the
exercise of any Starwood Stock Option, upon
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the exercise of any Starwood Warrants or under the Starwood Stock Plan as
presently permitted under that plan;
(b) issue, deliver or sell, or grant any option or other right in respect
of, any shares of beneficial interest, any other voting or redeemable securities
of Starwood or any Starwood Subsidiary or any securities convertible into, or
any rights, warrants or options to acquire, any such shares, voting securities
or convertible or redeemable securities except to Starwood or a Starwood
Subsidiary except (i) pursuant to the Advisor Transaction, the Incorporation
Merger and the Stock Dividend, (ii) for issuances of shares of beneficial
interest of Starwood in an amount not to exceed in the aggregate 19.9% of the
aggregate issued and outstanding shares of beneficial interest of Starwood on
the date of this Agreement and (iii) for issuances of Starwood Class B Common
Shares upon the exercise of outstanding Starwood Stock Options pursuant to
Section 6.1 of Starwood's Declaration of Trust;
(c) amend Starwood's declaration of trust, bylaws or other comparable
charter or organizational documents of Starwood or any Starwood Subsidiary,
except as otherwise contemplated by this Agreement, pursuant to the Advisor
Transaction and the Incorporation Merger or except for amendments to the
organizational documents of the Starwood Subsidiaries to reflect the admission
of new equity members and for other administrative matters;
(d) subject to Section 4.2(b) hereof, merge, consolidate or enter into any
other business combination with any Person except for any merger, consolidation
or business combination, as a result of which (i) Starwood is the surviving or
successor Person or the ultimate parent of the surviving or successor Person and
(ii) no change of control of Starwood will occur;
(e) subject to Section 4.2(b) hereof, (i) acquire or agree to acquire by
purchasing all or a substantial portion of the equity securities or assets of,
or by any other manner, any business or any corporation, partnership, limited
liability company, joint venture, association, business trust or other business
organization or division thereof or interest therein or any assets in
transactions involving capital, securities, assets or indebtedness, or any
combination thereof, of Starwood or Starwood Subsidiaries in excess of
$250,000,000, for all such transactions in the aggregate, except (x) for
acquisitions of businesses whose primary activities are similar or closely
related to the businesses currently conducted by Starwood or any of the
Subsidiaries or whose assets consist primarily of assets similar to the Starwood
Loans, (y) as otherwise necessary in order for Starwood to maintain its status
as a REIT and (z) that Starwood may originate or otherwise acquire assets of
types similar to the Starwood Loans in the ordinary course of its business
without restriction; (ii) other than in the ordinary course of business or in
connection with (x) borrowings under Starwood's existing credit lines, (y)
refinancings of outstanding indebtedness of Starwood and (z) securitizations of
Starwood Loans, mortgage or otherwise materially encumber or subject to any Lien
or sell, lease or otherwise dispose of any of its material properties or assets
or assign or materially encumber the right to receive income, dividends,
distributions and the like or agree to do any of the foregoing; (iii) incur
indebtedness for borrowed money or guarantee any indebtedness of another person,
issue or sell any debt securities or warrants or other rights to acquire any
debt securities of Starwood or any Starwood Subsidiary; guarantee any debt
securities of another person; enter into any "keep well" or other agreement to
maintain any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing or prepay or
refinance any indebtedness if, as a result of any of the activities described in
this clause (iii), the ratio of Starwood's consolidated debt to consolidated
equity, as determined in accordance with GAAP and based the most recent
consolidated balance sheet of Starwood included in the Starwood SEC Documents
filed through the time of the activity in question, would exceed 2.0:1.0 or (iv)
make any loans, advances or capital contributions to, or investments in, any
other person other than loans, advances, capital contributions or investments
which are (A) specifically permitted by this Agreement, (B) consistent with the
types of activities Starwood engages in the ordinary course of its business or
(C) not in excess of $100,000,000 in the aggregate;
(f) (i) change in any material manner any of its methods, principles or
practices of accounting in effect at the Starwood Financial Statement Date or
(ii) settle or compromise any claim, action, suit,
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litigation, proceeding, arbitration, investigation, audit or controversy in each
case relating to taxes, except in the case of settlements or compromises
relating to taxes on real property or sales taxes in an amount not to exceed,
individually or in the aggregate, $5,000,000, except, in the case of clause (i),
as may be required by the SEC, applicable Law or GAAP and, in the case of clause
(ii) as may be required by applicable Law;
(g) except as provided in this Agreement, adopt any new employee benefit
plan, incentive plan, severance plan, bonus plan, stock option or similar plan,
grant new stock appreciation rights or amend any existing plan or rights, or
enter into or amend any employment agreement or similar agreement or arrangement
(other than as contemplated under Section 5.11) or, except in the ordinary
course consistent with past practice, grant or become obligated to grant any
increase in the compensation of officers or employees, except such changes as
are required by law or which are not more favorable to participants than
provisions currently in effect;
(h) enter into, amend or otherwise modify any of the material terms of, any
agreement or arrangement with persons that are affiliates or, as of the date
hereof, are officers or trustees of Starwood or any Starwood Subsidiary, except
that in connection with the transactions contemplated by the Advisor Transaction
Agreement, Starwood may terminate the Financial Advisory Agreement, dated as of
March 18, 1998, between Starwood and the Starwood Advisors L.L.C.
(i) expend more than $3,000,000 in the aggregate for capital expenditures
or commit to do the foregoing other than those projects, repairs or renovations
in progress on the date hereof or which are required to be performed by Starwood
under a Starwood Lease or existing letter of intent to which Starwood or a
Starwood Subsidiary is a party, in each case as described in Section 4.2(i) of
the Starwood Disclosure Letter; or
(j) other than after consultation with TriNet, settle any stockholder
derivative or class action claims arising out of or in connection with any of
the transactions contemplated by this Agreement; PROVIDED, HOWEVER, that
Starwood shall not enter into any such settlement which provides, as part of the
settlement, for an injunction to be issued against the consummation of the
transactions contemplated by this Agreement.
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Section 4.3. OTHER ACTIONS.
(a) Each of TriNet and Starwood shall use its commercially reasonable
efforts not to, and shall use its commercially reasonable efforts to cause its
respective subsidiaries not to take any action that would result in (i) any of
the representations and warranties of such party (without giving effect to any
"Knowledge" qualification) set forth in this Agreement that are qualified as to
materiality becoming untrue, (ii) any of such representations and warranties
(without giving effect to any "Knowledge" qualification) that are not so
qualified becoming untrue in any material respect or (iii) any of the conditions
to the Merger set forth in Article VI not being satisfied.
(b) Starwood shall, in connection with the transactions contemplated by
this Agreement, take all actions necessary to give effect to the exchange or
redemption rights in favor of joint venture partners of TriNet or any TriNet
Subsidiaries that are listed in Section 4.3(b) of the TriNet Disclosure Letter.
Such actions shall include, without limitation, the assumption of the
obligations of TriNet and any TriNet Subsidiary with respect to such exchange or
redemption rights that are disclosed in Section 4.3(b) of the TriNet Disclosure
Letter and the entering into of registration rights agreements with such joint
venture partners comparable to those heretofore entered into by TriNet or such
TriNet Subsidiary and that are listed in Section 4.3(b) of the TriNet Disclosure
Letter.
(c) Starwood shall notify TriNet of (i) any foreclosure by a lender on
shares of beneficial interest of Starwood pledged to secure indebtedness of a
shareholder of Starwood who is a party to the Shareholder Agreement, or (ii) the
occurrence of an "Event of Default" (an "EVENT OF DEFAULT") or "Additional
Acceleration Event" (an "ADDITIONAL ACCELERATION EVENT") under the Credit and
Guaranty Agreement among Starwood Opportunity Fund IV, L.P., a Delaware limited
partnership, SOFI-IV SMT Holdings, L.L.C., a Delaware limited liability company,
certain guarantors listed therein and General Electric Capital Corporation, a
New York corporation ("GECC"), in each case within two business days after such
foreclosure, Event of Default or Additional Acceleration Event, as the case may
be.
ARTICLE V
ADDITIONAL COVENANTS
Section 5.1. PREPARATION OF THE REGISTRATION STATEMENT AND THE PROXY
STATEMENT; SHAREHOLDERS' MEETINGS; CONSENTS.
(a) As soon as practicable following the date of this Agreement, TriNet and
Starwood shall jointly (i) prepare and file the Proxy Statement with the SEC,
with appropriate requests for confidential treatment, in form and substance
satisfactory to each of Starwood and TriNet, and Starwood will provide on a
supplemental basis to the SEC the Registration Statement, in which the Proxy
Statement will be included as a prospectus. Each of TriNet and Starwood shall
use its commercially reasonable efforts to cause and enable Starwood to (i)
respond to any comments of the staff of the SEC and (ii) have the Registration
Statement declared effective under the Securities Act and the rules and
regulations promulgated thereunder as promptly as practicable after such filing
and to keep the Registration Statement effective as long as is necessary to
consummate the Merger and the Advisor Transaction. Each of TriNet and Starwood
will use its commercially reasonable efforts to cause the Proxy Statement to be
mailed to TriNet's shareholders and Starwood's shareholders, respectively, as
promptly as practicable after the Registration Statement is declared effective
under the Securities Act. Each party will notify the other promptly of the
receipt of any comments from the SEC and of any request by the SEC for
amendments or supplements to the Registration Statement or the Proxy Statement
or for additional information and will supply the other with copies of all
correspondence between such party or any of its representatives and the SEC with
respect to the Registration Statement or the Proxy Statement. The Registration
Statement and the Proxy Statement shall comply in all material respects with all
applicable requirements of Law. Whenever any event occurs which is required to
be set forth in an amendment or supplement to the Registration Statement or the
Proxy Statement, Starwood or TriNet, as the case may be, shall promptly inform
the other of such occurrences and cooperate in filing with the SEC and/or
mailing to the
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shareholders of Starwood and the shareholders of TriNet such amendment or
supplement in a form reasonably acceptable to Starwood and TriNet.
(b) TriNet will, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
shareholders (the "TRINET SHAREHOLDERS MEETING") (but in no event shall such
meeting be held sooner than 20 business days following the date the Proxy
Statement is mailed to its shareholders), for the purpose of obtaining the
TriNet Shareholder Approval. Starwood will, as soon as practicable following the
date of this Agreement, duly call, give notice of, convene and hold a meeting of
its shareholders (the "STARWOOD SHAREHOLDERS MEETING") (but in no event shall
such meeting be held sooner than 20 business days following the date the Proxy
Statement is mailed to its shareholders), for the purpose of obtaining the
Starwood Shareholder Approvals and, if necessary, the approval of its
shareholders to amend the declaration of trust and bylaws of Starwood in the
manner contemplated by Section 1.7. TriNet and Starwood will cooperate in good
faith to seek to ensure that the TriNet Shareholder Meeting and the Starwood
Shareholder Meeting are held on the same day, as close together in time as is
reasonably practicable. Starwood covenants that Starwood will, through its Board
of Trustees, recommend to its shareholders approval of the Merger, this
Agreement, the Advisor Transaction, the Advisor Transaction Agreement, the
Incorporation Merger and the Incorporation Merger Agreement and the transactions
contemplated hereby and thereby and further covenants that the Proxy Statement
will include such recommendation. TriNet covenants that, subject to Section 7.1,
TriNet will, through its Board of Directors, recommend to its shareholders
approval of the Merger, this Agreement and the other transactions contemplated
hereby and thereby and further covenants that the Proxy Statement will include
such recommendation. Starwood shall furnish all information concerning New
Starwood and the holders of New Starwood Common Stock as may reasonably be
requested in connection with any action required to be taken under any
applicable state securities or "blue sky" laws in connection with the issuance
of New Starwood Common Stock and New Starwood Preferred Stock pursuant to the
Merger and the Advisor Transaction, and TriNet shall furnish all information
concerning TriNet and the holders of TriNet Common Stock and TriNet Preferred
Stock as may be reasonably requested in connection with any such action. In
connection with the preparation of the Proxy Statement and the Registration
Statement, Starwood shall use reasonable efforts to cause to be delivered to
TriNet, prior to the mailing of the Proxy Statement to TriNet's shareholders and
Starwood's shareholders, the opinion dated the date of the Proxy Statement of
Katten Muchin & Zavis, substantially in the form of EXHIBIT M, regarding the
historical treatment of certain partnerships, Mayer, Brown & Platt,
substantially in the form attached hereto as EXHIBIT N, regarding the historical
qualification of Starwood as a REIT under the Code, and the opinion of Rogers &
Wells LLP, substantially in the form attached hereto as EXHIBIT O, regarding the
prospective qualification of New Starwood as a REIT under the Code. In issuing
its opinion, Rogers & Wells LLP shall be permitted to rely on the opinion of
Mayer, Brown & Platt and on the opinion of Paul, Weiss, Rifkind, Wharton &
Garrison described in the next sentence. In connection with the preparation of
the Proxy Statement and the Registration Statement, TriNet shall use reasonable
efforts to cause to be delivered to Starwood, prior to the mailing of the Proxy
Statement to TriNet's shareholders and Starwood's shareholders, the opinion
dated the date of the Proxy Statement of Paul, Weiss, Rifkind, Wharton &
Garrison substantially in the form attached hereto as EXHIBIT P regarding the
qualification of TriNet as a REIT under the Code.
Section 5.2. ACCESS TO INFORMATION; CONFIDENTIALITY. Each of TriNet and
Starwood shall, and shall cause each of its respective Subsidiaries to, afford
to the other party and to the officers, employees, accountants, counsel,
financial advisors and other representatives of such other party, reasonable
access during normal business hours during the period prior to the Effective
Time to all their respective properties, books, contracts, commitments,
personnel and records and, during such period, each of TriNet and Starwood
shall, and shall cause each of its respective subsidiaries to, furnish promptly
to the other party (a) a copy of each report, schedule, registration statement
and other document filed by it during such period pursuant to the requirements
of federal or state securities laws and (b) all other information concerning its
business, properties and personnel as such other party may reasonably request.
Each of TriNet and Starwood will hold, and will use commercially reasonable
efforts to cause its respective officers
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and employees (and those of its respective subsidiaries), accountants, counsel,
financial advisors and other representatives and affiliates to hold any
nonpublic information in confidence to the extent required by, and in accordance
with, and will comply with the provisions of the letter agreement between TriNet
and Starwood dated as of February 25, 1999, as amended to date (as so amended,
the "CONFIDENTIALITY AGREEMENT").
Section 5.3. COMMERCIALLY REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of Starwood and TriNet agrees to use its commercially reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other in doing, all things necessary,
proper or advisable to fulfill all conditions applicable to such party pursuant
to this Agreement and to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated hereby,
including (i) the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from Governmental Entities and the making of all
necessary registrations and filings and the taking of all reasonable steps as
may be necessary to obtain an approval, waiver or exemption from, or to avoid an
action or proceeding by, any Governmental Entity, (ii) the obtaining of all
necessary consents, approvals, waivers or exemption from non-governmental third
parties; (iii) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging the Merger, the Advisor Transaction, the
Incorporation Merger or the consummation of the transactions contemplated by
this Agreement, the Advisor Transaction Agreement, the Incorporation Merger
Agreement and the other Ancillary Agreements including seeking to have any stay
or temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and fully
to carry out the purposes of, this Agreement, the Advisor Transaction Agreement,
the Incorporation Merger Agreement and the other Ancillary Agreements. In
connection with and without limiting the foregoing, TriNet, Starwood and their
respective Boards of Directors or Trustees, as applicable, shall (x) take all
action necessary so that no "fair price," "business combination," "moratorium,"
"control share acquisition" or any other anti-takeover statute or similar
statute enacted under state or federal laws of the United States or similar
statute or regulation (a "TAKEOVER STATUTE") is or becomes applicable to the
Merger or the Advisor Transaction, and (y) if any Takeover Statute becomes
applicable, take all action necessary so that the Merger or the Advisor
Transaction may be consummated as promptly as practicable on the terms
contemplated by this Agreement or the Advisor Transaction Agreement, as
applicable, and otherwise to minimize the effect of such Takeover Statute on the
Merger and the Advisor Transaction. From the date hereof through the Effective
Time, TriNet shall timely file with the SEC all TriNet SEC Documents required to
be so filed. From the date hereof through the Effective Time, Starwood shall
timely file with the SEC all Starwood SEC Documents required to be so filed.
Subject to the provisions of the Advisor Transaction Agreement, the
Incorporation Merger Agreement and Section 2.1(b)(ii), Starwood shall consummate
the Advisor Transaction and the Incorporation Merger as promptly as reasonably
practicable following the satisfaction or waiver of the conditions set forth in
Article VI of this Agreement. Without the consent of TriNet (which will not
unreasonably be withheld or delayed), Starwood will not consent to any amendment
or other modification, waive any material right or condition under the Advisor
Transaction Agreement or the Incorporation Merger Agreement or terminate the
Advisor Transaction Agreement.
(b) TriNet shall give prompt notice to Starwood, and Starwood shall give
prompt notice to TriNet, if (i) any representation or warranty made by it
contained in this Agreement, the Advisor Transaction Agreement or the
Incorporation Merger Agreement that is qualified as to materiality becomes
untrue or inaccurate in any respect or any such representation or warranty that
is not so qualified becomes untrue or inaccurate in any material respect or (ii)
it fails to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement, the Advisor Transaction Agreement or the Incorporation Merger
Agreement; PROVIDED, HOWEVER, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
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Section 5.4. AFFILIATES. Prior to the Closing Date, TriNet and Starwood
shall exchange letters identifying all persons who are, at the time this
Agreement is submitted for approval to the shareholders of TriNet and Starwood,
their respective "affiliates" for purposes of Rule 145 under the Securities Act.
TriNet and Starwood shall use their respective commercially reasonable efforts
to cause each of their respective affiliates to deliver on or prior to the
Closing Date a written agreement substantially in the form attached as EXHIBIT Q
hereto.
Section 5.5. TAX TREATMENT. Each of Starwood and TriNet shall use its
commercially reasonable efforts to (a) cause the Merger to qualify as a tax-free
reorganization under Section 368(a) of the Code and (b) obtain the opinions of
counsel referred to in Sections 5.1(b), 6.2(e) and 6.3(e).
Section 5.6. NO SOLICITATION OF TRANSACTIONS.
(a) Subject to Section 7.1, TriNet shall not directly or indirectly,
through any officer, director, trustee, employee, agent, investment banker,
financial advisor, attorney, accountant, broker, finder or other representative,
initiate, solicit, encourage or facilitate (including by way of furnishing
nonpublic information or assistance) any inquiries or the making of any proposal
or other action that constitutes, or may reasonably be expected to lead to, any
TriNet Competing Transaction (as defined below), or enter into or maintain or
continue discussions or negotiate with any person in furtherance of such
inquiries or to obtain a TriNet Competing Transaction, or agree to or endorse
any TriNet Competing Transaction, or authorize or permit any of its officers,
directors, trustees, employees or agents, attorneys, investment bankers,
financial advisors, accountants, brokers, finders or other representatives to
take any such action. TriNet shall notify Starwood in writing (as promptly as
practicable) of all of the relevant details relating to all inquiries and
proposals which it or any of its Subsidiaries or any such officer, director,
employee, agent, investment banker, financial advisor, attorney, accountant,
broker, finder or other representative may receive relating to any of such
matters and if such inquiry or proposal is in writing, TriNet shall deliver to
Starwood a copy of such inquiry or proposal. For purposes of this Agreement,
"TRINET COMPETING TRANSACTION" shall mean any of the following (other than the
transactions expressly provided for in this Agreement or described in the TriNet
Disclosure Letter): (i) any merger, consolidation, share exchange, business
combination or similar transaction involving TriNet (or any of its
Subsidiaries), as the case may be; (ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of 20% or more of the assets of TriNet and
its Subsidiaries, taken as a whole, in a single transaction or series of related
transactions, excluding any bona fide financing transactions which do not,
individually or in the aggregate, have as a purpose or effect the sale or
transfer of control of such assets; (iii) any tender offer or exchange offer for
20% or more of the outstanding equity securities of TriNet (or any of its
Subsidiaries), or (iv) any public announcement of a proposal, plan or intention
to do any of the foregoing or any agreement to engage in any of the foregoing.
(b) Starwood shall not directly or indirectly, through any officer,
director, trustee, employee, agent, investment banker, financial advisor,
attorney, accountant, broker, finder or other representative, initiate, solicit,
encourage or facilitate (including by way of furnishing nonpublic information or
assistance) any inquiries or the making of any proposal or other action that
constitutes, or may reasonably be expected to lead to, any Starwood Competing
Transaction (as defined below), or enter into or maintain or continue
discussions or negotiate with any person in furtherance of such inquiries or to
obtain a Starwood Competing Transaction, or agree to or endorse any Starwood
Competing Transaction, or authorize or permit any of its officers, directors,
trustees, employees or agents, attorneys, investment bankers, financial
advisors, accountants, brokers, finders or other representatives to take any
such action. Starwood shall notify TriNet in writing (as promptly as
practicable) of all of the relevant details relating to all inquiries and
proposals which it or any of its Subsidiaries or any such officer, director,
employee, agent, investment banker, financial advisor, attorney, accountant,
broker, finder or other representative may receive relating to any of such
matters and if such inquiry or proposal is in writing, Starwood shall deliver to
TriNet a copy of such inquiry or proposal. For purposes of this Agreement,
"STARWOOD COMPETING TRANSACTION" shall mean
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any of the following (other than the transactions expressly provided for in this
Agreement, the Incorporation Merger Agreement and the Advisor Transaction
Agreement or described in the Starwood Disclosure Letter): (i) any merger,
consolidation, share exchange, business combination or similar transaction
involving Starwood (or any of its Subsidiaries), as the case may be, which is
required under applicable Law or under the rules of the principal securities
exchange on which the Starwood Common Stock is then listed to be submitted to
Starwood's shareholders for approval, (ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of more than 20% of the assets of Starwood
and its Subsidiaries, taken as a whole, in a single transaction or series of
related transactions, excluding any bona fide financing transactions which do
not, individually or in the aggregate, have as a purpose or effect the sale or
transfer of control of such assets; (iii) any tender offer or exchange offer for
more than 20% of the outstanding equity securities of Starwood (or any of its
Subsidiaries); or (iv) any public announcement of a proposal, plan or intention
to do any of the foregoing or any agreement to engage in any of the foregoing.
Section 5.7. PUBLIC ANNOUNCEMENTS. Starwood and TriNet will consult with
each other before issuing, and provide each other the opportunity to review and
comment upon, any press release or other public statements with respect to the
Merger or any other transactions contemplated by this Agreement, and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued with
respect to the Merger will be in the form agreed to by the parties hereto prior
to the execution of this Agreement.
Section 5.8. AMEX DE-LISTING; NYSE LISTING. Starwood shall prepare and
submit to the NYSE a listing application covering the New Starwood Common Stock
(including the New Starwood Common Stock to be issued in the Merger and the
Advisor Transaction) and New Starwood Preferred Stock and shall use its
commercially reasonable efforts to have the NYSE approve for listing, upon
official notice of issuance, the New Starwood Common Stock and New Starwood
Preferred Stock. In the event that all such securities are approved for listing
on the NYSE, Starwood shall take such steps as are necessary to cause all
Starwood securities listed on the American Stock Exchange ("AMEX") to be
de-listed as of the Effective Time.
Section 5.9. LETTERS OF ACCOUNTANTS.
(a) TriNet shall use its reasonable best efforts to cause to be delivered
to Starwood and TriNet a "comfort" letter of PricewaterhouseCoopers LLP,
TriNet's independent public accountants, dated and delivered the date on which
the Registration Statement shall become effective and as of the Effective Time,
and addressed to Starwood and TriNet, in form and substance reasonably
satisfactory to Starwood and TriNet and reasonably customary in scope and
substance for letters delivered by independent public accountants in connection
with transactions such as those contemplated by this Agreement.
(b) Starwood shall use its reasonable best efforts to cause to be delivered
to TriNet and Starwood a "comfort" letter of PricewaterhouseCoopers LLP,
Starwood's independent public accountants, dated and delivered the date on which
the Registration Statement shall become effective and as of the Effective Time,
and addressed to TriNet and Starwood, in form and substance reasonably
satisfactory to TriNet and Starwood and reasonably customary in scope and
substance for letters delivered by independent public accountants in connection
with transactions such as those contemplated by this Agreement.
Section 5.10. TRANSFER AND GAINS TAXES; SHAREHOLDER DEMAND
LETTERS. Starwood and TriNet shall cooperate in the preparation, execution and
filing of all returns, questionnaires, applications or other documents regarding
any real property transfer or gains, sales, use, transfer, value added stock
transfer and stamp taxes, any transfer, recording, registration and other fees
and any similar taxes which become payable in connection with the transactions
contemplated by this Agreement (together with any related interests, penalties
or additions to tax, "TRANSFER AND GAINS TAXES"). Within 30 days after the
Effective
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Time, Starwood shall send the shareholder demand letters required by Treasury
Regulation Section 1.857-8 to the appropriate shareholders of TriNet for
TriNet's taxable year ended on the Effective Time.
Section 5.11. BENEFIT PLANS AND OTHER EMPLOYEE ARRANGEMENTS.
(a) BENEFIT PLANS. Subject to subsection (b) below, upon and after the
Effective Time, Starwood (or its respective successors or assigns) shall provide
benefits to former employees of TriNet and its Subsidiaries that are no less
favorable in the aggregate to such employees than those provided to other
similarly situated employees of Starwood at any applicable time after the
termination of the benefits provided to such employees by TriNet and the TriNet
Subsidiaries. With respect to any Starwood Benefit Plan which is an "employee
benefit plan" as defined in Section 3(3) of ERISA and any other service based
benefits (including vacations) in which employees of TriNet or Starwood or their
respective Subsidiaries may participate, solely for purposes of determining
eligibility to participate, vesting and entitlement to benefits but not for
purposes of accrual of pension benefits, service with TriNet, Starwood or any of
their respective Subsidiaries shall be treated as service with Starwood;
PROVIDED, HOWEVER, that such service shall not be recognized to the extent that
such recognition would result in a duplication of benefits under both a TriNet
Benefit Plan and a Starwood Benefit Plan (or is not otherwise recognized for
such purposes under the benefit plan of Starwood). Notwithstanding the above,
Starwood shall specifically assume TriNet's obligations under the change of
control agreements and TriNet employee severance policy listed or described in
Section 5.11(a) of the TriNet Disclosure Letter and honor all obligations
arising thereunder.
(b) STOCK INCENTIVE PLANS. Each holder (each an "OPTIONHOLDER") of a
TriNet Stock Option shall have the right, within 10 business days after receipt
by such Optionholder of written notice from New Starwood of the "MARKET PRICE"
(as defined below) and subject to such rules and procedures (including, without
limitation, any requirement that written forms be executed by each Optionholder)
as the Board of Directors of TriNet may establish in its sole discretion, to
elect one of the following choices with respect to the disposition of any such
Optionholder's TriNet Stock Options held by the Optionholder immediately prior
to the Effective Time in connection with the Merger:
(i) Each Optionholder (other than the members of the Board of Directors
of TriNet, each of whom agreed, subject to certain exceptions, not to
exercise his TriNet Stock Options pursuant to the terms and provisions of an
Option Standstill Agreement) may elect to receive, with respect to any such
Optionholder's TriNet Stock Options (each of which TriNet Stock Options
shall be deemed to have become vested immediately prior to the Effective
Time), cash in an amount equal to the difference between (x) the Market
Price of the shares of TriNet Common Stock subject to such TriNet Stock
Options and (y) the exercise price of such TriNet Stock Options, in which
event, following receipt by such Optionholder of such cash amount, such
Optionholder shall thereafter cease to have any right to purchase TriNet
Common Stock or shares of New Starwood Common Stock in connection with the
exercise of the TriNet Stock Options and all such TriNet Stock Options shall
be cancelled and terminated; or
(ii) Each Optionholder may elect, with respect to any of such
Optionholder's outstanding TriNet Stock Options, that such TriNet Stock
Option shall be assumed by Starwood and shall be deemed to constitute an
option to acquire, on substantially the same terms and conditions as were
applicable under such TriNet Stock Option (including, without limitation, as
to vesting and exercisability, it being understood that in the case of an
election under this clause (ii), (A) in the case of TriNet Stock Options
held by Optionholders that are either members of the Board of Directors of
TriNet on the date hereof or are persons listed in Section 5.11(b) of the
TriNet Disclosure Letter (each of whom is a party to an Agreement Regarding
Change of Control with TriNet), such TriNet Stock Options shall accordingly
vest immediately prior to the Effective Time and (B) in the case of TriNet
Stock Options held by all other Optionholders, notwithstanding the
foregoing, no effect shall be given to any provisions governing the terms of
such TriNet Stock Options that would result in the acceleration of vesting
of such TriNet Stock Options in connection with the execution and delivery
of this Agreement or the completion of the Merger), subject to the
requirements of Section 424(a) of the
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Code with respect to incentive stock options, the same number of shares of
New Starwood Common Stock as a holder of such TriNet Stock Option would have
been entitled to receive pursuant to the Merger had such holder exercised
such TriNet Stock Option in full immediately prior to the Effective Time at
a price per share equal to the aggregate exercise price for the shares
subject to such TriNet Stock Option divided by the number of full shares of
New Starwood Common Stock deemed to be purchasable pursuant to such TriNet
Stock Option; PROVIDED, HOWEVER, that the number of shares of Starwood
Common Stock that may be purchased upon exercise of each such TriNet Stock
Option shall not include any fractional share but shall be rounded upward to
the next whole number of shares, or if rounding up would disqualify an
option as an incentive stock option, shall be rounded down to the nearest
whole number and cash shall be paid to each affected optionee as
compensation for such fractional share in accordance with methodology set
forth in Section 2.2(g)(ii) hereof; PROVIDED, FURTHER, HOWEVER, that prior
to, or simultaneously with, the Effective Time, New Starwood shall use its
reasonable best efforts to cause to become effective under the Securities
Act, a Registration Statement on Form S-8 in compliance with the rules
promulgated under the Securities Act covering that number of shares of New
Starwood Common Stock that would become issuable upon the exercise of all
TriNet Options. The term "MARKET PRICE" shall mean the average of the
closing prices of the New Starwood Common Stock on the principal stock
exchange on which New Starwood Common Stock is listed for the five (5)
consecutive trading days beginning with the fourth trading day after the
Effective Time.
(iii) Each Starwood Stock Option shall continue in accordance with its
terms and conditions, including, without limitation, vesting and
exercisability.
(iv) Immediately prior to the Effective Time, TriNet shall take all
actions necessary to terminate the TriNet Stock Plans, TriNet's management
incentive (bonus) plans, Automatic Dividend Reinvestment Plan, Management
Stock Purchase Plan and Dividend Equivalent Rights Program (other than with
respect to Dividend Equivalent Rights Awards outstanding on the date hereof
and provisions of the Dividend Equivalent Rights Program with respect to the
vesting of such awards).
Section 5.12. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) (i) TriNet shall, and, from and after the Effective Time, Starwood
(collectively, the "INDEMNIFYING PARTIES") shall, jointly and severally,
indemnify, defend and hold harmless each Person who is now or has been at any
time prior to the date hereof or who becomes prior to the Effective Time, an
officer or director of TriNet or any TriNet Subsidiary (the "INDEMNIFIED
PARTIES") against, by paying directly on behalf of the Indemnified Parties, to
the extent permitted by law, all losses, claims, damages, costs, expenses
(including attorneys' fees and expenses), liabilities, judgments and amounts
that are or are to be paid in settlement of, with the approval of the
Indemnifying Parties (which approval shall not be unreasonably withheld or
delayed), or otherwise in connection with any threatened or actual claim,
action, suit, proceeding or investigation based on or arising out of the fact
that such person is or was a director or officer of TriNet or any TriNet
Subsidiary at or prior to the Effective Time, whether asserted or claimed prior
to, or at or after, the Effective Time ("INDEMNIFIED LIABILITIES"), including
all Indemnified Liabilities based on, or arising out of, or pertaining to this
Agreement, the Merger, or the transactions contemplated by this Agreement, in
each case to the full extent a corporation is permitted under the MGCL to
indemnify its own directors or officers, as the case may be (and Starwood will
pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the full extent permitted by law subject
to the limitations set forth in Section 5.12(a)(iii)).
(ii) Any Indemnified Parties proposing to assert the right to be
indemnified under this Section 5.12 shall, promptly after receipt of notice
of commencement of any action against such Indemnified Parties in respect of
which a claim is to be made under this Section 5.12 against TriNet and, from
and after the Effective Time, Starwood, notify the Indemnifying Parties of
the commencement of such action, enclosing a copy of all papers served;
PROVIDED, that the failure to so notify shall not limit in any way or
otherwise affect the obligations of the Indemnifying Parties, except to the
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extent such failure to notify materially prejudices such party. If any such
action is brought against any of the Indemnified Parties and such
Indemnified Parties notify the Indemnifying Parties of its commencement, the
Indemnifying Parties will assume the defense of such action and will pay the
costs and expenses of the defense; provided, however, that the Indemnifying
Parties will be entitled to participate in and, to the extent that they
elect by delivering written notice to such Indemnified Parties promptly
after receiving notice of the commencement of the action from the
Indemnified Parties, to assume the defense of the action and after notice
from the Indemnifying Parties to the Indemnified Parties of their election
to assume the defense, the Indemnifying Parties will not be liable to the
Indemnified Parties for any legal or other expenses except as provided below
and except for the reasonable costs of investigation subsequently incurred
by the Indemnified Parties in connection with the defense. The Indemnifying
Parties shall not settle any such action without the consent of the
Indemnified Parties; PROVIDED, HOWEVER, that such consent shall not be
unreasonably withheld, it being understood that it shall not be deemed
unreasonable to withhold such consent if the settlement includes any
admission of wrongdoing or payment of any money by or on the part of the
Indemnified Parties or any decree or restriction on the Indemnified Parties
or their officers or directors; PROVIDED, FURTHER, that no Indemnifying
Parties, in the defense of any such action shall, except with the consent of
the Indemnified Parties consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Parties of a release from
all liability with respect to such action. The Indemnified Parties will have
the right to employ their own counsel in any such action, but the fees,
expenses and other charges of such counsel will be at the expense of such
Indemnified Parties unless (i) the employment of counsel by the Indemnified
Parties has been authorized in writing by the Indemnifying Parties, (ii) the
Indemnified Parties have reasonably concluded (based on advice of counsel)
that there may be legal defenses available to them that are different from
or in addition to those available to the Indemnifying Parties, (iii) a
conflict or potential conflict exists (based on advice of counsel to the
Indemnified Parties) between the Indemnified Parties and the Indemnifying
Parties (in which case the Indemnifying Parties will not have the right to
direct the defense of such action on behalf of the Indemnified Parties) or
(iv) the Indemnifying Parties have not in fact employed counsel to assume
the defense of such action within a reasonable time after receiving notice
of the commencement of the action, in each of which cases the reasonable
fees, disbursements and other charges of counsel will be at the expense of
the Indemnifying Parties.
(iii) It is understood that the Indemnifying Parties shall not, in
connection with any proceeding or related proceedings, be liable for the
reasonable fees, disbursements and other charges of more than one separate
firm (and one local counsel in each jurisdiction in which such counsel is
reasonably required) at any one time for all such Indemnified Parties unless
(a) the employment of more than one counsel has been authorized in writing
by the Indemnifying Parties, (b) any of the Indemnified Parties has
reasonably concluded (based on advice of counsel) that there may be legal
defenses available to them that are different from or in addition to those
available to other Indemnified Parties or (c) a conflict or potential
conflict exists (based on advice of counsel to the Indemnified Parties)
between any of the Indemnified Parties and the other Indemnified Parties, in
each case of which the Indemnifying Parties shall be obligated to pay the
reasonable fees and expenses of such additional counsel or counsels.
(iv) The Indemnifying Parties will not be liable for any settlement of
any action or claim effected without their written consent (which consent
shall not be unreasonably withheld or delayed).
(b) Without limiting any of the obligations under paragraph (a) of this
Section 5.12, Starwood agrees that all rights to indemnification and all
limitations of liability existing in favor of the Indemnified Parties as
provided in TriNet's charter or bylaws as in effect as of the date hereof with
respect to matters occurring on or prior to the Effective Time shall survive the
Merger as obligations of New Starwood and continue in full force and effect for
a period of six years from the Effective Time.
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(c) At or prior to the Effective Time, Starwood shall purchase directors'
and officers' liability insurance "tail" policy coverage for TriNet's directors
and executive officers for a period of six years which will provide the
directors and officers with coverage on substantially similar terms as (but
which shall be no less favorable than those) currently provided by TriNet to
such directors and officers for claims based on activity prior to the Effective
Time; PROVIDED, HOWEVER, that Starwood shall have no obligation to pay aggregate
premiums for such coverage in excess of $350,000.
(d) The indemnification provided by this Section 5.12 shall (i) be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement, as a matter of law or otherwise, as to action in the Indemnitee's
capacity as a director or officer of TriNet and shall continue as to an
Indemnitee who has ceased to serve in such capacity and (ii) be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her personal representatives and shall be binding on all successors and
assigns of Starwood and TriNet.
Section 5.13. THE TRINET RIGHTS PLAN. TriNet has taken and shall take, in
a timely manner, all steps necessary to ensure that the entering into of this
Agreement and the Ancillary Agreements and the consummation of the transactions
contemplated hereby or thereby and any other action or combination of actions or
any other transactions contemplated hereby and thereby do not and will not
result in the grant of any rights to any person to exercise or receive
certificates for Rights or acquire any property in respect of Rights under the
Rights Agreement. TriNet shall not redeem the Rights issued under the Rights
Agreement, or terminate the Rights Agreement, prior to the Effective Time (other
than in accordance with the preceding sentence) unless required to do so by a
court of competent jurisdiction; PROVIDED, HOWEVER, that TriNet may take any of
the foregoing actions if the Board of Directors of TriNet shall have accepted a
proposal for a Superior TriNet Competing Transaction in accordance with the
terms of Section 7.1.
Section 5.14. COORDINATION OF DIVIDENDS. Each of Starwood and TriNet shall
coordinate with the other regarding the declaration and payment of dividends in
respect of New Starwood Common Stock and TriNet Common Stock and the record
dates and payment dates relating thereto, it being the intention of Starwood and
TriNet that any holder of TriNet Common Stock shall not receive two dividends,
or fail to receive one dividend, for any single calendar quarter with respect to
such holder's TriNet Common Stock and/or New Starwood Common Stock such holder
receives in exchange therefor pursuant to the Merger.
Section 5.15. [Intentionally deleted.]
Section 5.16. ENVIRONMENTAL REPORTS. Within 21 days after the date of this
Agreement, Starwood shall deliver to TriNet Phase I environmental assessments
with regard to the Starwood Properties listed in Section 5.16 of the Starwood
Disclosure Letter.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of TriNet and Starwood to effect the Merger
and to consummate the other transactions contemplated by this Agreement on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Effective Time of the following conditions:
(a) SHAREHOLDER APPROVALS. The TriNet Shareholder Approval and the
Starwood Merger Shareholder Approval and the Starwood Advisor Transaction
Shareholder Approval shall have been obtained.
(b) LISTING OF SHARES. The NYSE or the AMEX shall have approved for
listing the New Starwood Common Stock (including the New Starwood Common Stock
to be issued in the Merger and the Advisor Transaction) and the New Starwood
Preferred Stock.
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(c) REGISTRATION STATEMENT. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings by the SEC seeking a stop order.
(d) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger, the Incorporation Merger or the Advisor Transaction
shall be in effect.
(e) INCORPORATION MERGER AND ADVISOR TRANSACTION. Unless Starwood shall
have delivered the written notice to TriNet contemplated by Section 1.7, the
Incorporation Merger shall have occurred in accordance with the Incorporation
Merger Agreement. The Advisor Transaction Agreement shall be in full force and
effect and the Advisor Transaction shall occur simultaneously with the Merger in
accordance with the Advisor Transaction Agreement.
Section 6.2. CONDITIONS TO OBLIGATIONS OF STARWOOD. The obligation of
Starwood to effect the Merger and the Advisor Transaction on the Closing Date
are further subject to the following conditions, any one or more of which may be
waived by Starwood:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
TriNet set forth in this Agreement that are qualified by any "materiality,"
"Material Adverse Effect" or similar qualification or limitation shall be true
and correct, and the other representations and warranties of TriNet set forth in
this Agreement shall be true and correct in all material respects, in each case
on and as of the Closing Date as though made on and as of the Closing Date,
except to the extent the representation or warranty is expressly limited by its
terms to another date (in which case it shall be true and correct as of such
other date), and Starwood shall have received a certificate (which certificate
may be qualified by Knowledge to the same extent as such representations and
warranties are so qualified) signed on behalf of TriNet by the President and the
Chief Financial Officer of TriNet to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF TRINET. TriNet shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Time, and Starwood shall have received a
certificate signed on behalf of TriNet by the President and the Chief Financial
Officer of TriNet to such effect.
(c) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, no events
shall have occurred and no circumstances shall have occurred that, individually
or in the aggregate, have resulted in or would reasonably be expected to result
in a TriNet Material Adverse Effect. This condition shall be deemed not
satisfied if on the Closing Date there are Defaulted TriNet Leases, other than
the TriNet Leases described in Section 3.1(o)(v) of the TriNet Disclosure
Letter, that in the aggregate represent in excess of 5% of the consolidated
rental income of TriNet and the TriNet Subsidiaries for the fiscal quarter of
TriNet most recently completed. For purposes of this Section, a TriNet Lease
becomes a "DEFAULTED TRINET LEASE" when (i) a material uncured default in the
payment of monetary obligations due from the tenant or guarantor under the
TriNet Lease has occurred and is continuing beyond the applicable notice and
grace periods set forth in the applicable TriNet Lease and the amounts of such
monetary obligations are not the subject of a good faith dispute between TriNet
and the tenant or guarantor, (ii) the tenant or guarantor under the TriNet
Lease, pursuant to any bankruptcy law applicable to it, commences a voluntary
case, consents to the entry of an order for relief, consents to the appointment
of a custodian of it or a substantial part of its property or makes a general
assignment for the benefit of its creditors or (iii) a court of competent
jurisdiction enters an order or decree with regard to a tenant or guarantor
under a TriNet Lease under any applicable bankruptcy law for relief in an
involuntary case, appoints a custodian for the tenant or guarantor or any
substantial part of its property or orders the winding up or liquidation of the
tenant.
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(d) OPINIONS RELATING TO REIT STATUS. Starwood shall have received an
opinion dated as of the Closing Date of Paul, Weiss, Rifkind, Wharton &
Garrison, substantially in the form of EXHIBIT P attached hereto, regarding the
qualification of TriNet as a REIT under the Code and the treatment of the TriNet
Subsidiaries that are partnerships, limited liability companies or joint
ventures as partnerships or disregarded entities under the Code, and Paul,
Weiss, Rifkind, Wharton & Garrison shall have permitted Rogers & Wells LLP to
rely on its opinion for purposes of delivering the opinion required by Section
6.3(d).
(e) OTHER TAX OPINION. Starwood shall have received an opinion dated as of
the Closing Date from Rogers & Wells LLP in form reasonably satisfactory to
TriNet (subject to customary assumptions and qualifications, and based on
customary representations) to the effect that the Merger will qualify as a
tax-free reorganization under Section 368(a) of the Code.
(f) CONSENTS. All consents and waivers from third parties necessary in
connection with the consummation of the Merger shall have been obtained, other
than such consents and waivers from third parties, which (i) if not obtained,
would not result, individually or in the aggregate, in a TriNet Material Adverse
Effect or (ii) Starwood has previously acknowledged are consents or waivers
which, if not obtained, would not individually result in a TriNet Material
Adverse Effect.
Section 6.3. CONDITIONS TO OBLIGATION OF TRINET. The obligations of TriNet
to effect the Merger and to consummate the other transactions contemplated by
this Agreement to occur on the Closing Date are further subject to the following
conditions, any one or more of which may be waived by TriNet:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Starwood set forth in this Agreement that are qualified by any "materiality,"
"Material Adverse Effect" or similar qualification or limitation shall be true
and correct, and the other representations and warranties of Starwood set forth
in this Agreement shall be true and correct in all material respects, in each
case on and as of the Closing Date as though made on and as of the Closing Date,
except to the extent the representation or warranty is expressly limited by its
terms to another date (in which case it shall be true and correct as of such
other date), and TriNet shall have received a certificate (which certificate may
be qualified by knowledge to the same extent as such representations and
warranties are so qualified) signed on behalf of Starwood by the Chief Executive
Officer and the Chief Financial Officer of Starwood to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF STARWOOD. Starwood shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Time, and TriNet shall have received
a certificate signed on behalf of Starwood by the Chief Executive Officer and
the Chief Financial Officer of Starwood to such effect.
(c) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, no events
shall have occurred and no circumstances shall have occurred that, individually
or in the aggregate, have resulted in or would reasonably be expected to result
in a Starwood Material Adverse Effect.
(d) OPINIONS RELATING TO REIT AND PARTNERSHIP STATUS. TriNet shall have
received the opinions dated as of the Closing Date of Katten Muchin & Zavis
substantially in the form of EXHIBIT M attached hereto regarding the historical
treatment of Starwood Subsidiaries that are partnerships, limited liability
companies or joint ventures as partnerships or disregarded entities under the
Code, the opinion of Mayer, Brown & Platt substantially in the form of EXHIBIT N
attached hereto regarding the historical qualification of Starwood as a REIT
under the Code and the opinion of Rogers & Wells LLP substantially in the form
of EXHIBIT O attached hereto regarding the prospective qualification of New
Starwood, as a REIT under the Code and the treatment of Starwood Subsidiaries
that are partnerships, limited liability companies or joint ventures as
partnerships or disregarded entities under the Code. Katten Muchin & Zavis and
Mayer Brown & Platt shall have permitted Rogers & Wells LLP to rely on their
opinions for purposes of delivering its opinion required by this Section 6.3(d).
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(e) OTHER TAX OPINION. TriNet shall have received an opinion dated as of
the Closing Date from Paul Weiss, Rifkind, Wharton & Garrison in form reasonably
satisfactory to Starwood (subject to customary assumptions and qualifications,
and based on customary representations) to the effect that the Merger will
qualify as a tax-free reorganization under Section 368(a) of the Code.
(f) CONSENTS. All consents and waivers from third parties necessary in
connection with the consummation of the Merger shall have been obtained, other
than (i) such consents and waivers from third parties, which, if not obtained,
would not result, individually or in the aggregate, in a Starwood Material
Adverse Effect and (ii) any consent necessary under or in respect of the TriNet
Revolver.
(g) INCORPORATION MERGER REPRESENTATIONS. Unless Starwood shall have
delivered the written notice to TriNet contemplated in Section 1.7, the
representations and warranties of New Starwood set forth in the Incorporation
Merger Agreement shall be true and correct in all material respects on and as of
the Closing Date, as though made on and as of the Closing Date, except to the
extent the representation or warranty is expressly limited by its terms to
another date, and the Incorporation Merger shall have been effected in
accordance with the Incorporation Merger Agreement. TriNet shall have received a
certificate confirming the foregoing (which certificate may be qualified by
Knowledge to the same extent as such representations and warranties are so
qualified) signed on behalf of New Starwood by the Chief Executive Officer and
the Chief Financial Officer of New Starwood to such effect.
(h) ADVISOR TRANSACTION REPRESENTATIONS. The representations and
warranties of the Advisor set forth in the Advisor Transaction Agreement shall
be true and correct in all material respects on and as of the Closing Date, as
though made on and as of the Closing Date, except to the extent the
representation or warranty is expressly limited by its terms to another date,
and the parties to the Advisor Transaction Agreement shall have complied in all
material respects with their obligations under that Agreement. TriNet shall have
received a certificate confirming the foregoing (which certificate may be
qualified by Knowledge to the same extent as such representations and warranties
are so qualified) signed on behalf of the Advisor by the Chief Executive Officer
and the Chief Financial Officer of the Advisor.
(i) LOCK-UP AGREEMENTS; STOCKHOLDERS' AGREEMENT. The Lock-Up Agreements
and the Stockholders' Agreement shall remain in full force and effect and no
party thereto shall be in violation of or shall have notified TriNet or Starwood
of its intention to violate any of such agreements.
(j) ELECTION OF REIT STATUS. Starwood shall have elected to be subject to
taxation as a REIT under the Code for its taxable year ended December 31, 1998
by having properly and timely filed Form 1120-REIT prior to the Closing Date and
shall have included the information set forth in Section 856(c)(6)(A) of the
Code in a schedule attached to such tax return.
ARTICLE VII
BOARD ACTIONS
Section 7.1. BOARD ACTIONS. Notwithstanding Section 5.6 or any other
provision of this Agreement to the contrary, to the extent required by the
obligations of the Board of Directors of TriNet under the MGCL, as determined by
the Board of Directors of TriNet in good faith after consultation with outside
counsel, TriNet may:
(a) disclose to its shareholders any information required to be disclosed
under applicable law;
(b) take and disclose to its shareholders (but not earlier than five
business days after first notifying Starwood thereof) a position contemplated by
Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act with respect to a
Competing Transaction;
(c) in response to an unsolicited request therefor, participate in
discussions or negotiations with or furnish information with respect to it
pursuant to a confidentiality agreement which is at least as favorable to it as
the Confidentiality Agreement, or otherwise respond to or deal with any person
in connection with
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a proposal for a Superior TriNet Competing Transaction, provided that it shall
have notified Starwood of such unsolicited requests or its participation in
discussions or negotiations in accordance with Section 5.6; and
(d) approve or recommend (and in connection therewith withdraw or modify
its approval or recommendation of this Agreement and the Merger) a Superior
TriNet Competing Transaction (as defined below) or enter into an agreement with
respect to such Superior TriNet Competing Transaction (for purposes of this
Agreement, "SUPERIOR TRINET COMPETING TRANSACTION" means a bona fide proposal
for a TriNet Competing Transaction made by a third party which a majority of the
members of the Board of Directors of TriNet determines in good faith (after
consultation with its financial advisor) to be more favorable to its common
shareholders than the Merger).
Section 7.2. TRINET SUBSIDIARY BOARDS. On the Closing Date, TriNet shall
use commercially reasonable efforts to cause the directors and officers of each
of the TriNet Subsidiaries to submit their resignations from such positions,
effective as of the Effective Time.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1. TERMINATION. This Agreement may be terminated at any time
prior to the acceptance for record of the Articles of Merger for the Merger by
the SDAT, whether before or after the TriNet Shareholder Approval and the
Starwood Shareholder Approvals are obtained:
(a) by mutual written consent duly authorized by the respective Board of
Directors of TriNet, the Board of Directors of Starwood Sub and the Board of
Trustees of Starwood;
(b) by Starwood, upon a breach of any representation, warranty, covenant or
agreement on the part of TriNet set forth in this Agreement, or if any
representation or warranty of TriNet shall have become untrue, in either case
such that the conditions set forth in Section 6.2(a) or Section 6.2(b), as the
case may be, would be incapable of being satisfied by December 31, 1999 (as
otherwise extended);
(c) by Starwood upon a failure of the condition set forth in Section
6.2(c);
(d) by TriNet, upon a breach of any representation, warranty, covenant or
agreement on the part of Starwood set forth in this Agreement, or if any
representation or warranty of Starwood shall have become untrue, in either case
such that the conditions set forth in Section 6.3(a) or Section 6.3(b), as the
case may be, would be incapable of being satisfied by December 31, 1999 (as
otherwise extended);
(e) by TriNet upon a failure of the condition set forth in Section 6.3(c);
(f) by either Starwood or TriNet, if any judgment, injunction, order,
decree or action by any Governmental Entity of competent authority preventing
the consummation of the Merger shall have become final and nonappealable;
(g) by either Starwood or TriNet, if the Merger shall not have been
consummated before December 31, 1999; PROVIDED, HOWEVER, that a party that has
materially breached a representation, warranty or covenant of such party set
forth in this Agreement shall not be entitled to exercise its right to terminate
under this Section 8.1(g);
(h) by Starwood or TriNet if, upon a vote at a duly held TriNet
Shareholders Meeting or any adjournment thereof, the TriNet Shareholder Approval
shall not have been obtained, as contemplated by Section 5.1;
(i) by Starwood if (i) prior to the TriNet Shareholders Meeting, the Board
of Directors of TriNet shall have withdrawn or modified in any manner adverse to
Starwood its approval or recommendation of the Merger or this Agreement in
connection with, or approved or recommended, any TriNet Competing
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Transaction, (ii) TriNet shall have entered into any agreement with respect to
any TriNet Competing Transaction or (iii) the Board of Directors of TriNet or
any committee thereof shall have resolved to do any of the foregoing;
(j) by TriNet if TriNet shall previously or concurrently have consummated a
transaction constituting a Superior TriNet Competing Transaction or shall
previously or concurrently have entered into a definitive agreement providing
for a Superior TriNet Competing Transaction, but only upon payment of all
amounts then required, by reason of such termination, to be paid pursuant to
Section 8.2(b);
(k) by TriNet upon a termination of the Advisor Transaction Agreement or,
if Starwood has not previously delivered to TriNet the written notice
contemplated by Section 1.7, upon termination of the Incorporation Merger
Agreement;
(l) by TriNet within 15 days after receiving written notice from Starwood
pursuant to Section 4.3(c) that (a) (i) a lender on shares of beneficial
interest of Starwood pledged to secure indebtedness of a shareholder of Starwood
who is party to the Shareholder Agreement has foreclosed on such Shares and the
number of Starwood Class A Common Shares held by all parties to the Shareholder
Agreement after giving effect to such foreclosure represents less than
two-thirds of the aggregate number of then outstanding Starwood Class A Common
Shares and Starwood Class B Common Shares or (ii) an Event of Default or an
Additional Acceleration Event shall have occurred and be continuing and (b) the
lender (in the case of a foreclosure) or GECC or its successors and assigns (in
the case of an Event of Default or Additional Acceleration Event), as the case
may be, has not agreed in writing (in a manner reasonably satisfactory to
TriNet) to vote in favor of this Agreement, the Merger, the Advisor Transaction
Agreement and the Advisor Transaction, all shares of beneficial interest in
Starwood with respect to which such lender or GECC (or its successors and
assigns), as the case may be, has received the right to exercise voting and
consensual rights in connection with such foreclosure, Event of Default or
Additional Acceleration Event; or
(m) by Starwood or TriNet if, upon a vote at a duly held Starwood
Shareholders Meeting or any adjournment thereof, the Starwood Merger Shareholder
Approval or the Starwood Advisor Transaction Shareholder Approval shall not have
been obtained, as contemplated by Section 5.1; PROVIDED, HOWEVER, that TriNet
shall have no right to terminate this Agreement pursuant to this Section 8.1(m)
if (i) the irrevocable proxies which TriNet holds pursuant to the Shareholder
Agreement (the "IRREVOCABLE PROXIES") are valid instruments as of the time of
the Starwood Shareholders Meeting or any adjournment thereof and (ii) TriNet
shall have failed to exercise its rights under the Irrevocable Proxies to cause
the shares of beneficial interest of Starwood held by the shareholders of
Starwood who are parties to the Shareholder Agreement to be voted in favor of
the Merger and the Advisor Transaction at the Starwood Shareholders Meeting or
any adjournment thereof (such failure of TriNet being referred to herein as a
"TRINET PROXY DEFAULT").
Section 8.2. EXPENSES.
(a) Except as otherwise specified in this Section 8.2 or agreed in writing
by the parties, all out-of-pocket costs and expenses incurred in connection with
this Agreement, the Merger, and the other transactions contemplated hereby shall
be paid by the party incurring such cost or expense.
(b) TriNet agrees that if this Agreement shall be terminated pursuant to
Section 8.1(b), (h), (i) or (j) then TriNet will pay to Starwood, or as directed
by Starwood, an amount equal to the Starwood Break-Up Expenses (as defined
below). In addition, TriNet agrees that if (w) this Agreement shall be
terminated pursuant to Section 8.1(b) by reason of a breach by TriNet of any
representation or warranty set forth in this Agreement (and not by reason of any
such representation or warranty of TriNet having become untrue after the date of
this Agreement) and within 12 months following such termination TriNet shall
consummate a transaction constituting a change of control of TriNet or enter
into a definitive
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agreement providing for such a transaction, (x) this Agreement shall be
terminated pursuant to Section 8.1(c) and within 12 months following such
termination, TriNet shall consummate a transaction constituting a Superior
TriNet Competing Transaction or enter into a definitive agreement providing for
a transaction which will constitute a Superior TriNet Competing Transaction, (y)
this Agreement shall be terminated pursuant to Section 8.1(h) and within nine
months following such termination, TriNet shall consummate a transaction
constituting a change of control of TriNet or enter into a definitive agreement
providing for a transaction which will constitute a change of control of TriNet,
or (z) this Agreement is terminated pursuant to Section 8.1(i) or Section
8.1(j), or pursuant to Section 8.1(b), by reason of a breach by TriNet of a
covenant set forth in this Agreement, then TriNet will pay as directed by
Starwood a fee in an amount equal to the Starwood Break-Up Fee (as defined
below). Payment of any of such amounts shall be made, as directed by Starwood,
by wire transfer of immediately available funds promptly, but in no event later
than two business days after the amount is due as provided herein. The "STARWOOD
BREAK-UP FEE" shall be an amount equal to the lesser of (i) $50,000,000 (the
"BASE AMOUNT") and (ii) the sum of (A) the maximum amount that can be paid to
Starwood for the taxable year in which this Agreement is terminated without
causing Starwood to fail to meet the requirements of Sections 856(c)(2) and (3)
of the Code determined as if the payment of such amount did not constitute
income described in Sections 856(c)(2) and (3) of the Code ("QUALIFYING
INCOME"), as determined by outside counsel or independent accountants to
Starwood, and (B) in the event Starwood receives a letter from outside counsel
(the "STARWOOD BREAK-UP FEE TAX OPINION") indicating that Starwood has received
a ruling from the IRS holding that the receipt by Starwood of the Base Amount
would either constitute Qualifying Income as to Starwood with respect to
Starwood's proportionate share thereof or would be excluded from Starwood's
gross income for purposes of Sections 856(c)(2) and (3) of the Code (the "REIT
REQUIREMENTS"), the Base Amount less the amount payable under clause (A) above.
In the event that Starwood is not able to receive the full Base Amount, TriNet
shall place the unpaid amount (I.E., the difference between the Base Amount and
the Starwood Break-Up Fee) in escrow and shall not release any portion thereof
to Starwood unless and until TriNet receives any one or a combination of the
following: (i) a letter(s) from Starwood's outside counsel or independent
accountants indicating the maximum amount that can be paid at that time to
Starwood without causing Starwood to fail to meet the REIT Requirements for any
relevant taxable year together with an IRS ruling or opinion of tax counsel to
the effect that such payment would not be treated as included in income for any
prior taxable year, in which event such maximum amount shall be paid to
Starwood, or (ii) a Starwood Break-Up Fee Tax Opinion, in which event TriNet
shall pay to Starwood the unpaid Base Amount. TriNet's obligation to pay any
unpaid portion of the Starwood Break-Up Fee (provided TriNet has otherwise
complied with its obligations under this provision) shall terminate (and any
amount still held in such escrow shall be released to TriNet) on the date that
is five years from the date the Starwood Break-Up Fee first becomes due under
this Agreement. The "STARWOOD BREAK-UP EXPENSES" shall be an amount equal to the
lesser of (i) the total amount of costs and expenses incurred by Starwood in
connection with the preparation, negotiation, execution and delivery of this
Agreement (including, without limitation, fees and disbursements of counsel,
investment bankers and accountants and out-of-pocket expenses), up to a maximum
amount of $3,500,000 and which are supported by invoices or other reasonable
documentation (the "STARWOOD EXPENSE FEE BASE AMOUNT") and (ii) the sum of (A)
the maximum amount that can be paid to Starwood for the taxable year in which
this Agreement is terminated without causing Starwood to fail to meet the
requirements of Sections 856(c)(2) and (3) of the Code determined as if the
payment of such amount did not constitute Qualifying Income, as determined by
outside counsel or independent accountants to Starwood and (B) in the event
Starwood receives a Starwood Break-Up Fee Tax Opinion indicating that Starwood
has received a ruling from the IRS holding that Starwood's receipt of the
Starwood Expense Fee Base Amount would either constitute Qualifying Income as to
Starwood with respect to Starwood's proportionate share thereof or would be
excluded from Starwood's gross income for purposes of the REIT Requirements, the
Starwood Expense Fee Base Amount less the amount payable under clause (A) above.
Notwithstanding anything in the foregoing to the contrary, if this Agreement is
terminated but Starwood acquires, directly or indirectly, substantially all of
the assets or stock of the Advisor or any of its direct or indirect Subsidiaries
within 12 months after such
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termination, then TriNet shall have no obligation to pay to Starwood any
Starwood Break-Up Expenses which are directly and solely attributable to the
Advisor Transaction and if any such Starwood Break-Up Expenses have already been
paid by TriNet, Starwood shall reimburse TriNet for those expenses promptly
after the consummation of the acquisition of the Advisor. In the event that
Starwood is not able to receive the full amount of the Starwood Break-Up
Expenses, TriNet shall place the unpaid amount (I.E., the difference between the
Starwood Expense Fee Base Amount and the Starwood Break-Up Expenses) in escrow
and shall not release any portion thereof to Starwood unless and until TriNet
receives any one or combination of the following: (i) a letter(s) from
Starwood's outside counsel or independent accountants indicating the maximum
amount that can be paid at that time to Starwood without causing Starwood to
fail to meet the REIT Requirements for any relevant taxable year, together with
an IRS ruling or opinion of tax counsel to the effect that such payment would
not be treated as included in income for any prior taxable year, in which event
such maximum amount shall be paid to Starwood, or (ii) a Starwood Break-Up Fee
Tax Opinion indicating that Starwood's receipt of the Starwood Expense Fee Base
Amount would satisfy the REIT Requirements, in which event TriNet shall pay to
Starwood the unpaid Starwood Expense Fee Base Amount. TriNet's obligation to pay
any unpaid portion of the Starwood Break-Up Expenses (provided TriNet has
otherwise complied with its obligations under this provision) shall terminate
(and any amount still held in such escrow shall be released to TriNet) on the
date that is five years from the date the Starwood Break-Up Expenses first
become due under this Agreement.
(c) Starwood agrees that if this Agreement shall be terminated pursuant to
Section 8.1(d), 8.1(k) or 8.1(l) or, in the absence of a TriNet Proxy Default,
pursuant to Section 8.1(m), then Starwood will pay, as directed by TriNet, an
amount equal to the TriNet Break-Up Expenses (as defined below). In addition,
Starwood agrees that if (w) this Agreement shall be terminated pursuant to
Section 8.1(d) by reason of a breach by Starwood of a representation or warranty
set forth in this Agreement (and not by reason of any such representation or
warranty of Starwood having become untrue after the date of this Agreement) and
within 12 months following such termination Starwood shall consummate a
transaction constituting a change of control of Starwood or enter into a
definitive agreement providing for a transaction which will constitute a change
of control of Starwood, (x) this Agreement shall be terminated pursuant to
Section 8.1(e) and within 12 months following such termination, Starwood shall
consummate a transaction constituting a Superior Starwood Competing Transaction
or enter into a definitive agreement providing for a transaction which will
constitute a Superior Starwood Competing Transaction; (y) this Agreement shall
be terminated pursuant to Section 8.1(k), Section 8.1(l) or pursuant to Section
8.1(d), by reason of a breach by Starwood of a covenant set forth in this
Agreement; or (z) this Agreement shall be terminated pursuant to Section 8.1(m)
in the absence of a TriNet Proxy Default, then Starwood will pay as directed by
TriNet a fee in an amount equal to the TriNet Break-Up Fee (as defined below).
Payment of any of such amounts shall be made, as directed by TriNet, by wire
transfer of immediately available funds promptly, but in no event later than two
business days after the amount is due as provided herein. The "TRINET BREAK-UP
FEE" shall be an amount equal to the lesser of (i) $50,000,000 or, in the event
of a termination of this Agreement pursuant to Section 8.1(l) or, in the absence
of a TriNet Proxy Default, pursuant to Section 8.1(m), $60,000,000 (the "BASE
AMOUNT") and (ii) the sum of (A) the maximum amount that can be paid to TriNet
for the taxable year in which this Agreement is terminated without causing it to
fail to meet the requirements of Sections 856(c)(2) and (3) of the Code
determined as if the payment of such amount did not constitute Qualifying
Income, as determined by outside counsel or independent accountants to TriNet
and (B) in the event TriNet receives a letter from outside counsel (the "TRINET
BREAK-UP FEE TAX OPINION") indicating that TriNet has received a ruling from the
IRS holding that TriNet's receipt of the Base Amount would either constitute
Qualifying Income or would be excluded from gross income for purposes of
Sections 856(c)(2) and (3) of the Code, the Base Amount less the amount payable
under clause (A) above. In the event that TriNet is not able to receive the full
Base Amount, Starwood shall place the unpaid amount (i.e., the difference
between the Base Amount and the TriNet Break-Up Fee) in escrow and shall not
release any portion thereof to TriNet unless and until Starwood receives any one
or a combination of the following: (i) a letter(s) from TriNet's outside counsel
or independent accountants
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indicating the maximum amount that can be paid at that time to TriNet without
causing TriNet to fail to meet the REIT Requirements for any relevant taxable
year together with an IRS ruling or opinion of tax counsel to the effect that
such payment would not be treated as included in income for any prior taxable
year, in which event such maximum amount shall be paid to TriNet, or (ii) a
TriNet Break-Up Fee Tax Opinion, in which event Starwood shall pay to TriNet the
unpaid Base Amount. Starwood's obligation to pay the TriNet Break-Up Fee
(provided Starwood has otherwise complied with its obligations under this
provision) shall terminate (and any amount still held in such escrow shall be
released to Starwood) on the date that is five years from the date the TriNet
Break-Up Fee first becomes due under this Agreement. The "TRINET BREAK-UP
EXPENSES" shall be an amount equal to the lesser of (i) the total amount of
costs and expenses incurred by TriNet in connection with the preparation,
negotiation, execution and delivery of this Agreement (including, without
limitation, fees and disbursements of counsel, investment bankers and
accountants and out-of-pocket expenses), up to a maximum amount of $3,500,000
and which are supported by invoices or other reasonable documentation (the
"TRINET EXPENSE FEE BASE AMOUNT") and (ii) the sum of (A) the maximum amount
that can be paid to TriNet for the taxable year in which this Agreement is
terminated without causing it to fail to meet the requirements of Sections
856(c)(2) and (3) of the Code determined as if the payment of such amount did
not constitute Qualifying Income, as determined by outside counsel or
independent accountants to TriNet and (B) in the event TriNet receives a TriNet
Break-Up Fee Tax Opinion indicating that TriNet has received a ruling from the
IRS holding that TriNet's receipt of the TriNet Expense Fee Base Amount would
either constitute Qualifying Income or would be excluded from gross income for
purposes of the REIT Requirements the TriNet Expense Fee Base Amount less the
amount payable under clause (A) above. In the event that TriNet is not able to
receive the full TriNet Expense Fee Base Amount, Starwood shall place the unpaid
amount (I.E., the difference between the TriNet Expense Fee Base Amount and the
TriNet Break-Up Expenses) in escrow and shall not release any portion thereof to
TriNet unless and until Starwood receives any one or a combination of the
following: (i) a letter(s) from TriNet's outside counsel or independent
accountants indicating the maximum amount that can be paid at that time to
TriNet without causing TriNet to fail to meet the REIT Requirements for any
relevant taxable year together with an IRS ruling or opinion of tax counsel to
the effect that such payment would not be treated as included in income for any
prior taxable year, in which event such maximum amount shall be paid to TriNet,
or (ii) a TriNet Break-Up Fee Tax Opinion indicating that TriNet's receipt of
the TriNet Expense Fee Base Amount would satisfy the REIT Requirements, in which
event Starwood shall pay to TriNet the unpaid TriNet Expense Fee Base Amount.
Starwood's obligation to pay any unpaid portion of the TriNet Break-Up Expenses
(provided Starwood has otherwise complied with its obligations under this
provision) shall terminate (and any amount still held in such escrow shall be
released to Starwood) on the date that is five years from the date the TriNet
Break-Up Expenses first become due under this Agreement.
(d) In the event that either Starwood or TriNet is required to file suit to
seek all or a portion of the amounts payable under this Section 8.2, and such
party prevails in such litigation, such party shall be entitled to all expenses,
including attorney's fees and expenses which it has incurred in enforcing its
rights hereunder; provided, that such expenses shall be considered part of
out-of-pocket expenses incurred in connection with this Agreement and the other
transactions within the definition of Starwood Break-Up Expenses or TriNet
Break-Up Expenses, as the case may be.
Section 8.3. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either TriNet or Starwood as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Starwood or TriNet, other than the last sentence of
Section 5.2, Section 8.2, this Section 8.3 and Article IX and except to the
extent that such termination results from a willful breach by a party of any of
its representations or warranties or a breach by a party of any of its covenants
or agreements set forth in this Agreement and except that the remedies of
Starwood and TriNet set forth in Sections 8.2(b) and 8.2(c) shall be in addition
to any other remedies available to TriNet under law or principles of equity upon
the occurrence of the events contemplated in Sections 8.1(d) or 8.1(k).
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Section 8.4. AMENDMENT. This Agreement may be amended by the parties in
writing by action of their respective Boards of Directors or Trustees, as the
case may be, at any time before or after any TriNet or Starwood Shareholder
Approvals are obtained and prior to the filing of the Articles of Merger for the
Merger with the SDAT; PROVIDED, HOWEVER, that, after any of the TriNet or
Starwood Shareholder Approvals are obtained, no such amendment, modification or
supplement shall alter the amount or change the form of the consideration to be
delivered to TriNet's or Starwood's shareholders or alter or change any of the
terms or conditions of this Agreement if such alteration or change would
adversely affect TriNet's shareholders.
Section 8.5. EXTENSION; WAIVER. At any time prior to the Effective Time,
each of TriNet and Starwood may (a) extend the time for the performance of any
of the obligations or other acts of the other party, (b) waive any inaccuracies
in the representations and warranties of the other party contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) subject
to the proviso of Section 8.4, waive compliance with any of the agreements or
conditions of the other party contained in this Agreement. Any agreement on the
part of a party to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1. SURVIVAL. None of the representations and warranties in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time. This Section 9.1 shall not limit any covenant or
agreement of the parties which by its terms contemplates performance after the
Effective Time and all such provisions (including, but not limited to, Section
5.8, Section 5.11 and Section 5.12) shall survive the consummation of the
Merger.
Section 9.2. NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, sent by overnight courier (providing proof of
delivery) to the parties or sent by telecopy (providing confirmation of
transmission) at the following addresses or telecopy numbers (or at such other
address or telecopy number for a party as shall be specified by like notice):
(a) if to Starwood or Starwood Sub, to
c/o Starwood Financial Trust
1114 Avenue of the Americas, 27(th) Floor
New York, New York 10036
Attn: Spencer B. Haber and Nina Matis, Esq.
Fax: (212) 930-9400
with a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, NY 10166
Attn: John A. Healy, Esq.
Fax: (212) 878-8375
(b) if to TriNet, to
TriNet Corporate Realty Trust, Inc.
One Embarcadero Center
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Suite 3150
San Francisco, California 94111
Attn: A. William Stein and Geoff Dugan, Esq.
Fax: (415) 391-3092
with a copy to:
Paul Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019
Attn: James M. Dubin, Esq.
Fax: (212) 757-3990
Section 9.3. INTERPRETATION. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
Section 9.4. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 9.5. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement, the Advisor Transaction Agreement, the Incorporation Merger
Agreement, the Confidentiality Agreement and the other agreements entered into
in connection with the transactions (a) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this Agreement and (b)
except for the provisions of Article II and Sections 5.11 and 5.12, are not
intended to confer upon any person other than the parties hereto any rights or
remedies.
Section 9.6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO CONFLICTS OF LAWS PRINCIPLES THEREOF, EXCEPT TO THE EXTENT THAT THE
MERGER OR OTHER TRANSACTIONS CONTEMPLATED HEREBY ARE REQUIRED TO BE GOVERNED BY
THE MGCL.
Section 9.7. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned or delegated, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
Section 9.8. ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of New York or in any New York State court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself (without
making such submission exclusive) to the personal jurisdiction of any federal
court located in the State of New York or any New York State court in the event
any dispute arises out of this Agreement or any of the transactions contemplated
by this Agreement and (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court.
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Section 9.9. EXHIBITS; DISCLOSURE LETTERS. All Exhibits referred to herein
and in the TriNet Disclosure Letter and the Starwood Disclosure Letter are
intended to be and hereby are specifically made a part of this Agreement. All
references herein to Articles, Sections, Exhibits and Disclosure Letters shall
be deemed references to such parts of this Agreement, unless the context
otherwise requires. Each exception to a representation or warranty of Starwood
or TriNet that is set forth in the applicable Starwood or TriNet Disclosure
Letter is identified by reference to, or has been grouped under a heading
referring to, a specific individual Section of this Agreement.
ARTICLE X
CERTAIN DEFINITIONS
Section 10.1. CERTAIN DEFINITIONS. For purposes of this Agreement:
"ANCILLARY AGREEMENTS" means the Incorporation Merger Agreement, the Advisor
Transaction Agreement, the Shareholder Agreement, the Lock-Up Agreements and the
Option Standstill Agreement.
An "AFFILIATE" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person including as to Starwood,
without limitation, Starwood Hotels & Resorts, Starwood Hotels & Resorts
Worldwide, Inc. and Starwood Capital Group, LLC.
A "CHANGE OF CONTROL" with respect to Starwood or TriNet means that the
common shareholders of Starwood or TriNet, as applicable, immediately prior to
the consummation of a merger, consolidation, acquisition of assets or
securities, or a disposition of assets or securities (other than a public
offering of common stock) own less than 50% of the equity of the surviving or
successor entity resulting from such transaction.
"EMPLOYEE PLAN" means any employment, bonus, incentive compensation,
deferred compensation, pension, profit sharing, retirement, stock purchase,
stock option, stock ownership, stock appreciation rights, phantom stock, equity
(or equity-based) leave of absence, layoff, vacation, day or dependent care,
legal services, cafeteria, life, health, medical, accident, disability,
workmen's compensation or other insurance, severance, separation, termination,
change of control or other benefit plan, agreement (including any collective
bargaining agreement), practice, policy or arrangement of any kind, whether
written or oral, and whether or not subject to ERISA, including, but not limited
to, any "employee benefit plan" within the meaning of Section 3(3) of ERISA.
"KNOWLEDGE" where used herein with respect to TriNet shall mean the actual
knowledge of the persons named in Section 10 of the TriNet Disclosure Letter and
where used with respect to Starwood shall mean the actual knowledge of the
persons named in Section 10 of the Starwood Disclosure Letter.
"LAW" means any statute, law, regulation or ordinance of any Governmental
Entity applicable to Starwood or TriNet or any of their respective Subsidiaries.
"PERSON" means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or other
entity.
"STARWOOD SUBSIDIARY" means each Subsidiary of Starwood.
"SUBSIDIARY" of any person means any corporation, partnership, limited
liability company, joint venture or other legal entity of which such person
(either directly or through or together with another Subsidiary of such person)
owns 50% or more of the voting stock, value of or other equity interests (voting
or non-voting) of such corporation, partnership, limited liability company,
joint venture or other legal entity.
"TRINET MANAGED SUBSIDIARY" means each Subsidiary of TriNet in which TriNet
or another TriNet Managed Subsidiary acts as a general partner or managing
member or in a similar capacity.
"TRINET NON-MANAGED SUBSIDIARY" means each Subsidiary of TriNet that is not
a TriNet Managed Subsidiary.
"TRINET SUBSIDIARY" means each Subsidiary of TriNet.
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IN WITNESS WHEREOF, Starwood, Starwood Sub and TriNet have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
STARWOOD FINANCIAL TRUST
By:
-----------------------------------------
Name:
Title:
ST MERGER SUB, INC.
By:
-----------------------------------------
Name:
Title:
TRINET CORPORATE REALTY TRUST
By:
-----------------------------------------
Name:
Title:
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ANNEX B
AGREEMENT AND PLAN OF MERGER
AND
INTEREST CONTRIBUTION AGREEMENT
DATED AS OF JUNE 15, 1999
BY AND AMONG
STARWOOD FINANCIAL TRUST,
SA MERGER SUB, INC.,
STW HOLDINGS I, INC.,
THE STOCKHOLDERS NAMED HEREIN,
STARWOOD CAPITAL GROUP, LLC
AND, TO THE EXTENT DESCRIBED HEREIN,
TRINET CORPORATE REALTY TRUST, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<C> <S> <C>
ARTICLE I THE ADVISOR MERGER AND THE CONTRIBUTION TRANSACTIONS................. B-2
Section 1.1. The Advisor Merger............................................... B-2
Section 1.2. The Contribution Transactions.................................... B-2
Section 1.3. Closing.......................................................... B-2
Section 1.4. Effective Time................................................... B-2
Section 1.5. Charter and Bylaws............................................... B-3
Section 1.6. Directors........................................................ B-3
Section 1.7. Officers......................................................... B-3
Section 1.8. Election Not to Proceed With Incorporation Merger................ B-3
ARTICLE II EFFECTS OF THE ADVISOR MERGER; EXCHANGE OF CERTIFICATES.............. B-3
Section 2.1. Effect on Stock.................................................. B-3
(a) Stock Owned by Advisor........................................... B-3
(b) Conversion of Advisor Stock Into New Starwood Common Stock....... B-3
(c) Shares of New Starwood Sub Stock................................. B-4
Section 2.2. Exchange of Certificates......................................... B-4
(a) Exchange Agent................................................... B-4
(b) Starwood to Provide Merger Consideration......................... B-4
(c) Exchange Procedure............................................... B-4
(d) Distributions with Respect to Unexchanged Shares................. B-5
(e) No Further Ownership Rights in Advisor Common Stock.............. B-5
(f) Unclaimed Merger Consideration................................... B-5
(g) No Fractional Shares............................................. B-5
(h) Withholding...................................................... B-6
(i) No Dissenters' Rights............................................ B-6
ARTICLE III REPRESENTATIONS AND WARRANTIES....................................... B-6
Section 3.1. Representations and Warranties of Advisor........................ B-6
(a) Organization, Standing and Corporate Power of the Advisor........ B-6
(b) Advisor Subsidiaries; Interests in Other Persons................. B-6
(c) Capital Structure................................................ B-7
(d) Authority; Noncontravention; Consents............................ B-7
(e) Operations of Advisor and the Advisor Subsidiaries............... B-8
(f) Litigation....................................................... B-8
(g) Taxes............................................................ B-9
</TABLE>
B-i
<PAGE>
<TABLE>
<CAPTION>
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<C> <S> <C>
(h) Absence of Changes in Benefit Plans; ERISA Compliance............ B-9
(i) No Loans or Payments to Employees, Officers or Directors......... B-10
(j) Brokers; Schedule of Fees and Expenses........................... B-10
(k) Compliance with Laws............................................. B-10
(l) Contracts; Debt Instruments, Liabilities......................... B-10
(m) Title to Assets.................................................. B-11
(n) Books and Records................................................ B-11
(o) State Takeover Statutes.......................................... B-11
(p) Investment Company Act of 1940................................... B-11
(q) Proxy Statement and Registration Statement....................... B-11
(r) Vote Required.................................................... B-11
(s) Year 2000 Issues................................................. B-12
Section 3.2. Representations and Warranties of Starwood and New Starwood
Sub............................................................ B-12
(a) Organization, Standing and Corporate Power of Starwood........... B-12
(b) Authority; Noncontravention; Consents............................ B-12
(c) Opinion of Financial Advisor..................................... B-13
Section 3.3. Representations and Warranties of SCG............................ B-13
(a) Organization, Standing and Power of SCG.......................... B-13
(b) Authority; Noncontravention; Consents............................ B-13
(c) Title to Interests............................................... B-14
(d) Accredited Investor.............................................. B-14
(e) Investment....................................................... B-14
ARTICLE IV COVENANTS............................................................ B-14
Section 4.1. Conduct of Business by Advisor................................... B-14
Section 4.2. Other Actions.................................................... B-15
ARTICLE V ADDITIONAL COVENANTS................................................. B-15
Section 5.1. Preparation of the Registration Statement and the Proxy
Statement; Shareholders' Meetings; Consents.................... B-15
Section 5.2. Commercially Reasonable Efforts; Notification.................... B-16
Section 5.3. Affiliates....................................................... B-17
Section 5.4. AMEX De-Listing; NYSE Listing.................................... B-17
Section 5.5. Indemnification of Directors and Officers; Directors' and
Officers' Insurance............................................ B-17
Section 5.6. Indemnification Against Loss Due to Inaccuracies in
Representations and Warranties; Tax Indemnity.................. B-19
Section 5.7. Limit on Claims Regarding Representations and Warranties......... B-19
ARTICLE VI CONDITIONS PRECEDENT................................................. B-21
</TABLE>
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<TABLE>
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Section 6.1. Conditions to Each Party's Obligation to Effect the Merger and
the Contribution Transactions.................................. B-21
(a) Shareholder Approvals............................................ B-21
(b) Listing of Shares................................................ B-21
(c) Registration Statement........................................... B-21
(d) No Injunctions or Restraints..................................... B-21
(e) Incorporation Merger and Merger.................................. B-21
Section 6.2. Conditions to Obligations of Starwood............................ B-21
(a) Representations and Warranties................................... B-21
(b) Performance of Obligations of Advisor............................ B-21
(c) Material Adverse Effect.......................................... B-21
(d) Assignment of SFA II and SFA Interest............................ B-22
Section 6.3. Conditions to Obligation of Advisor and SCG...................... B-22
(a) Representations and Warranties................................... B-22
(b) Performance of Obligations of Starwood........................... B-22
(c) Material Adverse Effect.......................................... B-22
(d) Consents......................................................... B-22
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.................................... B-22
Section 7.1. Termination...................................................... B-22
Section 7.2. Expenses......................................................... B-23
Section 7.3. Effect of Termination............................................ B-23
Section 7.4. Amendment........................................................ B-23
Section 7.5. Extension; Waiver................................................ B-23
ARTICLE VIII GENERAL PROVISIONS................................................... B-23
Section 8.1. Survival......................................................... B-23
Section 8.2. Notices.......................................................... B-23
Section 8.3. Interpretation................................................... B-25
Section 8.4. Counterparts..................................................... B-25
Section 8.5. Entire Agreement; No Third-Party Beneficiaries................... B-25
Section 8.6. GOVERNING LAW.................................................... B-25
Section 8.7. Assignment....................................................... B-25
Section 8.8. Enforcement...................................................... B-26
Section 8.9. Exhibits; Disclosure Letters..................................... B-26
ARTICLE IX CERTAIN DEFINITIONS.................................................. B-26
Section 9.1. Certain Definitions.............................................. B-26
</TABLE>
B-iii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
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<S> <C>
1940 Act............................................................................. B-11
Advisor.............................................................................. B-1
Advisor Benefit Plan................................................................. B-9
Advisor Common Stock................................................................. B-1
Advisor Disclosure Letter............................................................ B-6
Advisor ERISA Affiliate.............................................................. B-9
Advisor Information Technology....................................................... B-12
Advisor Material Adverse Effect...................................................... B-6
Advisor Merger....................................................................... B-1
Advisor Proposal..................................................................... B-2
Advisor Shareholder Approval......................................................... B-11
Advisor Subsidiary................................................................... B-26
affiliate............................................................................ B-26
Agreement............................................................................ B-1
AMEX................................................................................. B-17
Board................................................................................ B-3
Certificate.......................................................................... B-4
Closing.............................................................................. B-2
Closing Date......................................................................... B-2
Code................................................................................. B-1
Contribution Consideration........................................................... B-2
Contribution Transactions............................................................ B-1
DGCL................................................................................. B-2
Effective Time....................................................................... B-3
Employee Plan........................................................................ B-26
ERISA................................................................................ B-9
Exchange Agent....................................................................... B-3
Exchange Ratio....................................................................... B-3
Fair Market Value.................................................................... B-21
Fairness Opinion..................................................................... B-2
Governmental Entity.................................................................. B-8
Incorporation Merger................................................................. B-1
Incorporation Merger Agreement....................................................... B-1
Indemnified Liabilities.............................................................. B-17
Indemnified Parties.................................................................. B-17
Indemnifying Parties................................................................. B-17
Knowledge............................................................................ B-26
Laws................................................................................. B-8
Liens................................................................................ B-7
Losses............................................................................... B-19
Maximum Amount....................................................................... B-19
Merger............................................................................... B-2
Merger Agreement..................................................................... B-2
Merger Consideration................................................................. B-3
New Starwood......................................................................... B-1
New Starwood Common Stock............................................................ B-1
New Starwood Sub..................................................................... B-1
</TABLE>
B-iv
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<TABLE>
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<S> <C>
NYSE................................................................................. B-17
Person............................................................................... B-26
Proxy Statement...................................................................... B-16
Qualifying Income.................................................................... B-20
Registration Statement............................................................... B-16
REIT................................................................................. B-1
REIT Requirements.................................................................... B-20
SCG.................................................................................. B-1
SCG Material Adverse Effect.......................................................... B-14
SFA II............................................................................... B-1
SFA II Interest...................................................................... B-2
SFA Interest......................................................................... B-2
Special Committee.................................................................... B-2
Starwood............................................................................. B-1
Starwood Class A Common Shares....................................................... B-3
Starwood Class B Common Shares....................................................... B-1
Starwood Disclosure Letter........................................................... B-12
Starwood Indemnification Tax Opinion................................................. B-20
Starwood Material Adverse Effect..................................................... B-12
Starwood Shareholders Meeting........................................................ B-16
Starwood Sub......................................................................... B-2
Starwood Subsidiary.................................................................. B-26
Stockholders......................................................................... B-1
Sub-Advisory Agreements.............................................................. B-27
Subsidiary........................................................................... B-27
Surviving Corporation................................................................ B-1
Takeover Statute..................................................................... B-17
Tax Damages.......................................................................... B-19
Tax Return........................................................................... B-9
Taxes or Tax......................................................................... B-9
Taxing Authority..................................................................... B-9
TriNet............................................................................... B-1
Year 2000 Ready...................................................................... B-12
</TABLE>
INDEX OF EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A Form of Incorporation Merger Agreement
Exhibit B Form of Merger Agreement
Exhibit C Form of Articles of Incorporation of Surviving Corporation
Exhibit D Form of Bylaws of Surviving Corporation
Exhibit E Form of Affiliate Letter
Schedule A Directors of Surviving Corporation
Schedule B Officers of Surviving Corporation
</TABLE>
B-v
<PAGE>
AGREEMENT
AGREEMENT AND PLAN OF MERGER AND INTEREST CONTRIBUTION AGREEMENT
("AGREEMENT"), dated as of June 15, 1999, by and among STARWOOD FINANCIAL TRUST,
a Maryland real estate investment trust ("STARWOOD"), SA MERGER SUB, INC., a
Delaware corporation ("NEW STARWOOD SUB"), STW HOLDINGS I, INC., a Delaware
corporation ("ADVISOR"), STARWOOD CAPITAL GROUP, LLC, a Connecticut limited
liability company ("SCG"), each of the individual stockholders named on the
signature pages of this Agreement (the "STOCKHOLDERS") and, to the extent
described on the signature page hereto, TRINET CORPORATE REALTY TRUST, INC., a
Maryland corporation ("TRINET").
RECITALS
A. The Boards of Trustees and Directors, as the case may be, of Starwood,
New Starwood Sub and Advisor each have declared that it is advisable and in the
best interest of their respective companies and shareholders that upon the terms
and subject to the conditions set forth in this Agreement, New Starwood Sub will
merge with and into Advisor, with Advisor being the surviving corporation (the
"SURVIVING CORPORATION"), in a merger (the "ADVISOR MERGER") in which each
issued and outstanding share of common stock, no par value per share of Advisor
(the "ADVISOR COMMON STOCK"), will be converted into the Merger Consideration
(as defined below).
B. The parties hereto anticipate that the Advisor Merger will further
certain of their business objectives including, without limitation, allowing
Starwood to become an entirely self-administered and self-managed real estate
investment trust.
C. Concurrently with the consummation of the Advisor Merger, SCG will
contribute its 0.1% managing member interest in each of Starwood Financial
Advisors II, L.L.C., a Delaware limited liability company ("SFA II") and
Starwood Financial Advisors, L.L.C., a Connecticut limited liability company
("SFA"), to Starwood in exchange for the Contribution Consideration (as defined
below) (collectively, the "CONTRIBUTION TRANSACTIONS"). As a result of the
Advisor Merger and the Contribution Transactions, Starwood will, directly and
through its Subsidiaries, own 100% of the interests in SFA II and SFA.
D. Prior to the consummation of the Advisor Merger and the Contribution
Transactions, Starwood intends to merge with and into Starwood Financial, Inc.,
a newly formed Maryland corporation ("NEW STARWOOD"), for the purpose of
changing Starwood's form from a Maryland real estate investment trust to a
Maryland corporation (the "INCORPORATION MERGER") all in accordance with the
terms of the Agreement and Plan of Merger, dated the date hereof, between New
Starwood and Starwood, a copy of which is attached as Exhibit A hereto (the
"INCORPORATION MERGER AGREEMENT"). As part of the Incorporation Merger, the
Class B shares of beneficial interest, par value $.01 per share, of Starwood
("STARWOOD CLASS B COMMON SHARES") will be converted into shares of common
stock, par value $.001 per share, of New Starwood ("NEW STARWOOD COMMON STOCK")
on the basis of 49 Starwood Class B Common Shares for one share of New Starwood
Common Stock. Upon consummation of the Incorporation Merger, New Starwood will
succeed to all of Starwood's rights, obligations and liabilities under this
Agreement.
E. The parties intend that for federal income tax purposes the Advisor
Merger will qualify as a tax-free reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "CODE"), and that, following the
Advisor Merger, New Starwood will continue to be subject to taxation as a real
estate investment trust (a "REIT") within the meaning of the Code.
F. The Special Committee (the "SPECIAL COMMITTEE") of the independent
members of the Board of Trustees of Starwood has received a fairness opinion
(the "FAIRNESS OPINION") from Houlihan Lokey Howard & Zukin ("HOULIHAN") that
the consideration to be paid to those shareholders of Starwood who hold
ownership interests in the Advisor is fair from a financial point of view to the
shareholders of Starwood who do not hold any ownership interests in the Advisor.
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G. The Special Committee has recommended the Advisor Merger and the
Contribution Transactions to the Board of Trustees of Starwood and the Board of
Trustees of Starwood has approved the proposal to approve the Advisor Merger and
the Contribution Transactions (the "ADVISOR PROPOSAL") and the related
transactions and has resolved to recommend that the shareholders of Starwood
approve the Advisor Proposal.
H. The Board of Directors of Advisor has approved the Advisor Proposal and
the related transactions and has resolved to recommend that the shareholders of
Advisor approve the Advisor Proposal.
I. Concurrently with the consummation of the Advisor Merger and the
Contribution Transactions, TriNet will merge with and into Starwood Sub, Inc., a
newly-formed Maryland corporation ("STARWOOD SUB"), (the "MERGER"), all in
accordance with the terms of the Agreement and Plan of Merger, dated the date
hereof, by and among Starwood, Starwood Sub and TriNet, a copy of which is
attached as Exhibit B hereto (the "MERGER AGREEMENT"). Upon consummation of the
Merger, TriNet, as the surviving corporation, will be a wholly owned subsidiary
of New Starwood.
In consideration of the representations, warranties, covenants and
agreements contained in this Agreement, the parties agree as follows:
ARTICLE I
THE ADVISOR MERGER AND THE CONTRIBUTION TRANSACTIONS
Section 1.1. THE ADVISOR MERGER.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time (as hereinafter defined), New Starwood Sub
shall be merged with and into Advisor in accordance with the Delaware General
Corporation Law (the "DGCL"), whereupon the separate corporate existence of New
Starwood Sub shall cease and Advisor shall continue as the Surviving
Corporation.
(b) The Advisor Merger shall have the effects set forth in the DGCL.
Accordingly, from and after the Effective Time (as defined below), the Surviving
Corporation shall possess all the rights, privileges, powers and franchises and
be subject to all of the restrictions, disabilities, liabilities and duties of
New Starwood Sub and Advisor.
Section 1.2. THE CONTRIBUTION TRANSACTIONS.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, concurrently with the Effective Time, SCG shall contribute its 0.1%
managing member interest in SFA II (the "SFA II INTEREST") and its 0.1% managing
member interest in SFA (the "SFA INTEREST") to Starwood, in each case free and
clear of all Liens, in exchange for an aggregate of 8,000 shares of New Starwood
Common Stock (the "CONTRIBUTION CONSIDERATION").
Section 1.3. CLOSING. The closing of the Advisor Merger (the "Closing")
will take place at 10:00 a.m. New York City time on the fifth business day after
satisfaction or waiver of the conditions set forth in Article VI (the "CLOSING
DATE"), at the offices of Rogers & Wells LLP, 200 Park Avenue, New York, New
York 10166, unless another date or place is agreed to in writing by the parties.
Section 1.4. EFFECTIVE TIME.
(i) On the Closing Date, the parties shall execute and file a
Certificate of Merger or other appropriate documents in accordance with the
DGCL, and shall make all other filings or recordings required with respect
to the Advisor Merger under the DGCL. The Advisor Merger shall become
effective upon the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware or at such other time or times as may be
agreed by Starwood, New Starwood Sub and Advisor and specified in the
Certificate of Merger described in this Section 1.3 (the time the Advisor
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<PAGE>
Merger becomes effective being the "EFFECTIVE TIME"), it being understood
that the parties shall cause the Effective Time to occur as soon as
practicable on or after the Closing Date.
(ii) On the Closing Date, SCG shall deliver to New Starwood customary
written instruments of transfer to effect the contribution of the SFA
Interest and the SFA II Interest to New Starwood and in exchange therefor,
New Starwood shall deliver to SCG certificates representing shares of fully
paid and non-assessable New Starwood Common Stock in an amount equal to the
aggregate Contribution Consideration, in such denominations and in such
names as SCG shall have advised Starwood in writing prior to the Closing
Date.
Section 1.5. CHARTER AND BYLAWS. Upon the Effective Time, the certificate
of incorporation and bylaws of the Surviving Corporation shall be amended and
restated in their entirety to be as set forth in Exhibits C and D hereto, until
further amended in accordance with applicable Delaware law.
Section 1.6. DIRECTORS. Immediately following the Effective Time, the
Board of Directors of the Surviving Corporation (the "BOARD") shall consist of
the persons named on Schedule A hereto.
Section 1.7. OFFICERS. The executive officers of the Surviving Corporation
immediately following the Effective Time shall include the persons named on
Schedule B hereto, each of whom shall hold the position indicated on Schedule B
hereto.
Section 1.8. ELECTION NOT TO PROCEED WITH INCORPORATION
MERGER. Notwithstanding anything in this Agreement to the contrary, if after
the date of this Agreement Starwood reasonably determines that the consummation
of the Incorporation Merger would have an adverse impact on Starwood, Starwood
may elect not to proceed with the Incorporation Merger and Starwood shall
provide written notice to Advisor of any such determination. In such event, (i)
all references in this Agreement to "NEW STARWOOD" shall be deemed to refer to
and become references to Starwood and all references to shares of common stock
of New Starwood shall be deemed to refer to and become references to common
shares of beneficial interest of Starwood in each case MUTATIS MUTANDIS and (ii)
Starwood shall submit to its shareholders a proposal to amend its declaration of
trust and bylaws in the manner provided by Maryland law substantially to conform
such declaration of trust and bylaws, to the extent permitted by Maryland law
governing Maryland real estate investment trusts, to the forms of charter and
bylaws of New Starwood, respectively, set forth as Exhibits J and K to the
Merger Agreement, including without limitation, to eliminate the Starwood Class
B Common Shares and cause the conversion of all Starwood Class B Common Shares
into Class A Common Shares of beneficial interest of Starwood, $1.00 par value
per share, ("STARWOOD CLASS A COMMON SHARES") on the basis of 49 Starwood Class
B Common Shares for one Starwood Class A Common Share. Starwood and Advisor
agree to cooperate and work together in good faith to amend and restate this
Agreement to give effect to any determination made by Starwood in accordance
with this Section 1.7.
ARTICLE II
EFFECTS OF THE ADVISOR MERGER;
EXCHANGE OF CERTIFICATES
Section 2.1. EFFECT ON STOCK.
(a) STOCK OWNED BY ADVISOR. As of the Effective Time, any shares of
capital stock that are owned by Advisor automatically shall be cancelled and
retired and all rights with respect thereto shall cease to exist, and no
consideration shall be delivered in exchange therefor.
(b) CONVERSION OF ADVISOR STOCK INTO NEW STARWOOD COMMON STOCK. At the
Effective Time, except as provided in Section 2.1(a), each issued and
outstanding share of Advisor Common Stock shall be converted by virtue of the
Advisor Merger, automatically and without any action on the part of the holder
thereof, into 2,661.3 (the "EXCHANGE RATIO") fully paid and nonassessable shares
of New Starwood Common Stock (the "MERGER CONSIDERATION"). At the Effective
Time, each holder of a certificate representing any shares of Advisor Common
Stock (or affidavit of loss, in form and substance reasonably acceptable
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<PAGE>
to New Starwood, in lieu thereof) (a "CERTIFICATE") shall cease to have any
rights with respect thereto, except the right to receive, upon surrender of such
Certificate in accordance with Section 2.2(c), a certificate or certificates
representing the shares of New Starwood Common Stock into which those shares are
converted pursuant to this Section 2.1(b) and any cash in lieu of fractional
shares of New Starwood Common Stock to be issued or paid in consideration
therefor upon surrender of such Certificate (the "MERGER CONSIDERATION") and any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.2(d), in each case without interest and less any required withholding
taxes. Notwithstanding the foregoing, the right of each Advisor shareholder to
receive shares of New Starwood Common Stock under this Section 2.1 will be
subject to the ownership limitations and other related provisions contained in
New Starwood's charter and bylaws.
(c) SHARES OF NEW STARWOOD SUB STOCK. Upon the Effective Time, each share
of stock of New Starwood Sub outstanding immediately prior to the Effective Time
shall remain outstanding and shall represent one share of validly issued, fully
paid and nonassessable stock of the same class and designation.
Section 2.2. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Starwood shall appoint a
bank or trust company that is reasonably acceptable to Advisor to act as
exchange agent (the "EXCHANGE AGENT") for the exchange of certificates
representing shares of stock of New Starwood for Certificates representing
issued and outstanding shares of Advisor Common Stock.
(b) STARWOOD TO PROVIDE MERGER CONSIDERATION. Starwood shall provide, or
cause to be provided, to the Exchange Agent on and after the Effective Time from
time to time as required pursuant to Section 2.2(c) and 2.2(g), for the benefit
of the holders of Advisor Common Stock certificates representing the shares of
New Starwood Common Stock into which the issued and outstanding shares of
Advisor Common Stock are converted pursuant to Section 2.1(b), together with the
cash payable in respect of fractional shares pursuant to Section 2.2(g).
(c) EXCHANGE PROCEDURE. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
Certificate or Certificates whose shares were converted into the Merger
Consideration pursuant to Section 2.1, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in a form and have such other provisions as Starwood may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates, in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Starwood, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be entitled
to receive in exchange therefor the Merger Consideration and any dividends or
other distributions to which such holder is entitled pursuant to Section 2.2(d),
and the Certificate so surrendered shall forthwith be cancelled. In the event of
a transfer of ownership of Advisor Common Stock which is not registered in the
transfer records of Advisor, payment may be made to a person other than the
person in whose name the Certificate so surrendered is registered if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment either shall pay any transfer or
other taxes required by reason of such payment being made to a person other than
the registered holder of such Certificate or establish to the satisfaction of
Starwood that such tax or taxes have been paid or are not applicable. Until
surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration, without interest, into
which the shares theretofore represented by such Certificate shall have been
converted pursuant to Section 2.1 and any dividends or other distributions to
which such holder is entitled pursuant to Section 2.2(d). No interest will be
paid or will accrue on the applicable Merger Consideration upon the surrender of
any Certificate or on any amount payable pursuant to Section 2.2(d) or Section
2.2(g).
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(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. All shares of New
Starwood Common Stock to be issued pursuant to the Merger shall be deemed issued
and outstanding as of the Effective Time and whenever a dividend or other
distribution is declared by New Starwood in respect of the New Starwood Common
Stock, the record date for which is at or after the Effective Time, that
declaration shall include dividends or other distributions in respect of all
shares of New Starwood Common Stock issuable pursuant to this Agreement.
Notwithstanding the foregoing, no dividends or other distributions with respect
to New Starwood Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Certificate with respect to the
shares represented thereby, and no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to Section 2.2(g), in each case until
the surrender of such Certificate in accordance with this Article II. Subject to
the effect of applicable abandoned property, escheat or similar laws, following
surrender of any such Certificate there shall be paid to the holder of such
Certificate without interest, (A) at the time of such surrender, the amount of
any cash payable in lieu of any fractional share of Advisor Common Stock to
which such holder is entitled pursuant to Section 2.2(g) and (B) if such
Certificate is exchangeable for one or more whole shares of New Starwood Common
Stock, (x) at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of New Starwood Common Stock, and (y) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to such surrender and with a
payment date subsequent to such surrender payable with respect to such whole
shares of New Starwood Common Stock.
(e) NO FURTHER OWNERSHIP RIGHTS IN ADVISOR COMMON STOCK. All Merger
Consideration paid upon the surrender of Certificates in accordance with the
terms of this Article II (and any cash paid pursuant to Section 2.2(g)) shall be
deemed to have been paid in full satisfaction of all rights pertaining to the
shares of Advisor Common Stock theretofore represented by such Certificate;
subject, however, to the obligation of the Advisor to pay or make, without
interest, any dividends or make any other distributions with a record date prior
to the Effective Time which may have been declared or paid by Advisor on such
shares in accordance with the terms of this Agreement or prior to the date of
this Agreement and which remain unpaid at the Effective Time and have not been
paid or made prior to such surrender, and there shall be no further registration
of transfers on the transfer books of the Advisor of the shares of Advisor
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are properly presented to New Starwood
they shall be cancelled and exchanged as provided in this Article II.
(f) UNCLAIMED MERGER CONSIDERATION. Any portion of the Merger
Consideration delivered to the Exchange Agent pursuant to this Agreement that
remains unclaimed for 12 months after the Effective Time shall be redelivered by
the Exchange Agent to New Starwood, upon demand, and any holders of Certificates
who have not theretofore complied with Section 2.2(b) shall thereafter look only
to New Starwood for delivery of the Merger Consideration, subject to applicable
abandoned property, escheat and other similar laws. New Starwood shall have no
liability to any holder of shares of Advisor Common Stock for Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. Any Merger Consideration remaining
unclaimed by any holder of shares of Advisor Common Stock on the day immediately
prior to the time such amounts otherwise would escheat to or become the property
of any governmental entity shall, to the extent permitted by law, become the
property of New Starwood, free and clear of any claim or interest of any Persons
previously entitled thereto.
(g) NO FRACTIONAL SHARES.
(i) No certificates or scrip representing fractional shares of New
Starwood Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote, to receive dividends or to any other rights of a
stockholder of New Starwood.
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<PAGE>
(ii) Notwithstanding any other provision of this Agreement, each holder
of shares of Advisor Common Stock who would otherwise have been entitled to
receive a fraction of a share of New Starwood Common Stock (after taking
into account all Certificates delivered by such holder) shall receive from
the Exchange Agent upon surrender of such holder's Certificates in
accordance with Section 2.1, a cash payment in lieu of such fractional
shares of New Starwood Common Stock equal to the same fractional proportion
of the arithmetic mean of the closing sales price per share of New Starwood
Common Stock on the principal stock exchange on which the New Starwood
Common Stock is then listed (less, if New Starwood Common Stock is trading
cum dividend on any of those days, the amount of that dividend) on each of
the three trading days immediately after the Closing Date.
(h) WITHHOLDING. New Starwood or the Exchange Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement to any holder of shares of Advisor Common Stock such amounts as
New Starwood or the Exchange Agent is required to deduct and withhold with
respect to the making of such payment under the Code, or any provision of state,
local or foreign tax law. To the extent that amounts are so withheld by New
Starwood or the Exchange Agent, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares of
Advisor Common Stock in respect of which such deduction and withholding was made
by New Starwood or the Exchange Agent.
(i) NO DISSENTERS' RIGHTS. Each of the stockholders of Advisor has
consented in writing to the Advisor Merger pursuant to Section 228 of the DGCL;
therefore, no dissenters' or appraisal rights shall be available with respect to
the Advisor Merger.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. REPRESENTATIONS AND WARRANTIES OF ADVISOR. Except as set
forth in the letter of even date herewith (with sections organized in accordance
with Section 8.9) signed by the President or Chief Executive Officer and the
Chief Financial Officer of Advisor and delivered to Starwood prior to the
execution of this Agreement (the "ADVISOR DISCLOSURE LETTER"), (i) each of the
Stockholders, severally and not jointly, represents and warrants, to Starwood
and (ii) Advisor represents and warrants to Starwood, that:
(a) ORGANIZATION, STANDING AND CORPORATE POWER OF THE ADVISOR. Advisor is
a corporation duly organized and validly existing under the laws of the State of
Delaware and has the requisite corporate power and authority to carry on its
business as now being conducted. Advisor is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership, leasing of its properties or management of properties
for others makes such qualification or licensing necessary, except where the
failure to be so qualified or licensed, individually or in the aggregate, would
not have a material adverse effect on the business, properties, financial
condition, results of operations or prospects of Advisor or the Advisor
Subsidiaries, after giving effect to any indemnification to which the Advisor
and the Advisor Subsidiaries may be entitled under the Advisory Agreement, as
defined herein (an "ADVISOR MATERIAL ADVERSE EFFECT").
(b) ADVISOR SUBSIDIARIES; INTERESTS IN OTHER PERSONS.
(i) SFA and SFA II are the only Advisor Subsidiaries. SFA is a limited
liability company duly organized and validly existing under the laws of the
State of Connecticut and SFA II is a limited liability company duly
organized and validly existing under the laws of the State of Delaware and
has the requisite power and authority to carry on its business as now being
conducted. Each of SFA and SFA II is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of
its business or the ownership, leasing of its properties or management of
properties for
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others makes such qualification or licensing necessary, except where the
failure to be so qualified or licensed, individually or in the aggregate,
would not have an Advisor Material Adverse Effect.
(ii) Except for membership interests in SFA and SFA II and options
issued under Starwood's 1996 Long Term Incentive Plan to purchase Class A
shares of beneficial interest of Starwood, Advisor does not own, directly or
indirectly (including through any Advisor Subsidiary), any capital stock or
other equity interest, with a fair market value as of the date of this
Agreement greater than $50,000 in any Person or which represents 5% or more
of the outstanding voting power, capital stock or other ownership interest
of any class in any Person. Neither Advisor nor any Advisor Subsidiary is in
default of any provision of any documents governing or otherwise relating to
its rights in any Advisor Subsidiary other than such defaults that would
not, individually or in the aggregate, have an Advisor Material Adverse
Effect. All such documents are set forth in Section 3.1(b)(ii) of the
Advisor Disclosure Letter and are in full force and effect and true and
correct copies of all such documents have been previously delivered or made
available to Starwood.
(iii) Except as contemplated by this Agreement, there are no
outstanding contractual obligations of Advisor or any Advisor Subsidiary to
repurchase, redeem or otherwise acquire any shares of stock of Advisor or
any capital stock, voting securities or other ownership interests in Advisor
or any Advisor Subsidiary, and there are no outstanding contractual
obligations of Advisor or any Advisor Subsidiary to make any investment of
$50,000 or more (in the form of a loan, capital contribution or otherwise)
in any Person (other than an Advisor Subsidiary).
(c) CAPITAL STRUCTURE. On the date hereof, Advisor owns a 99.9% membership
interest in SFA II, and SFA II owns a 99.9% membership interest in SFA, in each
case free and clear of all Liens. Upon consummation of the Contribution
Transactions, the entire outstanding equity interests in SFA and SFA II will be
owned beneficially and of record by Advisor and another Advisor Subsidiary. The
authorized stock of Advisor consists of 1,500 shares of Advisor Common Stock,
all of which are owned by the Stockholders. One thousand five hundred shares of
Advisor Common Stock constitute all of the issued and outstanding capital stock
of Advisor. There are no outstanding stock or equity appreciation rights
relating to the capital stock or equity interests of Advisor or the Advisor
Subsidiaries. All outstanding shares of Advisor Common Stock are duly
authorized, validly issued, and nonassessable are not subject to any preemptive
rights. All the outstanding membership interests of each of SFA and SFA II have
been duly authorized, validly issued and are not subject to preemptive rights.
Other than the SFA Interest, the SFA II Interest, the membership interests in
SFA II owned by Advisor and the membership interests in SFA owned by SFA II, no
other shares of Advisor Common Stock or other economic or voting membership
interests in Advisor or any Advisor Subsidiary are issued, reserved for issuance
or outstanding. There are no bonds, debentures, notes or other indebtedness of
Advisor or any Advisor Subsidiary having the right to vote (or convertible into,
or exchangeable for, securities having the right to vote) on any matters on
which shareholders of Advisor or members of any Advisor Subsidiary may vote.
There are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
Advisor or any Advisor Subsidiary is a party or by which Advisor or any Advisor
Subsidiary is bound, obligating Advisor or any Advisor Subsidiary to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock, voting securities, membership interests or other ownership
interests of Advisor or any Advisor Subsidiary or obligating Advisor or any
Advisor Subsidiary to issue, grant extend or enter into any such security,
option, warrant, call right, commitment, agreement, arrangement or undertaking.
There are no outstanding contractual obligations of Advisor or any Advisor
Subsidiary to repurchase, redeem or otherwise acquire any shares of capital
stock, voting securities, membership interests or other ownership interest in
Advisor or any Advisor Subsidiary or make any material investment (in the form
of a loan, capital contribution or otherwise) in any Person.
(d) AUTHORITY; NONCONTRAVENTION; CONSENTS. Advisor has the requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement and each other agreement
contemplated by this Agreement to which Advisor is a party and the Contribution
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Transactions. The execution and delivery of this Agreement and any other
agreement contemplated by this Agreement by Advisor and the consummation by
Advisor of the transactions contemplated hereby and thereby to which Advisor is
a party and the Contribution Transactions have been duly authorized by all
necessary corporate action on the part of the Advisor. This Agreement has been
duly executed and delivered by Advisor and constitutes the valid and binding
obligation of Advisor enforceable against Advisor in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and to general principles of equity. The execution and
delivery of this Agreement by Advisor does not, the consummation of the
transactions contemplated hereby and the Contribution Transactions and
compliance by Advisor with the provisions of this Agreement does not and will
not, conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any material obligation or to loss of a material
benefit under, or result in the creation of any pledges, claims, liens, charges,
encumbrances or security interests of any kind or nature whatsoever
(collectively, "LIENS") upon any of the assets of Advisor or any Advisor
Subsidiary under, (i) the charter or bylaws or other comparable organizational
documents of Advisor or any Advisor Subsidiary, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, reciprocal easement agreement, lease
or other agreement, instrument, permit, concession, contract, franchise or
license applicable to Advisor or any Advisor Subsidiary or either of their
respective assets or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree, statute,
law, ordinance, rule or regulation (collectively, "LAWS") applicable to Advisor
or any Advisor Subsidiary, or either of their respective assets, other than, in
the case of clause (ii) or (iii), any such conflicts, violations, defaults,
rights or Liens that individually or in the aggregate would not (x) have an
Advisor Material Adverse Effect or (y) materially delay or prevent the
consummation of the Advisor Merger. No consent, approval, order or authorization
of, or registration, declaration or filing with, any federal, state or local
government or any court, administrative or regulatory agency or commission or
other governmental authority or agency (a "GOVERNMENTAL ENTITY"), is required by
or with respect to Advisor or any Advisor Subsidiary in connection with the
execution and delivery of this Agreement or the other agreements contemplated by
this Agreement by Advisor or the consummation by Advisor of any of the other
transactions contemplated hereby and thereby or the Contribution Transactions,
except for (i) the filing of the Certificate of Merger for the Advisor Merger
with the Secretary of State of the State of Delaware, and (ii) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings as are set forth in Section 3.1(d) of the Advisor Disclosure Letter or
(A) as may be required under (x) federal, state, local or foreign environmental
laws or (y) the "blue sky" laws of various states or (B) which, if not obtained
or made, would not prevent or delay in any material respect the consummation of
any of the transactions contemplated by this Agreement or the Contribution
Transactions or otherwise prevent Advisor from performing its obligations under
this Agreement in any material respect or have, individually or in the
aggregate, an Advisor Material Adverse Effect.
(e) OPERATIONS OF ADVISOR AND THE ADVISOR SUBSIDIARIES. Advisor was formed
solely for the purpose of owning a membership interest in SFA II and has not
engaged in any business activities or conducted any operations other than in
conjunction with such ownership. SFA II was formed solely for the purpose of
owning a membership interest in SFA and has not engaged in any business
activities or conducted any operations other than in conjunction with such
ownership. SFA was formed solely for the purpose of acting as the external
advisor to Starwood pursuant to the Investment Advisory Agreement, dated as of
March 13, 1998, between Starwood and SFA (the "ADVISORY AGREEMENT") and has not
engaged in any business activities or conducted any operations other than its
capacity as the external advisor to Starwood.
(f) LITIGATION. There is no suit, action or proceeding pending or, to the
Knowledge of Advisor, threatened against or affecting Advisor or the Advisor
Subsidiaries that, individually or in the aggregate, would reasonably be
expected to (i) have an Advisor Material Adverse Effect or (ii) prevent the
consummation of any of the transactions contemplated herein, including, without
limitation, the Contribution Transactions or the Merger, nor is there any
judgment, decree, injunction, rule or order of any
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Governmental Entity or arbitrator outstanding against Advisor or the Advisor
Subsidiaries having, or which, insofar as reasonably can be foreseen, in the
future would have, any such effect.
(g) TAXES. Each of Advisor and each Advisor Subsidiary has timely filed
all Tax Returns (as defined below) and reports required to be filed by it (after
giving effect to any filing extension properly granted by a Governmental Entity
having authority to do so). Each such Tax Return is true, correct and complete
in all material respects. Each of Advisor and each Advisor Subsidiary has paid,
within the time and manner prescribed by law, all Taxes (as defined herein) that
are due and payable. The Tax Returns of Advisor and each Advisor Subsidiary have
not been audited by any Governmental Entity responsible for tax matters (a
"TAXING AUTHORITY"). Advisor, with the requisite consent of its stockholders,
has validly and timely filed an election to be taxed as an S corporation for
federal and applicable state tax purposes, which election was effective on
January 1, 1999, and will continue to qualify as a S corporation through the
Effective Time. Neither Advisor nor any Advisor Subsidiary will have any
liability for any Taxes under Section 1374 of the Code in connection with the
transactions contemplated by this Agreement. There are no Tax liens upon the
assets of Advisor or any Advisor Subsidiary other than liens for Taxes not yet
due. Since January 1, 1999, neither Advisor nor any Advisor Subsidiary has
incurred any liability for federal taxes, other than withholding and employment
taxes, under the Code. To the Knowledge of Advisor, no event has occurred, and
no condition or circumstance exists, which presents a material risk that any
material Tax described in the preceding sentence will be imposed upon Advisor or
any Advisor Subsidiary. No deficiencies for any Taxes have been proposed,
asserted or assessed against Advisor or any Advisor Subsidiary, and no requests
for waivers of the time to assess any such Taxes have been granted or are
pending. As used in this Agreement, "TAXES" or "TAX" shall mean any federal,
state, local or foreign income, gross receipts, license, payroll, employment
withholding, property, recording, stamp, sales, excise or other tax or
governmental charges of any nature whatsoever, together with any penalties,
interest or additions thereto and "TAX RETURN" shall mean any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
(h) ABSENCE OF CHANGES IN BENEFIT PLANS; ERISA COMPLIANCE.
(i) Section 3.1(h)(i) of the Advisor Disclosure Letter sets forth each
Advisor Benefit Plan (as defined below) as in effect on the date hereof. For
purposes of this Agreement, "ADVISOR BENEFIT PLAN" shall mean any Employee
Plan sponsored or maintained by Advisor or any Advisor ERISA Affiliate, or
with respect to which Advisor or any Advisor ERISA Affiliate has any
obligation to contribute, has liability under or is otherwise a party to, or
which otherwise provides benefits for any current or former employees,
officers, directors or other independent contractors (or their dependents
and beneficiaries) of Advisor. For purposes of this Agreement, "ADVISOR
ERISA AFFILIATE" means any entity required to be aggregated with Advisor
under Sections 414(b), (c), (m) or (o) of the Code or Section 4001 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(ii) Except as would not reasonably be expected to result in an Advisor
Material Adverse Effect, (A) all Advisor Benefit Plans, including any such
plan that is an "employee benefit plan" as defined in Section 3(3) of ERISA,
have been made available to Starwood and TriNet and are in compliance with
the terms of such plan and all applicable requirements of law, including
ERISA and the Code and, without limitation, the requirements of ERISA and
all tax rules for which favorable tax treatment is intended, and (B) there
are no liabilities or obligations with respect to any such Advisor Benefit
Plan, whether accrued, contingent or otherwise (other than obligations by
Advisor and the Advisor Subsidiaries to make contributions, and for such
plan to pay benefits and administrative costs, incurred in the ordinary
course), nor to the Knowledge of Advisor are any such liabilities or
obligations expected to be incurred. The execution of, and performance of
the transactions contemplated in, this Agreement will not (either alone or
together with the occurrence of any additional or subsequent events)
constitute an event under any Advisor Benefit Plan, policy, program,
arrangement or agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness
of indebtedness, vesting, distribution, increase in benefits or
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obligation to fund benefits with respect to any employee or director, will
not result in any "golden parachute payments" being due (as defined for
purposes of Section 280G of the Code), or result in any breach or violation
of, or a default under, any of the Advisor Benefit Plans. The only severance
agreements or severance policies applicable to Advisor or the Advisor
Subsidiaries are the agreements and policies specifically referred to in
Section 3.1(h)(ii) of the Advisor Disclosure Letter.
(iii) Without limiting the foregoing, each Advisor Benefit Plan which
is intended to be tax-qualified under Section 401(a) of the Code has been
determined by the IRS to be so qualified and such determination has not been
modified, revoked or limited, and no circumstances have occurred that would
adversely affect the tax-qualified status of any such plan. No Advisor
Benefit Plan is or has ever been subject to Part III of Subtitle B of Title
I of ERISA or Title IV of ERISA or Section 412 of the Code. None of Advisor
or any Advisor Subsidiary, or any "party in interest" (as defined in Section
3(14) of ERISA) or any "disqualified person" (as defined in Section 4975 of
the Code) with respect to any Advisor Benefit Plan, has engaged in a
non-exempt "prohibited transaction" within the meaning of Section 4975 of
the Code or Section 406 of ERISA that would reasonably be expected to result
in a an Advisor Material Adverse Effect. No Advisor Benefit Plan provides
for health or life insurance for employees after termination of employment
(except as required by law).
(i) NO LOANS OR PAYMENTS TO EMPLOYEES, OFFICERS OR DIRECTORS. There is no
(i) loan outstanding from or to any employee, officer or director of Advisor or
an Advisor Subsidiary, (ii) employment, severance or consulting contract,
policy, agreement, program or arrangement, (iii) agreements requiring payments
to be made on a change of control or otherwise as a result of the consummation
of the Advisor Merger or any of the other transactions contemplated by this
Agreement with respect to any employee, officer or director of Advisor or any
Advisor Subsidiary or (iv) any agreement to appoint or nominate any person as a
director of Advisor or any Advisor Subsidiary.
(j) BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment banker,
financial advisor or other person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
Advisor Merger or based upon arrangements made by or on behalf of Advisor or any
Advisor Subsidiary.
(k) COMPLIANCE WITH LAWS. Neither Advisor nor any Advisor Subsidiary has
violated or failed to comply with any statute, law, ordinance, regulation, rule,
judgment, decree or order of any Governmental Entity applicable to its business,
properties or operations, except for violations and failures to comply that
would not, individually or in the aggregate, reasonably be expected to result in
an Advisor Material Adverse Effect.
(l) CONTRACTS; DEBT INSTRUMENTS, LIABILITIES.
(i) Neither Advisor nor any Advisor Subsidiary has any outstanding
indebtedness and neither is a party to any loan or credit agreement, note,
bond, mortgage or indenture, or any material lease, permit, concession,
franchise or license, or any agreement to acquire real property, or any
other material contract, agreement, arrangement or understanding, except for
the Advisory Agreement and the Sub Advisory Agreements. None of Advisor and
the Advisor Subsidiary has received written notice that it is in violation
of or in default under, in any material respect (nor does there exist any
condition which upon the passage of time or the giving of notice or both
would cause such a violation of or default under), any material loan or
credit agreement, note, bond, mortgage or indenture or any material lease,
permit, concession, franchise or license, or any material agreement to
acquire real property, or any other material contract, agreement,
arrangement or understanding, to which it is a party or by which it or any
of its properties or assets is bound, except for violations or defaults that
would not individually or in the aggregate, result in an Advisor Material
Adverse Effect.
(ii) Neither Advisor nor any Advisor Subsidiary has any liability
(contingent or accrued, liquidated or unliquidated) except for liabilities
(i) for which indemnification may be sought by the
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Advisor and the Advisor Subsidiaries pursuant to the Advisory Agreement or
(ii) that would not result in an Advisor Material Adverse Effect.
(m) TITLE TO ASSETS. Advisor or an Advisor Subsidiary has good title to,
or a valid leasehold interest in, the assets used by them in the operation of
their business, free and clear of all Liens, except for non-material assets
disposed of in the ordinary course of business. Advisor and the Advisor
Subsidiaries do not own any real property.
(n) BOOKS AND RECORDS.
(i) The books of account and other financial records of Advisor and the
Advisor Subsidiaries are in all material respects true, complete and
correct, have been maintained in accordance with good business practices and
were made available to Starwood and TriNet prior to the date of this
Agreement.
(ii) Advisor has previously delivered or made available to Starwood and
TriNet true and correct copies of the certificates of formation and limited
liability company agreements of SFA and SFA II and the charter and bylaws of
Advisor, each as amended to date. All such documents are listed in Section
3.1(n)(ii) of the Advisor Disclosure Letter.
(iii) The minute books and other records of corporate proceedings of
Advisor and the Advisor Subsidiaries have been made available to Starwood
and TriNet, contain in all material respects accurate records of all
meetings and accurately reflect in all material respects all other action of
the shareholders or member(s)of Advisor and the Advisor Subsidiaries.
(iv) The stock ledger of Advisor has been made available to Starwood
and TriNet and accurately reflects the number of outstanding shares of
capital stock of Advisor.
(o) STATE TAKEOVER STATUTES. Advisor has taken all actions necessary, if
any, to exempt the Advisor Merger, this Agreement or any of the transactions
contemplated by this Agreement from the operation of any Takeover Statute (as
defined below) of the State of Delaware.
(p) INVESTMENT COMPANY ACT OF 1940. None of Advisor and the Advisor
Subsidiaries is, or at the Effective Time will be, required to be registered
under the Investment Company Act of 1940, as amended (the "1940 ACT") or under
the Investment Advisors Act of 1940, as amended.
(q) PROXY STATEMENT AND REGISTRATION STATEMENT. The information furnished
by Advisor for inclusion in the Registration Statement (as defined in Section
5.1) and any amendment or supplement thereto will not, as of the date the
Registration Statement is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. The information furnished by Advisor for inclusion in the Proxy
Statement (as defined in Section 5.1) will not, on the date the Proxy Statement
is first mailed or furnished to securityholders of TriNet or Starwood or on the
respective meeting dates of TriNet or Starwood, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading. Notwithstanding the foregoing, Advisor makes no
representation or warranty with respect to any information furnished by Starwood
or TriNet for inclusion or incorporation by reference in any of the foregoing
documents.
(r) VOTE REQUIRED. The affirmative vote or written consent of at least a
majority of the outstanding shares of Advisor Common Stock is the only vote or
consent of the holders of any series of Advisor's capital stock necessary (under
applicable law or otherwise) to approve the Advisor Merger, this Agreement and
the other transactions contemplated hereby (the "ADVISOR SHAREHOLDER APPROVAL").
The Advisor Shareholder Approval has been obtained.
(s) YEAR 2000 ISSUES.
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(i) To the best Knowledge of Advisor, based on representations and
warranties made by third parties and publicly available information, the
software, hardware and equipment of Advisor and the Advisor Subsidiaries
owned, leased or licensed by them and used in the conduct of its business
(the "ADVISOR INFORMATION TECHNOLOGY") are or will be prior to December 31,
1999 Year 2000 ready.
(ii) "YEAR 2000 READY" means that the software, hardware, equipment and
systems will: (A) handle date information involving any and all dates
before, during and/or after January 1, 2000, including accepting input,
providing output and performing date calculations in whole or in part; (B)
operate, accurately and without interruption on and in respect of any and
all dates before, during and/or after January 1, 2000 and without any change
in performance; and (C) store and provide properly-entered date input
information without creating any ambiguity as to the century.
Section 3.2. REPRESENTATIONS AND WARRANTIES OF STARWOOD AND NEW STARWOOD
SUB. Except as set forth in the letter of even date herewith (with section
references organized in accordance with Section 8.9 signed by the President or
Chief Executive Officer and the Chief Financial Officer of Starwood and
delivered to the Advisor prior to the execution of this Agreement (the "STARWOOD
DISCLOSURE LETTER"), each of Starwood and New Starwood Sub, jointly and
severally represents and warrants to Advisor as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER OF STARWOOD. Starwood is a
real estate investment trust duly organized and validly existing under the laws
of the State of Maryland. New Starwood Sub is a corporation duly organized and
validly existing under the laws of the state of Delaware. Each of Starwood and
New Starwood Sub has the requisite corporate power and authority to carry on its
business as now being conducted. Each of Starwood and New Starwood Sub is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership, leasing of
its properties or management of properties for others makes such qualification
or licensing necessary, except where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a material adverse effect on
the business, properties, financial condition or results of operations or
prospects of Starwood and the Starwood Subsidiaries, taken as a whole (a
"STARWOOD MATERIAL ADVERSE EFFECT").
(b) AUTHORITY; NONCONTRAVENTION; CONSENTS. Subject to receipt of the
requisite approval of Starwood's shareholders, Starwood has the requisite
corporate power and authority to enter into this Agreement, the Incorporation
Merger Agreement and the Merger Agreement, to consummate the transactions
contemplated by this Agreement, the Incorporation Merger Agreement and the
Merger Agreement. New Starwood Sub has the requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement, subject to receipt of the requisite approval of
Starwood's shareholders. The execution and delivery of this Agreement, the
Incorporation Merger Agreement and the Merger Agreement by Starwood and the
consummation by Starwood of the transactions contemplated hereby and thereby
have been duly authorized by all necessary action on the part of Starwood. The
execution and delivery of this Agreement by New Starwood Sub and the
consummation by New Starwood Sub of the transactions contemplated hereby have
been duly authorized by all necessary action on the part of New Starwood Sub.
This Agreement, the Incorporation Merger Agreement and the Merger Agreement have
been duly executed and delivered by Starwood, and in the case of this Agreement,
by New Starwood Sub, and constitute the valid and binding obligations of
Starwood and New Starwood Sub, as applicable, and are enforceable against
Starwood and New Starwood Sub, as applicable, in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and to general principles of equity. The execution and
delivery of this Agreement, the Incorporation Merger Agreement and the Merger
Agreement by Starwood does not, and the consummation of the transactions
contemplated hereby and thereby and compliance by Starwood and New Starwood Sub,
as applicable, and the execution and delivery of this Agreement by New Starwood
Sub do, with the provisions of this Agreement, the Incorporation Merger
Agreement and the Merger Agreement do not and will not, conflict with, or result
in any violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under,
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or result in the creation of any Lien upon any of the properties or assets of
Starwood or, any Starwood Subsidiary under, (i) the amended and restated
declaration of trust or the amended and restated bylaws of Starwood or the
comparable charter or organizational documents or partnership or similar
agreement (as the case may be) of any Starwood Subsidiary, each as amended or
supplemented to the date of this Agreement, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, reciprocal easement agreement, lease or other
agreement, instrument, permit, concession, contract, franchise or license
applicable to Starwood or any Starwood Subsidiary or their respective properties
or assets or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any Laws applicable to Starwood or any
Starwood Subsidiary or their respective properties or assets, other than, in the
case of clause (ii) or (iii), any such conflicts, violations, defaults, rights
or Liens that individually or in the aggregate would not (x) have a Starwood
Material Adverse Effect or (y) materially delay or prevent the consummation of
the Advisor Merger, the Incorporation Merger and the Merger. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to Starwood or, any
Starwood Subsidiary in connection with the execution and delivery of this
Agreement, the Incorporation Merger Agreement and the Merger Agreement by
Starwood the consummation by Starwood and, the Starwood Subsidiaries of any of
the transactions contemplated hereby and thereby, except for (i) the filing with
the SEC of (x) the Proxy Statement and the Registration Statement and (y) such
reports under Section 13 and Section 16 of the Exchange Act as may be required
in connection with this Agreement and the transactions contemplated by this
Agreement, (ii) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware, (iii) such filings as may be required in
connection with the payment of any Transfer and Gains Taxes, and (iv) the
requisite approval of Starwood's shareholders or (A) as may be required under
(x) federal, state or local environmental laws or (y) the "blue sky" laws of
various states or (B) which, if not obtained or made, would not prevent or delay
in any material respect the consummation of the Advisor Merger or any of the
transactions contemplated by this Agreement or otherwise prevent Starwood from
performing its obligations under this Agreement in any material respect or have,
individually or in the aggregate, a Starwood Material Adverse Effect.
(c) OPINION OF FINANCIAL ADVISOR. The Special Committee has received the
opinion of Houlihan, the Special Committee's financial advisor, satisfactory to
the Special Committee, a written copy of which was, or upon receipt by the
Special Committee will be, provided to TriNet, to the effect that, as of the
date of such opinion, the consideration to be paid to those shareholders of
Starwood who hold ownership interests in the Advisor is fair from a financial
point of view to the Starwood shareholders who do not hold any ownership
interests in the Advisor. It is agreed and understood that such opinion is for
the benefit of the Special Committee and may not be relied upon by TriNet,
Advisor or any of their affiliates.
Section 3.3. REPRESENTATIONS AND WARRANTIES OF SCG. SCG represents and
warrants to Starwood as follows:
(a) ORGANIZATION, STANDING AND POWER OF SCG. SCG is a limited liability
company duly organized and validly existing under the laws of the State of
Connecticut. SCG has the requisite power and authority to carry on its business
as now being conducted.
(b) AUTHORITY; NONCONTRAVENTION; CONSENTS. SCG has the requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
SCG and the consummation by SCG of the transactions contemplated hereby have
been duly authorized by all necessary action on the part of SCG. This Agreement
has been duly executed and delivered by SCG and constitutes the valid and
binding obligation of SCG, enforceable against SCG in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and to general principles of equity. The execution and
delivery of this Agreement by SCG does not, the consummation of the transactions
contemplated hereby and compliance by SCG, with the provisions of this Agreement
does not and will not, conflict with, or result in any violation of, or default
(with or without
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notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any Lien upon any of the properties or
assets of SCG under, (i) the amended and restated limited liability company
agreement of SCG, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, reciprocal easement agreement, lease or other agreement, instrument,
permit, concession, contract, franchise or license applicable to SCG or its
assets or (iii) any Laws applicable to SCG, other than, in the case of clause
(ii) or (iii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) reasonably be expected to result
in a material adverse effect on the business, properties, financial condition or
results of operations or prospects of SCG (an "SCG MATERIAL ADVERSE EFFECT") or
(y) materially delay or prevent the consummation of the Contribution
Transactions. No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to SCG in connection with the execution and delivery of this Agreement
by SCG or the consummation by SCG of any of the transactions contemplated hereby
which, if not obtained or made, would prevent or delay in any material respect
the consummation of the Contribution Transactions or any of the transactions
contemplated by this Agreement or otherwise prevent SCG from performing its
obligations under this Agreement in any material respect or reasonably be
expected to result in, individually or in the aggregate, an SCG Material Adverse
Effect.
(c) TITLE TO INTERESTS. SCG is the sole beneficial and record owner of the
SFA Interest and the SFA II Interest, free and clear of all Liens. The transfer
and delivery of the SFA Interest and the SFA II Interest in the Contribution
Transactions will, upon consummation of the Contribution Transactions, transfer
good and marketable title thereto to New Starwood, free and clear of all Liens.
(d) ACCREDITED INVESTOR. SCG is an "accredited investor" as such term is
defined in Regulation D under the Securities Act of 1933, as amended.
(e) INVESTMENT. SCG will be acquiring shares of New Starwood Common Stock
for investment for its own account, not as a nominee or agent, and not with the
view to, or for resale in connection with, any distribution thereof in violation
of the Securities Act of 1933, as amended. SCG understands that the New Starwood
Common Stock to be acquired by it in exchange for the SFA Interest and the SFA
II Interest have not been, and will not be, registered under the Securities Act
by reason of a specific exemption from the registration provisions of the
Securities Act, the availability of which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of SCG's
representations as expressed herein.
ARTICLE IV
COVENANTS
Section 4.1. CONDUCT OF BUSINESS BY ADVISOR. Except as contemplated by
this Agreement, during the period from the date of this Agreement to the earlier
of (i) the termination of this Agreement and (ii) the Effective Time, Advisor
shall, and shall cause each Advisor Subsidiary to, carry on its businesses in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent therewith, use commercially
reasonable efforts to preserve intact, in all material respects, its current
business organization, goodwill and ongoing businesses. Without limiting the
generality of the foregoing, the following additional restrictions shall apply:
during the period from the date of this Agreement to the earlier of (i) the
termination of this Agreement or (ii) the Effective Time, except as otherwise
contemplated by this Agreement or as otherwise disclosed in Section 4.1 of the
Advisor Disclosure Letter, Advisor shall not, and shall cause each Advisor
Subsidiary not to:
(a) (i) make any distributions of assets (other than cash) in respect of
any of its stock;
(b) issue, deliver, sell or grant any option or other right in respect of
any shares of capital stock, any other voting or redeemable securities of it or
any securities convertible into, or any rights, warrants or options to acquire,
any such shares, voting securities or convertible or redeemable securities,
except as permitted under Section 4.1(e);
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(c) amend its charter or bylaws or certificate of formation or limited
liability company agreement;
(d) merge, consolidate or enter into any other business combination
transaction with any Person;
(e) (i) acquire or agree to acquire by merging or consolidating with, or by
purchasing all or a substantial portion of the equity securities or assets of,
or by any other manner, any business or any corporation, partnership, limited
liability company, joint venture, association, business trust or other business
organization or division thereof or interest therein or any assets; (ii)
mortgage or otherwise encumber or subject to any Lien or sell, lease or
otherwise dispose of any of its material properties or assets or assign or
encumber the right to receive income, dividends, distributions and the like or
agree to do any of the foregoing; or (iii) incur indebtedness for borrowed money
or guarantee any indebtedness of another person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of it,
guarantee any debt securities of another person, enter into any "keep well" or
other agreement to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of any of the
foregoing, prepay or refinance any indebtedness or make any loans, advances or
capital contributions to, or investments in, any other person;
(f) make any election relating to Taxes;
(g) (i) change in any material manner any of its methods, principles or
practices of accounting in effect at the date of this Agreement, or (ii) settle
or compromise any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes or change any
of its methods of reporting income or deductions for federal income tax purposes
from those employed in the preparation of its federal income tax return for the
taxable year ended December 31, 1997, except, in the case of clause (i), as may
be required applicable Law or GAAP;
(h) adopt any new employee benefit plan, incentive plan, severance plan,
bonus plan, stock option or similar plan, grant new stock appreciation rights or
amend any existing plan or rights, or enter into or amend any employment
agreement or similar agreement or arrangement or, except in the ordinary course
consistent with past practice, grant or become obligated to grant any increase
in the compensation of officers or employees, except such changes as are
required by law or which are not more favorable to participants than provisions
currently in effect;
(i) settle any shareholder derivative or class action claims arising out of
or in connection with any of the transactions contemplated by this Agreement;
and
(j) enter into or amend or otherwise modify any of the material terms of
any agreement or arrangement with persons that are affiliates or, as of the date
hereof, are officers or directors of the Advisor or any Advisor Subsidiary
without prior written notice to Starwood and the approval of a majority of the
"disinterested" members of the Board of Directors of Advisor, on behalf of
itself and as member of SFA.
Section 4.2. OTHER ACTIONS. Each of Advisor and Starwood shall use its
commercially reasonable efforts not to, and shall use its commercially
reasonable efforts to cause its respective subsidiaries not to take any action
that would result in (i) any of the representations and warranties of such party
(without giving effect to any "Knowledge" qualification) set forth in this
Agreement that are qualified as to materiality becoming untrue, (ii) any of such
representations and warranties (without giving effect to any "Knowledge"
qualification) that are not so qualified becoming untrue in any material respect
or (iii) any of the conditions' to the Advisor Merger set forth in Article VI
not being satisfied.
ARTICLE V
ADDITIONAL COVENANTS
Section 5.1. PREPARATION OF THE REGISTRATION STATEMENT AND THE PROXY
STATEMENT; SHAREHOLDERS' MEETINGS; CONSENTS.
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(a) As soon as practicable following the date of this Agreement, Starwood
shall (i) prepare and file with the SEC a proxy statement under the Securities
Exchange Act of 1934 soliciting the approval of the shareholders of Starwood of
the Advisor Merger (the "PROXY STATEMENT"), with appropriate requests for
confidential treatment, and Starwood will provide on a supplemental basis to the
SEC a registration statement on Form S-4 with regard to the shares of New
Starwood Common Stock to be issued in the Advisor Merger (the "REGISTRATION
STATEMENT"), in which the Proxy Statement will be included as a prospectus. The
Proxy Statement will also include solicitations by Starwood of approvals by
Starwood's shareholders for the Merger and the Incorporation Merger, and the
Registration Statement also will include the shares of capital stock of New
Starwood to be issued in the Merger. Starwood shall use its commercially
reasonable efforts to (i) respond to any comments of the staff of the SEC and
(ii) have the Registration Statement declared effective under the Securities Act
and the rules and regulations promulgated thereunder as promptly as practicable
after such filing and to keep the Registration Statement effective as long as is
necessary to consummate the Merger and the Advisor Merger. Starwood will use its
commercially reasonable efforts to cause the Proxy Statement to be mailed to
Starwood's shareholders, as promptly as practicable after the Registration
Statement is declared effective under the Securities Act. Starwood will notify
Advisor promptly of the receipt of any comments from the SEC and of any request
by the SEC for amendments or supplements to the Registration Statement or the
Proxy Statement or for additional information and will supply Advisor with
copies of all correspondence between such party or any of its representatives
and the SEC with respect to the Registration Statement or the Proxy Statement.
The Registration Statement and the Proxy Statement shall comply in all material
respects with all applicable requirements of Law. Whenever any event occurs
which is required to be set forth in an amendment or supplement to the
Registration Statement or the Proxy Statement, Starwood shall promptly inform
Advisor of such occurrences and cooperate in filing with the SEC and/or mailing
to the shareholders of Starwood such amendment or supplement.
(b) Starwood will, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
shareholders (the "STARWOOD SHAREHOLDERS MEETING") (but in no event shall such
meeting be held sooner than 20 business days following the date the Proxy
Statement is mailed to its shareholders), for the purpose of obtaining the
Starwood Shareholder Approvals. Starwood covenants that Starwood will, through
its Board of Trustees, recommend to its shareholders approval of the Advisor
Merger, this Agreement, the Merger, the Merger Agreement, the Incorporation
Merger and the Incorporation Merger Agreement and the transactions contemplated
hereby and thereby and further covenants that the Proxy Statement will include
such recommendation. Advisor shall furnish all information concerning Advisor
Common Stock as may reasonably be requested in connection with any action
required to be taken under any applicable state securities or "blue sky" laws in
connection with the issuance of Advisor Common Stock pursuant to the Advisor
Merger.
Section 5.2. COMMERCIALLY REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of Starwood, the Stockholders, SCG and Advisor agrees to use its
commercially reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, and to assist and cooperate with the other in doing,
all things necessary, proper or advisable to fulfill all conditions applicable
to such party pursuant to this Agreement and to consummate and make effective,
in the most expeditious manner practicable, the Advisor Merger, the Contribution
Transactions and the other transactions contemplated hereby, including (i) the
obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities and the making of all necessary
registrations and filings and the taking of all reasonable steps as may be
necessary to obtain an approval, waiver or exemption from, or to avoid an action
or proceeding by, any Governmental Entity, (ii) the obtaining of all necessary
consents, approvals, waivers or exemption from non-governmental third parties;
(iii) the defending of any lawsuits or other legal proceedings, whether judicial
or administrative, challenging the Advisor Merger, the Contribution
Transactions, the
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Merger, the Incorporation Merger or the consummation of the transactions
contemplated by this Agreement, the Merger Agreement, the Incorporation Merger
Agreement, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed and (iv)
the execution and delivery of any additional instruments necessary to consummate
the transactions contemplated by and to fully carry out the purposes of, this
Agreement, the Merger Agreement and the Incorporation Merger Agreement. In
connection with and without limiting the foregoing, Advisor, Starwood and their
respective Boards of Directors or Trustees, as applicable, shall (x) take all
action necessary so that no "fair price," "business combination," "moratorium,"
"control share acquisition" or any other anti-takeover statute or similar
statute enacted under state or federal laws of the United States or similar
statute or regulation (a "TAKEOVER STATUTE") is or becomes applicable to the
Advisor Merger or the Merger, and (y) if any Takeover Statute becomes applicable
to the Advisor Merger, take all action necessary so that the Advisor Merger may
be consummated as promptly as practicable on the terms contemplated by this
Agreement or the Merger Agreement, as applicable, or otherwise to minimize the
effect of such Takeover Statute on the Advisor Merger and the Merger. From the
date hereof through the Effective Time, Starwood shall timely file with the SEC
all Starwood SEC Documents required to be so filed.
(b) Advisor shall give prompt notice to Starwood, and Starwood shall give
prompt notice to Advisor, if (i) any representation or warranty made by it
contained in this Agreement, the Merger Agreement or the Incorporation Merger
Agreement, that is qualified as to materiality becomes untrue or inaccurate in
any respect or any such representation or warranty that is not so qualified
becomes untrue or inaccurate in any material respect or (ii) it fails to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement, the Merger Agreement
or the Incorporation Merger Agreement; PROVIDED, HOWEVER, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
Section 5.3. AFFILIATES. Prior to the Closing Date, Advisor, Starwood and
SCG shall exchange letters identifying all persons who are, at the time this
Agreement is submitted to the shareholders of Starwood, their respective
"affiliates" for purposes of Rule 145 under the Securities Act. The Advisor and
Starwood shall use their respective commercially reasonable efforts to cause
each of their respective affiliates to deliver on or prior to the Closing Date a
written agreement substantially in the form attached as EXHIBIT E hereto.
Section 5.4. AMEX DE-LISTING; NYSE LISTING. Starwood shall prepare and
submit to the New York Stock Exchange, Inc. ("NYSE") a listing application
covering the New Starwood Common Stock to be issued in the Advisor Merger and
the Contribution Transactions, and shall use its commercially reasonable efforts
to have the NYSE approve for listing, upon official notice of issuance, the New
Starwood Common Stock. In the event that such securities are approved for
listing on the NYSE, Starwood shall take such steps as are necessary to cause
all Starwood securities listed on the American Stock Exchange ("AMEX") to be
de-listed as of the Effective Time.
Section 5.5. INDEMNIFICATION OF DIRECTORS AND OFFICERS; DIRECTORS' AND
OFFICERS' INSURANCE.
(a) (i) Advisor shall, and, from and after the Effective Time, Starwood
(collectively, the "INDEMNIFYING PARTIES") shall, jointly and severally,
indemnify, defend and hold harmless each Person who is now or has been at any
time prior to the date hereof or who becomes prior to the Effective Time, an
officer or director of Advisor (the "INDEMNIFIED PARTIES") against all losses,
claims, damages, costs, expenses (including attorneys' fees and expenses),
liabilities or judgments or amounts that are paid in settlement of, with the
approval of the Indemnifying Parties (which approval shall not be unreasonably
withheld or delayed), or otherwise in connection with any threatened or actual
claim, action, suit, proceeding or investigation based on or arising out of the
fact that such person is or was a director or officer of Advisor at or prior to
the Effective Time, whether asserted or claimed prior to, or at or after, the
Effective Time ("INDEMNIFIED
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LIABILITIES"), including all Indemnified Liabilities based on, or arising out
of, or pertaining to this Agreement or the transactions contemplated by this
Agreement, in each case to the full extent a corporation is permitted under the
DGCL to indemnify its own directors or officers, as the case may be (and
Starwood will pay expenses in advance of the final disposition of any such
action or proceeding to each Indemnified Party to the full extent permitted by
law subject to the limitations set forth in Section 5.5(a)(iii)).
(ii) Any Indemnified Parties proposing to assert the right to be
indemnified under this Section 5.5 shall, promptly after receipt of notice
of commencement of any action against such Indemnified Parties in respect of
which a claim is to be made under this Section 5.5 against Advisor and, from
and after the Effective Time, Starwood, notify the Indemnifying Parties of
the commencement of such action, enclosing a copy of all papers served;
provided, that the failure to so notify shall not limit in any way or
otherwise affect the obligations of the Indemnifying Parties except to the
extent such failure to notify materially prejudices such party. If any such
action is brought against any of the Indemnified Parties and such
Indemnified Parties notify the Indemnifying Parties of its commencement, the
Indemnifying Parties will be entitled to participate in and, to the extent
that they elect by delivering written notice to such Indemnified Parties
promptly after receiving notice of the commencement of the action from the
Indemnified Parties, to assume the defense of the action and after notice
from the Indemnifying Parties to the Indemnified Parties of their election
to assume the defense, the Indemnifying Parties will not be liable to the
Indemnified Parties for any legal or other expenses except as provided below
and except for the reasonable costs of investigation subsequently incurred
by the Indemnified Parties in connection with the defense. The Indemnifying
Parties shall not settle any such action without the consent of the
Indemnified Parties; PROVIDED, HOWEVER, that such consent shall not be
unreasonably withheld, it being understood that it shall not be deemed
unreasonable to withhold such consent if the settlement includes any
admission of wrongdoing or payment of any money by or on the part of the
Indemnified Parties or any decree or restriction on the Indemnified Parties
or their officers or directors; PROVIDED, FURTHER, that no Indemnifying
Parties, in the defense of any such action shall, except with the consent of
the Indemnified Parties, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Parties of a release from
all liability with respect to such action. The Indemnified Parties will have
the right to employ their own counsel in any such action, but the fees,
expenses and other charges of such counsel will be at the expense of such
Indemnified Parties unless (i) the employment of counsel by the Indemnified
Parties has been authorized in writing by the Indemnifying Parties, (ii) the
Indemnified Parties have reasonably concluded (based on advice of counsel)
that there may be legal defenses available to them that are different from
or in addition to those available to the Indemnifying Parties, (iii) a
conflict or potential conflict exists (based on advice of counsel to the
Indemnified Parties) between the Indemnified Parties and the Indemnifying
Parties (in which case the Indemnifying Parties will not have the right to
direct the defense of such action on behalf of the Indemnified Parties) or
(iv) the Indemnifying Parties have not in fact employed counsel to assume
the defense of such action within a reasonable time after receiving notice
of the commencement of the action, in each of which cases the reasonable
fees, disbursements and other charges of counsel will be at the expense of
the Indemnifying Parties.
(iii) It is understood that the Indemnifying Parties shall not, in
connection with any proceeding or related proceedings, be liable for the
reasonable fees, disbursements and other charges of more than one separate
firm (and one local counsel in each jurisdiction in which such counsel is
reasonably required) at any one time for all such Indemnified Parties unless
(a) the employment of more than one counsel has been authorized in writing
by the Indemnifying Parties, (b) any of the Indemnified Parties has
reasonably concluded (based on advice of counsel) that there may be legal
defenses available to them that are different from or in addition to those
available to other Indemnified Parties or (c) a conflict or potential
conflict exists (based on advice of counsel to the Indemnified Parties)
between any of the Indemnified Parties and the other Indemnified Parties, in
each case of which the
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Indemnifying Parties shall be obligated to pay the reasonable fees and
expenses of such additional counsel or counsels.
(iv) The Indemnifying Parties will not be liable for any settlement of
any action or claim effected without their written consent (which consent
shall not be unreasonably withheld or delayed).
(b) At or prior to the Effective Time, Starwood shall purchase directors'
and officers' liability insurance "tail" policy coverage for Advisor's directors
and executive officers for a period of six years which will provide the
directors and officers with coverage on substantially similar terms as (but
which shall be no less favorable than those) currently provided by Advisor to
such directors and officers for claims based on activity prior to the Effective
Time; PROVIDED, HOWEVER, that Starwood shall have no obligation to pay aggregate
premiums for such coverage in excess of $350,000.
(c) The provisions of this Section 5.5 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her personal representatives and shall be binding on all successors and
assigns of Starwood and Advisor.
Section 5.6. INDEMNIFICATION AGAINST LOSS DUE TO INACCURACIES IN
REPRESENTATIONS AND WARRANTIES; TAX INDEMNITY.
(i) Each of the Stockholders and SCG, severally and not jointly,
indemnifies Starwood and New Starwood Sub against, and agrees to hold
Starwood and New Starwood Sub harmless from, all losses, costs, damages,
liabilities, claims, demands, judgments, settlements and expenses of any
nature whatsoever, governmental or non-governmental (including, but not
limited to, reasonable fees and expenses of counsel and expenses of
investigation) (collectively, "LOSSES") incurred directly or indirectly
because or resulting from or arising out of (i) the fact that any matter
which is the subject of a representation or warranty contained in Section
3.1, in the case of the Stockholders, or Section 3.3, in the case of SCG, is
not as represented or warranted, but only up to a Maximum Amount (as defined
in Section 5.7(i)) or (ii) the failure of any Stockholder, SCG or Advisor to
fulfill in any respect any of its obligations under this Agreement or under
any document delivered in accordance with this Agreement which is required
to be fulfilled before or after the Effective Time.
(ii) Starwood indemnifies the Stockholders and SCG against, and agrees
to hold the Stockholders and SCG harmless from, all Losses incurred directly
or indirectly because or resulting from or arising out of (i) the fact that
any matter which is the subject of a representation or warranty contained in
Section 3.2 is not as represented or warranted, but only up to a maximum
amount equal to the Fair Market Value (as defined in Section 5.8(i)) of the
sum of the Merger Consideration and the Contribution Consideration or (ii)
the failure of Starwood to fulfill in any respect any of its obligations
under this Agreement or under any document delivered in accordance with this
Agreement which is required to be fulfilled before or after the Effective
Time.
(iii) Each of the Stockholders, severally and not jointly, indemnifies
Starwood and New Starwood Sub against, and agrees to hold Starwood and New
Starwood Sub harmless from, any and all Taxes and other Losses ("TAX
DAMAGES") arising out of (i) the fact that, as a result of events occurring
before or after the Effective Time, the Advisor Merger does not qualify as a
tax-free reorganization under Section 368 of the Code, (ii) any other Taxes
attributable to Advisor or which become payable solely on account of the
Advisor Merger or (iii) any and all Taxes relating to Advisor or any Advisor
Subsidiary in respect of any period (or portion thereof) that ends on or
prior to the Closing Date or, if later, the date on which the Effective Time
occurs. The indemnities provided for in this Section 5.6(iii) shall survive
until 60 days after the end of the statute of limitations period applicable
to the matters which are the subject of the indemnities.
Section 5.7. LIMIT ON CLAIMS REGARDING REPRESENTATIONS AND WARRANTIES. (i)
The maximum amount (the "MAXIMUM AMOUNT") for which each of the Stockholders
and SCG shall be liable on account of
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all Losses for which indemnification may be sought is the fair market value
of the Merger Consideration or the Contribution Consideration, as the case
may be, received by the Stockholder or SCG, as the case may be, pursuant to
this Agreement; PROVIDED, HOWEVER, that notwithstanding anything to the
contrary, indemnification made with respect to any matter which is the
subject of a representation or warranty contained in Section 3.1(c) or
Section 3.3(c), shall not be subject to any limitations as to amount. The
fair market value (the ("FAIR MARKET VALUE") shall be determined based on
the average of the closing prices of New Starwood Common Stock on the
principal stock exchange on which it is listed for the five consecutive
trading days beginning with the fourth trading day after the Effective Time
or, if greater, the average closing prices of New Starwood Common Stock on
such exchange for the five consecutive trading days on which the relevant
payments in respect of such indemnification is made hereunder. All
liabilities of the Stockholders and SCG pursuant to Sections 5.6 and 5.7
shall be satisfied exclusively by the Stockholder or SCG, as applicable,
tendering shares of New Starwood Common Stock received by the Stockholder or
SCG, as applicable, in the Advisor Merger or the Contribution Transactions,
as applicable, to Starwood or New Starwood.
(ii) The indemnification in Sections 5.6(i) and (ii) will be the sole
remedy because any matter which is the subject of a representation or
warranty contained in Section 3.1, 3.2 or 3.3 is not as represented or
warranted. Any claim for that indemnification pursuant to Section 5.6(i) or
(ii) must be made not later than the one year anniversary of the Effective
Time; provided that, any claim for indemnification made with respect to any
matter which is the subject of a representation or warranty contained in
Section 3.1(c) or 3.3(c), may be made at any time and any matter which is
the subject of a representation or warranty contained in Section 3.1(g) may
be made at any time prior to 60 days after the end of the statue of
limitations period applicable to the matter which is the subject of the
claim. Any claim for indemnification pursuant to Section 5.6(iii) must be
made prior to 60 days after the end of the statute of limitations period
applicable to the matter which is the subject of the claim. A claim must be
made by a written notification to the party from which indemnification is
sought which reasonably summarizes the nature of the claim and the facts on
which it is based. None of the Stockholders, Advisor, SCG, Starwood or New
Starwood will have any liability pursuant to Section 5.6 unless the claim is
described in a notification given in substantial compliance with this
Section.
(iii) Payment of any indemnification amounts shall be made as directed
by Starwood promptly, but in no event later than two business days after the
amount is due as provided herein. The indemnification amounts each year
shall not exceed (A) the maximum amount that can be paid to Starwood for the
taxable year without causing Starwood to fail to meet the requirements of
Sections 856(c)(2) and (3) of the Code determined as if the payment of such
amount did not constitute income described in Sections 856(c)(2) and (3) of
the Code ("QUALIFYING INCOME"), as determined by outside counsel or
independent accountants to Starwood, and (B) in the event Starwood receives
a letter from outside counsel (the "STARWOOD INDEMNIFICATION TAX OPINION")
indicating its opinion that the receipt by Starwood of the indemnification
payments would constitute Qualifying Income as to Starwood with respect to
Starwood's proportionate share thereof or would be excluded from Starwood's
gross income for purposes of Sections 856(c)(2) and (3) of the Code (the
"REIT REQUIREMENTS"), the amounts indicated in such letter. In the event
that Starwood is not able to receive the full amount of the indemnification
amounts the Stockholders shall place the unpaid amount in escrow and shall
not release any portion thereof to Starwood unless and until Starwood
receives any one or combination of the following: (i) a letter(s) from
Starwood's outside counsel or independent accountants indicating the maximum
amount that can be paid at that time to Starwood without causing Starwood to
fail to meet the REIT Requirements for any relevant taxable year together
with an IRS ruling or opinion of tax counsel to the effect that such payment
would not be treated as included in income for any prior taxable year, in
which event such maximum amount shall be paid to Starwood, or (ii) a tax
opinion indicating that Starwood's receipt of the indemnification amounts
would satisfy the REIT Requirements, in which event the Stockholders shall
pay to Starwood the unpaid indemnification amount.
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ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER AND
THE CONTRIBUTION TRANSACTIONS. The respective obligations of Advisor, Starwood
and SCG to effect the Advisor Merger and the Contribution Transactions and to
consummate the other transactions contemplated by this Agreement on the Closing
Date are subject to the satisfaction or waiver on or prior to the Effective Time
of the following conditions:
(a) SHAREHOLDER APPROVALS. The affirmative vote of at least a majority of
the outstanding shares of Starwood Class A Common Stock and the Starwood Class B
Common Stock, voting as one class, at the Starwood Shareholders meeting, or any
adjournment thereof, to approve this Agreement and the Advisor Merger shall have
been obtained.
(b) LISTING OF SHARES. The NYSE or the AMEX shall have approved for
listing the New Starwood Common Stock to be issued in the Advisor Merger and the
Contribution Transactions.
(c) REGISTRATION STATEMENT. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings by the SEC seeking a stop order.
(d) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Advisor Merger, the Contribution Transactions, the Merger,
the Incorporation Merger or any of the other transactions or agreements
contemplated by this Agreement shall be in effect.
(e) INCORPORATION MERGER AND MERGER. Unless Starwood shall have delivered
the written notice to Advisor contemplated by Section 1.7, the Incorporation
Merger shall have occurred in accordance with the Incorporation Merger
Agreement. The Merger Agreement shall be in full force and effect and the Merger
shall occur simultaneously with the Advisor Merger and the Contribution
Transactions in accordance with the Merger Agreement.
Section 6.2. CONDITIONS TO OBLIGATIONS OF STARWOOD. The obligation of
Starwood to effect the Advisor Merger, the Contribution Transactions and the
Merger and to consummate the other transactions contemplated by this Agreement
on the Closing Date are further subject to the following conditions, any one or
more of which may be waived by Starwood:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Advisor, the Stockholders and SCG (without giving effect to any "materiality,"
Material Adverse Effect" or similar qualification or limitation in any such
representation or warranty) set forth in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, other than the
representations made in Section 3.1(c) which shall be true and correct in all
respects, in each case as though made on and as of the Closing Date, except to
the extent the representation or warranty is expressly limited by its terms to
another date, and Starwood shall have received a certificate (which certificate
may be qualified by Knowledge to the same extent as such representations and
warranties are so qualified) signed by the Chief Executive Officer and the Chief
Financial Officer of each of Advisor and SCG to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF ADVISOR. Advisor and SCG shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Effective Time, and Starwood shall
have received a certificate signed by the Chief Executive Officer and the Chief
Financial Officer of each of Advisor and SCG to such effect.
(c) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, no event
shall have occurred or circumstance shall have arisen that, individually or
taken together with all other facts, circumstances or
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events, is reasonably likely to have an Advisor Material Adverse Event. Starwood
shall have received a certificate of the Chief Executive Officer and Chief
Financial Officer of Advisor to the effect that there has been no such Advisor
Material Adverse Effect.
(d) ASSIGNMENT OF SFA II AND SFA INTEREST. SCG shall have assigned its
0.1% managing member interest in each of SFA II and SFA to Advisor, free and
clear of all Liens and, as a result of such assignments and the Advisor Merger,
New Starwood will own, directly and through its Subsidiaries, 100% of the
membership interests of SFA and SFA II.
Section 6.3. CONDITIONS TO OBLIGATION OF ADVISOR AND SCG. The obligations
of Advisor to effect the Advisor Merger and of SCG to consummate the
Contribution Transactions and to consummate the other transactions contemplated
by this Agreement on the Closing Date is further subject to the following
conditions, any one or more of which may be waived by Advisor:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Starwood set forth in this Agreement shall be true and correct in all material
respects on and as of the Closing Date, as though made on and as of the Closing
Date, except to the extent the representation or warranty is expressly limited
by its terms to another date, and Advisor shall have received a certificate
(which certificate may be qualified by Knowledge to the same extent as such
representations and warranties are so qualified) signed on behalf of Starwood by
the Chief Executive Officer and the Chief Financial Officer of Starwood to such
effect.
(b) PERFORMANCE OF OBLIGATIONS OF STARWOOD. Starwood shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Time, and Advisor shall have
received a certificate signed on behalf of Starwood by the Chief Executive
Officer and the Chief Financial Officer of Starwood to such effect.
(c) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, no event
shall have occurred or circumstance shall have arisen that, individually or
taken together with all other facts, circumstances or events, is reasonably
likely to have a Material Adverse Effect. Starwood shall have received a
certificate of the Chief Executive Officer and Chief Financial Officer of
Starwood to the effect that there has been no such Starwood Material Adverse
Effect.
(d) CONSENTS. All consents and waivers from third parties necessary in
connection with the consummation of the transactions shall have been obtained,
other than such consents and waivers from third parties, which, if not obtained,
would not result, individually or in the aggregate, a Starwood Material Adverse
Effect.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1. TERMINATION. This Agreement may be terminated at any time
prior to the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware, whether before or after the requisite approval of
Starwood's shareholders is obtained:
(a) by mutual written consent duly authorized by the respective Board of
Directors of Advisor, the Board of Directors of New Starwood Sub, the Board of
Trustees of Starwood and the managers of SCG;
(b) by Starwood, upon a breach of any representation, warranty, covenant or
agreement on the part of Advisor set forth in this Agreement, or if any
representation or warranty of the Advisor shall have become untrue, in either
case such that the conditions set forth in Section 6.2(a) or Section 6.2(b), as
the case may be, would be incapable of being satisfied by December 31, 1999 (as
otherwise extended);
(c) by Advisor or SCG, upon a breach of any representation, warranty,
covenant or agreement on the part of Starwood set forth in this Agreement, or if
any representation or warranty of Starwood shall
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<PAGE>
have become untrue, in either case such that the conditions set forth in Section
6.3(a) or Section 6.3(b), as the case may be, would incapable of being satisfied
by December 31, 1999 (as otherwise extended);
(d) by Starwood, Advisor or SCG, if any judgment, injunction, order, decree
or action by; any Governmental Entity of competent authority preventing the
consummation of the Advisor Merger or the Contribution Transactions shall have
become final and nonappealable;
(e) by either Starwood, Advisor or SCG, if the Advisor Merger or the
Contribution Transactions shall not have been consummated before December 31,
1999; provided, however, that a party that has materially breached a
representation, warranty or covenant of such party set forth in this Agreement
shall not be entitled to exercise its right to terminate under this Section
7.1(e); or
(f) by Starwood, Advisor or SCG, if the requisite approval of Starwood's
shareholders shall not have been obtained, as contemplated by Section 6.1.
Section 7.2. EXPENSES. Except as otherwise specified in this Section 8.2
or agreed in writing by the parties, all out-of-pocket costs and expenses
incurred in connection with this Agreement, the Advisor Merger, the Contribution
Transactions, and the other transactions contemplated hereby shall be paid by
the party incurring such cost or expense.
Section 7.3. EFFECT OF TERMINATION. In the event of termination of this
Agreement by Advisor, Starwood or SCG as provided in Section 7.1, this Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of Starwood, Advisor or SCG, and except to the extent
that such termination results from a willful breach by a party of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
Section 7.4. AMENDMENT. Subject to the provisions of the Merger Agreement,
this Agreement may be amended by the parties in writing by action of their
respective Boards of Directors or Trustees or managers, as the case may be, at
any time before or after any required shareholder approvals are obtained and
prior to the acceptance of the Certificate of Merger for the Advisor Merger with
the Secretary of State of the State of Delaware; PROVIDED, HOWEVER, that, after
any of the required shareholder approvals are obtained, no such amendment,
modification or supplement shall alter the amount or change the form of the
consideration to be delivered to Advisor's or Starwood's members/shareholders or
alter or change any of the terms or conditions of this Agreement if such
alteration or change would adversely affect Advisor's or Starwood's
shareholders.
Section 7.5. EXTENSION; WAIVER. At any time prior to the Effective Time,
each of Advisor, Starwood and SCG may (a) extend the time for the performance of
any of the obligations or other acts of the other party, (b) waive any
inaccuracies in the representations and warranties of the other party contained
in this Agreement or in any document delivered pursuant to this Agreement or (c)
subject to the proviso of Section 7.4, waive compliance with any of the
agreements or conditions of the other party contained in this Agreement. Any
agreement on the part of a party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of those rights.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1. SURVIVAL. None of the representations and warranties in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time. This Section 8 shall not limit any covenant or
agreement of the parties which by its terms contemplates performance after the
Effective Time shall survive the consummation of the Advisor Merger and the
Contribution Transactions.
Section 8.2. NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, sent by overnight courier
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(providing proof of delivery) to the parties or sent by telecopy (providing
confirmation of transmission) at the following addresses or telecopy numbers (or
at such other address or telecopy number for a party as shall be specified by
like notice):
(a) if to Starwood or New Starwood Sub, to
Starwood
1114 Avenue of the Americas
27(th) Floor
New York, New York 10036
Attn: Spencer B. Haber and Nina Matis, Esq.
Fax: (212) 930-9494
with a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, NY 10166
Attn: John A. Healy, Esq.
Fax: (212) 878-8375
(b) if to the Advisor, to
STW Holdings I, Inc.
(until June 28, 1999)
Three Pickwick Plaza
Suite 250
Greenwich, Connecticut 06830
(after June 28, 1999)
591 West Putnam
Greenwich, Connecticut 06830
Attention: Madison Grose
Fax: (203) 861-2101
(c) if to the Stockholders, to
Starwood Capital Group, LLC
(until June 28, 1999)
Three Pickwick Plaza
Suite 250
Greenwich, Connecticut 06830
(after June 28, 1999)
591 West Putnam
Greenwich, Connecticut 06830
Attention: Madison Grose, Esq.
Fax: (203) 861-2101
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<PAGE>
(d) if to SCG, to
Starwood Capital Group, LLC
(until June 28, 1999)
Three Pickwick Plaza
Suite 250
Greenwich, Connecticut 06830
(after June 28, 1999)
591 West Putnam
Greenwich, Connecticut 06830
Attention: Madison Grose, Esq.
Fax: (203) 861-2101
(e) if to TriNet, to
TriNet Corporate Realty Trust, Inc.
One Embarcadero Center
Suite 3150
San Francisco, California 94111
Attention: A. William Stein and Geoff Dugan, Esq.
Fax: (415) 391-3092
Section 8.3. INTERPRETATION. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
Section 8.4. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 8.5. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement, the Merger Agreement, the Incorporation Merger Agreement and the
other agreements entered into in connection with the transactions contemplated
hereby and thereby constitute the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter of this Agreement. This Agreement, the Merger
Agreement, the Incorporation Merger Agreement and the other agreements entered
into in connection with the transactions contemplated hereby and thereby are not
intended to confer upon any person other than the parties hereto any rights or
remedies except that the agreements, covenants and representations and
warranties of the parties hereto are intended to be for the benefit of, and
shall be enforceable by, TriNet.
Section 8.6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO CONFLICTS OF LAWS PRINCIPLES THEREOF, EXCEPT TO THE EXTENT THAT THE
ADVISOR MERGER OR OTHER TRANSACTIONS CONTEMPLATED HEREBY ARE REQUIRED TO BE
GOVERNED BY THE DGCL OR THE LAWS OF THE STATE OF DELAWARE.
Section 8.7. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned or delegated, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties. Subject to the preceding
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<PAGE>
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
Section 8.8. ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of New York or in any New York State court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself (without
making such submission exclusive) to the personal jurisdiction of any federal
court located in the State of New York or any New York State court in the event
any dispute arises out of this Agreement or any of the transactions contemplated
by this Agreement and (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court.
Section 8.9. EXHIBITS; DISCLOSURE LETTERS. All Exhibits referred to herein
and in the Advisor Disclosure Letter and the Starwood Disclosure Letter are
intended to be and hereby are specifically made a part of this Agreement. All
references herein to Articles, Sections, Exhibits and Disclosure Letters shall
be deemed references to such parts of this Agreement, unless the context
otherwise requires. Each exception to a representation or warranty of Starwood
or the Advisor that is set forth in the applicable Starwood or Advisor
Disclosure Letter is identified by reference to, or has been grouped under a
heading referring to, a specific individual Section of this Agreement.
ARTICLE IX
CERTAIN DEFINITIONS
Section 9.1. CERTAIN DEFINITIONS. For purposes of this Agreement:
An "ADVISOR SUBSIDIARY" means each Subsidiary of Advisor.
An "AFFILIATE" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person.
"EMPLOYEE PLAN" means any employment, bonus, incentive compensation,
deferred compensation, pension, profit sharing, retirement, stock purchase,
stock option, stock ownership, stock appreciation rights, phantom stock, equity
(or equity-based) leave of absence, layoff, vacation, day or dependent care,
legal services, cafeteria, life, health, medical, accident, disability,
workmen's compensation or other insurance, severance, separation, termination,
change of control or other benefit plan, agreement (including any collective
bargaining agreement), practice, policy or arrangement of any kind, whether
written or oral, and whether or not subject to ERISA, including, but not limited
to, any "employee benefit plan" within the meaning of Section 3(3) of ERISA.
"KNOWLEDGE" where used herein with respect to Advisor or any Advisor
Subsidiary shall mean the knowledge, after due inquiry, of the persons named in
Section 10 of the Advisor Disclosure Letter and where used with respect to
Starwood shall mean the actual knowledge of the persons named in Section 10 of
the Starwood Disclosure Letter.
"LAW" means any statute, law, regulation or ordinance of any Government
Entity applicable to Starwood or TriNet or any of their respective Subsidiaries.
"PERSON" means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or other
entity.
"STARWOOD SUBSIDIARY" means each Subsidiary of Starwood.
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<PAGE>
"SUB-ADVISORY AGREEMENTS" means the Investment Sub-Advisory Agreement made
as of April 1, 1999 by and between SFA and New York Financial Advisors and the
Investment Sub-Advisory Agreement made as of April 1, 1999 by and between SFA
and Starwood Capital Operations, L.L.C.
"SUBSIDIARY" of any person means any corporation, partnership, limited
liability company, joint venture or other legal entity of which such person
(either directly or through or together with another Subsidiary of such person)
owns 50% or more of the voting stock, value of or other equity interests (voting
or non-voting) of such corporation, partnership, limited liability company,
joint venture or other legal entity.
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<PAGE>
IN WITNESS WHEREOF, Starwood, New Starwood Sub, Advisor, TriNet and the
Stockholders have caused this Agreement to be signed by their respective
officers thereunto duly authorized, all as of the date first written above.
<TABLE>
<S> <C> <C>
STARWOOD FINANCIAL TRUST
By:
-----------------------------------------
Name:
Title:
SA MERGER SUB, INC.
By:
-----------------------------------------
Name:
Title:
STW HOLDINGS I, INC.
By:
-----------------------------------------
Name:
Title:
STARWOOD CAPITAL GROUP, LLC
By:
-----------------------------------------
Name:
Title:
TRINET CORPORATE REALTY TRUST, INC. (solely in
its capacity as an intended third party
beneficiary of the designated representations,
warranties and covenants in the Agreement)
By:
-----------------------------------------
Name:
Title:
</TABLE>
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<TABLE>
<S> <C> <C>
STOCKHOLDERS
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
</TABLE>
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Annex C
GREENHILL & CO.
June 15, 1999
Board of Directors
TriNet Corporate Realty Trust
One Embarcadero Center
Suite 3150
San Francisco, California 94111
Members of the Board:
We understand that TriNet Corporate Realty Trust ("TriNet"), Starwood Financial
Trust ("Starwood") and ST Merger Sub, Inc., a wholly-owned subsidiary of
Starwood ("Merger Sub"), have entered into an Agreement and Plan of Merger,
dated as of June 15, 1999 (the "Merger Agreement"), which provides, among other
things, for the merger (the "Merger") of Merger Sub with and into TriNet with
TriNet as the surviving corporation and pursuant to which TriNet would become a
wholly-owned subsidiary of Starwood (or of Starwood Financial, Inc., Starwood's
successor (the "Successor")), in a merger of Starwood with and into a
newly-formed Maryland corporation, which merger Starwood may elect to complete
immediately prior to the merger in order to convert its form of organization
from a Maryland real estate investment trust to a Maryland corporation).
Pursuant to the Merger, each issued and outstanding share of common stock, $0.01
par value of TriNet (the "TriNet Common Stock), other than shares of TriNet
Common Stock held as treasury shares by TriNet, shall be converted into the
right to receive 1.15 shares (the "Exchange Ratio") of common stock, $1.00 par
value, of Starwood or of the Successor ("Starwood Common Stock").
Contemporaneously with the consummation of the Merger, Starwood or the Successor
will complete certain transactions, more fully set forth in the advisor
transaction agreement (the "Advisor Transaction Agreement"), including the
merger of STW Holdings I, Inc. (the "Advisor"), with and into Starwood or the
Successor, as the case may be (the "Advisor Transaction"). The terms and
conditions of the Merger are more fully set forth in the Merger Agreement.
Capitalized terms used in this letter without definition have the respective
meanings assigned to them in the Merger Agreement.
You have asked us to render an opinion as to whether, as of the date hereof, the
Exchange Ratio is fair, from a financial point of view, to the holders of TriNet
Common Stock. We have not been requested to opine as to, and our opinion does
not in any manner address the underlying business decision to proceed with or
effect the Merger.
For purposes of the opinion set forth herein, we have:
1. reviewed the draft dated June 14, 1999 of the Merger Agreement
and certain ancillary agreements referred to in the Merger
Agreement;
2. reviewed the structure of the Merger;
3. reviewed the draft dated June 14, 1999 of the Advisor
Transaction Agreement;
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Page 2
4. analyzed the Advisor Transaction as it relates to the Merger
(which included a review of the Advisory Agreement and certain
financial information regarding the Advisor provided to us by
the Advisor);
5. reviewed Forms 10-K and related financial information for the
three fiscal years ended December 31, 1996, 1997 and 1998 for
TriNet;
6. reviewed Forms 10-K and related financial information for the
two fiscal years ended December 31, 1997 and 1998 for
Starwood;
7. reviewed certain other filings with the Securities and
Exchange Commission made by TriNet and Starwood, respectively,
that we deemed relevant;
8. reviewed certain information, including financing forecasts,
related to the business, earnings, cash flow, assets,
liabilities and prospects of TriNet and Starwood, furnished to
us by TriNet and Starwood and the Advisor;
9. conducted discussions with members of senior management of
TriNet and Starwood and the Advisor concerning their
respective businesses, strategic objectives, capital
structures, recent results and prospects;
10. conducted property tours of selected assets owned by Starwood
or that represent the collateral for its debt investments;
11. reviewed the historical market prices and trading activity for
the TriNet Common Stock and the Starwood Common Stock, as well
as related stock market indices that we deemed relevant;
12. analyzed the Exchange Ratio using the trading values of real
estate investment trusts, specialty real estate finance
companies, commercial finance companies and consumer finance
companies that we deemed relevant;
13. compared the combined results of operations of TriNet and
Starwood after giving effect to the Advisor Transaction with
those of certain companies that we deemed to be reasonably
similar to the combined company;
14. reviewed the financial terms, to the extent publicly
available, of certain other comparable transactions that we
deemed relevant;
15. analyzed the pro forma effect of the Merger on the earnings,
cash flow, consolidated capitalization, dividend policy and
certain financial ratios of the combined company;
16. participated in discussions and negotiations among
representatives of TriNet and Starwood and the Advisor and
their financial and legal advisors;
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Page 3
17. reviewed such other financial studies and analyses and
performed such other investigations and took into account such
other matters as we deemed necessary or appropriate for
purposes of this opinion.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information supplied or otherwise made available to us
by TriNet and Starwood and the Advisor or representatives of TriNet and Starwood
and the Advisor or made publicly available by TriNet and Starwood in preparing
our opinion and we have further relied upon the assurances of the
representatives of TriNet and Starwood and the Advisor that they are not aware
of any facts or circumstances that would make such information inaccurate or
misleading. With respect to the financial projections of TriNet and Starwood
that have been furnished to us by their respective representatives, we have
assumed such projections have been reasonably prepared on a basis reflecting the
best currently available estimates and good faith judgments of the management of
TriNet and Starwood and the Advisor as to the future financial performance of
TriNet and Starwood and we relied upon such projections in arriving at our
opinion. In addition, we have assumed the Merger will be consummated in
accordance with the terms and conditions set forth in the draft Merger
Agreement. In arriving at our opinion, we have not undertaken an independent
appraisal of the assets of TriNet or of the assets of Starwood nor are we
expressing an opinion as to any aspect of the Merger other than the fairness to
the holders of TriNet Common Stock of the Exchange Ratio from a financial point
of view. No opinion is expressed herein as to the price at which the Starwood
Common Stock to be issued in the Merger to the shareholders of TriNet may trade
at any time.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
We have acted as financial advisor to TriNet in connection with the Merger and
will receive a fee from TriNet for our services, a significant portion of which
is contingent upon the consummation of the Merger or a similar transaction.
It is understood that this letter is for the information of the Board of
Directors of TriNet and is rendered to the Board of Directors in connection with
its consideration of the Merger and may not be used for any other purposes
without our prior written consent, except that this opinion may be included in
its entirety when required in any filing made by TriNet with the Securities and
Exchange Commission. This opinion is not intended to be and does not constitute
a recommendation to the Board of Directors of TriNet as to whether it should
approve the Merger.
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Page 4
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio is fair, from a financial point of view, to the
holders of TriNet Common Stock.
Very truly yours,
GREENHILL & CO., LLC
By: /s/ SCOTT L. BOK
-----------------------------------------------
Name: Scott L. Bok
Title: Managing Director
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Annex D
BEAR
STEARNS
June 15, 1999
Board of Directors
Starwood Financial Trust
1114 Avenue of the Americas, 27th Floor
New York, NY 10036
Gentlemen:
We understand that Starwood Financial Trust ("Starwood") and TriNet Corporate
Realty Trust, Inc. ("TriNet") have entered into an Agreement and Plan of Merger
(the "Agreement") dated June 15. 1999, pursuant to which a wholly-owned
subsidiary of Starwood will be merged with and into TriNet (the "Merger"), and
TriNet shall continue as the surviving corporation. We further understand that
Starwood intends to merge with and into a newly-formed corporation ("New
Starwood"), pursuant to which (i) each issued and outstanding share of Class A
common stock of Starwood will be exchanged for one share of New Starwood common
stock and (ii) each issued and outstanding share of Class B common stock of
Starwood will be exchanged for one forty-ninth of one share of New Starwood
common stock. In connection with the Merger, each issued and outstanding share
of TriNet common stock will be exchanged for 1.15 shares of New Starwood common
stock (such ratio of TriNet common stock to New Starwood common stock
hereinafter being, referred to as the "Exchange Ratio"). You have provided us
with a copy of the Agreement.
You have asked us to render our opinion as to whether the Exchange Ratio is
fair, from a financial point of view, to Starwood and its shareholders.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Agreement;
2. reviewed each of Starwood's and TriNet's Annual Reports on
Form 10-K for the fiscal years ended December 31, 1997 through
1998, and their respective Quarterly Reports on Form 10-Q for
the period ended March 31, 1999;
3. reviewed certain operating and financial information,
including projections, related to the business and prospects
of Starwood and TriNet provided to us by the managements of
Starwood and TriNet, as applicable, and reviewed certain
operating and financial information, including projections,
related to the business and prospects of New Starwood provided
to us by the managements of Starwood and TriNet;
4. met with certain members of Starwood's and TriNet's senior
managements to discuss their respective company's operations,
historical financial statements and future prospects;
5. reviewed the historical prices and trading volumes of the
common shares of Starwood and TriNet;
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6. reviewed and analyzed the pro forma financial impact of the
Merger;
7. reviewed publicly available financial data, stock market
performance data and valuation parameters of companies which
we deemed generally comparable to Starwood and TriNet;
8. reviewed the terms of recent mergers and acquisitions which we
deemed generally comparable to the Merger; and
9. conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In the course of our review, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information including, without limitation, the projections provided to us
by Starwood and TriNet. With respect to Starwood's, TriNet's and New Starwood's
projected financial results, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the senior managements of Starwood and TriNet as to the expected
future performance of Starwood, TriNet and New Starwood, as applicable. We have
not assumed any responsibility for the independent verification of any such
information or of the projections provided to us and we have further relied upon
the assurances of the senior managements of Starwood and TriNet that they are
unaware of any facts that would make the information or projections provided to
us incomplete or misleading. In arriving at our opinion, we have not performed
or obtained any independent appraisal of the assets or liabilities of Starwood
and TriNet, nor have we been furnished with any such appraisals. Our opinion is
necessarily based on economic, market and other conditions, and the information
made available to us, as of the date hereof. We have assumed that the Merger
will qualify as a tax-free "reorganization" within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended.
We do not express any opinion as to the price or range of prices at which shares
of common stock of New Starwood may trade subsequent to the consummation of the
Merger.
We have acted as a financial advisor to Starwood in connection with the Merger
and will receive a fee for such services.
Bear Stearns has been previously engaged by Starwood and certain of its
affiliates to provide certain investment banking and financial advisory services
for which we received customary compensation. In the ordinary course of
business, Bear Stearns may actively trade the equity securities of Starwood
and/or TriNet for its own account and for the account of its customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is intended solely for the benefit and use of
the Board of Directors of Starwood in connection with its consideration as to
whether the Exchange Ratio is fair, from a financial point of view, to Starwood
and its shareholders, and does not constitute a recommendation to the Board of
Directors of Starwood or any holders of common stock of Starwood as to how to
vote in connection with the Merger. In addition, this opinion is not directed
to, nor should it be relied upon, by Barry Sternlicht, Sternlicht Holdings II,
Inc., BSS Capital Partners, L.P., Starwood Capital Group I, L.P., Starwood
Mezzanine Holdings, L.P., Starwood Capital Group, L.L.C., SOFI IV Management,
L.L.C., SOFI IV SMT Holdings, L.L.C., Starwood Opportunity Fund IV, L.P.,
Starwood Mezzanine Investors, L.P., B Holdings, L.L.C., Starwood Capital Group,
L.P. or any affiliated or related entity (including, without limitation for this
purpose, each person who controls, is controlled by or is under common control
with each such entity) in its capacity as general partners or otherwise or any
fund or investors in funds
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managed by any such entity for any purpose whatsoever including, without
limitation, voting shares of Starwood common stock in connection with the
Merger. This opinion does not address Starwood's underlying business decision to
pursue the Merger. This opinion also does not address any other transactions
that may occur at the time of, or near the time of, the Merger or the effect of
any of these transactions on the Merger. This letter is not to be used for any
other purpose, or reproduced, disseminated, quoted to or referred to at any
time, in whole or in part, without our prior written consent; provided, however,
that this letter may be included in its entirety in any joint proxy
statement/prospectus to be distributed to the holders of the common stock of
Starwood and TriNet in connection with the Merger.
Based on and subject to the foregoing, it is our opinion that the Exchange Ratio
is fair, from a financial point of view, to Starwood and its shareholders.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ Thomas Flexner
--------------------------------
Senior Managing Director
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Annex E
HOULIHAN LOKEY HOWARD & ZUKIN
June 13, 1999
The Independent Committee of
The Board of Trustees
Starwood Financial Trust
Ladies and Gentlemen:
We understand that Starwood Financial Trust ("SFT" or the "Company," including a
successor through a reorganization merger) has reached an agreement in principle
to acquire TriNet Corporate Realty Trust, Inc. ("TRI") in a tax free, stock for
stock merger (the "TriNet Merger"). SFT will be the surviving entity (the
combined company is referred to herein as "NewStar"). In connection with the
TriNet Merger, NewStar will acquire the ownership interests in SFT`s external
advisor, Starwood Financial Advisors (the "Advisor"), in a tax free merger as to
substantially all of the economic interests therein. Additionally, immediately
prior to the closing of the TriNet Merger, a one million share stock dividend
(the "Stock Dividend") will be paid to all of SFT's common stockholders.
Pursuant to the Merger Agreement (defined herein), the persons or entities
owning 100% of the ownership interests in the Advisor (the "Affiliated
Shareholders"), will receive 4 million shares of NewStar common stock in
exchange for their ownership interests in the Advisor. NewStar's acquisition,
through merger, of the ownership of the Advisor is referred to herein as the
"Transaction". SFT formed a special committee of independent trustees (the
"Independent Committee") to consider certain matters relating to the
Transaction. Houlihan Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan
Lokey") has been retained by and reports to the Independent Committee.
In connection with the proposed Transaction, the Independent Committee, on
behalf of SFT shareholders who do not hold any ownership interest in the Advisor
(the "Non-Affiliated Shareholders"), has requested that Houlihan Lokey render an
opinion as to the fairness, from a financial point of view to the Non-Affiliated
Shareholders, of the consideration to be delivered by NewStar to the Affiliated
Shareholders in connection with the Transaction. Moreover, Houlihan Lokey
expressly authorizes the limited partners of Starwood Mezzanine Investors, L.P.,
the limited partners of Starwood Opportunity Fund IV, L.P., and the Advisory
Committee of Starwood Opportunity Fund IV, L.P. to rely upon this letter in
connection with the granting of all approvals and consents in connection with
the Transaction.
The Opinion does not address the Company's or the Advisor's underlying business
decision to effect the Transaction. We have not been requested to, and did not,
solicit third party indications of interest in acquiring all or any part of the
Advisor. Furthermore, at your request, we have not negotiated the Transaction or
advised you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to shareholders and on Form 10-K
for the fiscal years ended December 31, 1998 and quarterly reports on
Form 10-Q for the quarter ended March 31, 1999, which the Company has
identified as being the most current financial statements available as
well as other internally prepared financial information with respect to
the Company including Company-prepared financial statements of SFT for
the three months ending March 31, 1999 and March 31, 1998,
respectively;
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The Independent Committee of The Board of Trustees 2
Starwood Financial Trust
June 13,1999
2. reviewed the Advisor's annual financial statement for the year ended
December 31, 1998 and quarter ended March 31, 1999 as well as other
internally prepared financial information with respect to the Advisor.
3. reviewed the historical market prices and trading volume for the
Company's and TRI's publicly traded securities;
4. reviewed the June 10, 1999 draft of the Agreement and Plan of Merger
and Interest Contribution Agreement between "Simba," "SA Merger Sub,
Inc.," STW Holdings I, Inc.," the Stockholders named therein, "Simba
Capital Group, LLC," and to the extent described therein, "Tusk," (the
"Merger Agreement") which details the terms of the Transaction;
5. held discussions with the Advisor's senior management to discuss the
Transaction, the operations, financial condition, future prospects,
projected operations and performance of the Advisor, SFI, TRI, and
NewStar as well as the Transaction;
6. held discussions with the Advisor's investment bankers (Bear Stearns &
Co. Inc., referred to herein as "Bear Steams") regarding the Company,
the Transaction, TRI, and projected the projected operations and
financial performance of NewStar;
7. reviewed the Company's presentation to the Board of Trustees dated
April 29, 1999;
8. reviewed the Investment Advisory Agreement by and between SFT and the
Advisor dated March 13, 1998;
9. reviewed the Corporate Overview of SFT as prepared by management as of
April 1999;
10. reviewed TRI Corporate Realty Trust, Inc.'s annual financial statements
for the year ended December 31, 1998 as filed on form 10-K and
quarterly financial statements for the quarter ended March 31, 1999 as
filed on form 10-Q;
11. reviewed the Project Tembo - Pro Forma Merger Analysis prepared by Bear
Stearns as of June 1, 1999;
12. reviewed the management-prepared 1999 budget for the Advisor as of May
1, 1999;
13. reviewed management-prepared projections with respect to the Advisor's
financial performance for the years ended December 31, 1999 through
2002;
14. reviewed publicly available information on companies we deemed
comparable to the Company the Advisor, and NewStar, and publicly
available consideration delivered in other transactions that we
considered similar to the Transaction; and
15. conducted such other analyses, studies and investigations as we deemed
appropriate under the circumstances for rendering the opinion expressed
herein.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company, the Advisor, and NewStar, and that there
has
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The Independent Committee of The Board of Trustees 3
Starwood Financial Trust
June 13,1999
been no material change in the assets, financial condition, business or
prospects of the Company, TRI, or the Advisor since the date of the most recent
financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company, the Advisor, TRI or
NewStar and do not assume any responsibility with respect to it. We have not
made any physical inspection or independent appraisal of any of the properties
or assets of the Company, the Advisor, or TRI. Our opinion is necessarily based
on business, economic, market and other conditions as they exist and can be
evaluated by us at the date of this letter.
The Company, the Advisor, and TRI, like other companies and any business
entities analyzed by Houlihan Lokey or which are otherwise involved in any
manner in connection with this Opinion, could be materially affected by
complications that may occur, or may be anticipated to occur, in
computer-related applications as a result of the year change from 1999 to 2000
(the "Y2K Issue"). In accordance with longstanding practice and procedure,
Houlihan Lokey's services are not designed to detect the likelihood and extent
of the effect of the Y2K Issue, directly or indirectly, on the financial
condition and/or operations of a business. Further, Houlihan Lokey has no
responsibility with regard to the Company's, the Advisor's, or TRI's efforts to
make its systems, or any other systems (including its vendors and service
providers), Year 2000 compliant on a timely basis. Accordingly, Houlihan Lokey
shall not be responsible for any effect of the Y2K Issue on the matters set
forth in this Opinion.
Based upon the foregoing, and in reliance thereon, it is our opinion that the
consideration to be received by the Affiliated Shareholders in connection with
the Transaction is fair to the Non-Affiliated Shareholders of the Company from a
financial point of view.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the MGCL, Article VII of Starwood Financial Trust's (the
"Company") Amended and Restated Declaration of Trust ("Declaration") provides
for the limitation of the liability of its trustees and officers as follows:
To the maximum extent that Maryland law in effect from time to time
permits limitation of the liability of trustees and officers of a real
estate investment trust, no trustee or officer of the Company shall be
liable to the Company or to any trustee or to any shareholder for money
damages. In addition to any Maryland statute limiting the liability of
trustees or officers of a Maryland real estate investment trust, no trustee
or officer of the Company shall be liable to the Company or to any trustee
for any act or omission of any other trustee, shareholder, officer, or agent
of the Company, including the advisor, or be held to any personal liability
whatsoever in tort, contract, or otherwise in connection with the affairs of
the Company except only that arising from his own willful violation of the
provisions of the 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.
As permitted by the MGCL, the Declaration provides for indemnification of
the Company's trustees and officers as follows:
The Company shall have the power to obligate itself to indemnify each
trustee, officer, employee and agent of the Company, 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 Company or is or was serving at
the request of the Company 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 Section 7.2 of the Declaration shall
include payment of: (1) reasonable attorneys' fees or other expenses
incurred in settling any such claim or liability or incurred in any finally
adjudicated legal proceeding; and (2) 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 Company, and no shareholder
shall be personally liable to any person to be indemnified. Section 7.2 of
the Declaration shall inure to the benefit of the trustees and their
affiliates.
Section 12.1 of Starwood Financial's Bylaws implements the indemnification
provisions of the Declaration. The Bylaws state that, 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.
Section 2-418 of the MGCL permits the charter of a Maryland corporation to
include a provision limiting the liability of trustees and officers to the
corporation and its stockholders for money damages, except when it is
established that: (1) the act or omission was material to the matter giving rise
to the proceeding and either (a) was committed in bad faith, or (b) was the
result of active and deliberate dishonesty; (2) the person actually received an
improper benefit or profit in money, property or services; or (3) in the case of
any criminal proceeding, the trustee had reasonable cause to believe that the
omission was unlawful.
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As permitted under Section 2-418 of the MGCL, the Company has purchased and
maintain insurance on behalf of its trustees and officers against any liability
asserted against such trustees and officers in their capacities as such, whether
or not the Company would have the power to indemnify such persons under the
provisions of Maryland law governing indemnification.
The Company has also entered into indemnification agreements with each of
its trustees and executive officers. The indemnification agreements provide that
the Company will indemnify the trustees and executive officers to the fullest
extent permitted under 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 Company, or by reason of their serving at the
Company's request; provided that the trustee or executive officer acted in a
manner determined in good faith to be within the scope of his authority and to
be in best interest of the Company and so long as the trustee or executive
officer was not guilty of gross negligence, misconduct or a breach of his
fiduciary obligation in the act or failure to act. The Company will not
indemnify the trustees and executive officers to the extent prohibited by the
Declaration or Title 8 of the Maryland Corporations Code. If an amendment to the
Declaration or Title 8 with respect to removal of limitations on indemnification
is approved, the indemnification agreements will be amended accordingly. The
Company is not required to indemnify any trustee or executive officer for
liabilities: (1) 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; (2) based upon or attributable to his
gaining in fact any personal profit or advantage to which he was not legally
entitled; (3) resulting from an accounting of profits under Section 16(b) of the
Securities Exchange Act of 1934; or (4) brought about or contributed to by his
dishonesty, willful misconduct or bad faith unless a judgement 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 the action so adjudicated.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
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<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of June 15, 1999, by and among Starwood Financial Trust,
ST Merger Sub, Inc. and TriNet Corporate Realty Trust, Inc. *
2.2 Agreement and Plan of Merger, dated as of June 15, 1999, by and among Starwood Financial Trust,
Starwood Financial, Inc. and, to the extent described therein, TriNet Corporate Realty Trust,
Inc. *
2.3 Agreement and Plan of Merger, dated as of June 15, 1999, by and among Starwood Financial Trust,
SA Merger Sub, Inc., STW Holdings I, Inc., the Stockholders named therein, Starwood Capital
Group, L.L.C. and, to the extent described therein, TriNet Corporate Realty Trust, Inc. *
3.1 Amended and Restated Declaration of Trust dated March 1998.**
3.2 Articles of Amendment to the Company's Amended and Restated Declaration of Trust. ****
3.3 Articles Supplementary relating to the Series A Preferred Shares of Beneficial Interest. ****
3.4 Bylaws of the Company. **
4.1 Amended and Restated Registration Rights Agreement dated March 18, 1998 among Starwood Financial
Trust and Starwood Mezzanine Investors, L.P., SAHI Partners and SOFI-IV SMT Holdings, L.L.C.***
</TABLE>
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<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
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<C> <S> <C>
4.2 Investor Rights Agreement, dated as of December 15, 1998 among Starwood Financial Trust, a
Maryland real estate investment trust, Starwood Mezzanine Investors, L.P., a Delaware limited
partnership, SOFI-IV SMT Holdings, L.L.C., a Delaware limited liability company, B Holdings,
L.L.C., a Delaware limited liability company, and Lazard Freres Real Estate Fund II, L.P., a
Delaware limited partnership, Lazard Freres Real Estate Offshore Fund II L.P., a Delaware
limited Partnership, and LF Mortgage REIT, a Maryland real estate investment trust.****
4.3 Form of warrant certificates.****
4.4 Form of certificate for Series A preferred shares of beneficial interest.****
4.5 Form of share certificate for Class A shares of beneficial interest of the Company.***
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP, counsel to Starwood Financial, regarding
legality of securities to be issued.
8.1 Opinion of Rogers & Wells LLP, counsel to Starwood Financial, regarding certain tax matters.
8.2 Opinion of Rogers & Wells LLP, counsel to Starwood Financial, regarding the tax treatment of the
reorganization.
8.3 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison, counsel to TriNet, regarding certain tax
matters.
8.4 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison, counsel to TriNet, regarding the tax
treatment of the reorganization.
8.5 Opinion of Mayer Brown & Platt, counsel to Starwood Financial, regarding certain tax matters.
8.6 Opinion of Katten, Muchin & Zavis, counsel to Starwood Financial, regarding certain tax matters.
10.1 Starwood Financial Trust 1996 Share Incentive Plan. ***
10.2 Contribution Agreement dated as of February 11, 1998, between Starwood Financial Trust, Starwood
Mezzanine Investors, L.P. and Starwood Opportunity Fund IV, L.P. ***
10.3 Second Amended and Restated Shareholder's Agreement dated March 18, 1998, among B Holdings,
L.L.C., SAHI Partners, Starwood Mezzanine Investors, L.P., SOFI-IV SMT Holdings, L.L.C., and
Starwood Financial Trust. ***
10.4 Investment Advisory Agreement dated as of March 18, 1998, between Starwood Financial Trust and
Starwood Financial Advisors, L.L.C. ***
10.5 Securities Purchase Agreement, dated as of December 15, 1998, by and between Starwood Financial
Trust, Lazard Freres Real Estate Fund II, L.P., a Delaware limited partnership, Lazard Freres
Real Estate Offshore Fund II, L.P., a Delaware limited partnership, and LF Mortgage REIT, a
Maryland real estate investment trust.****
10.6 Asset Purchase and Sale Agreement, dated as of December 15, 1998, by and between Lazard Freres
Real Estate Fund, L.P., a Delaware limited partnership, Lazard Freres Real Estate Fund II, L.P.,
a Delaware limited partnership, Prometheus Mid-Atlantic Holding, L.P., a Delaware limited
partnership, Pacific Preferred LLC, a New York limited liability company, Atlantic Preferred II
LLC, a New York limited liability company, Indian Preferred LLC, a New York limited liability
company, and Prometheus Investment Holding, L.P., a Delaware limited partnership, and Starwood
Financial Trust. ****
</TABLE>
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<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
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<C> <S> <C>
10.7 Form of Advisor Lock-Up Agreement, dated as of June 15, 1999, among Greenhill & Co., LLC and
each owner of interests in the Advisor.
10.8 Form of Option Standstill Agreement, dated as of June 15, 1999, among Starwood Financial Trust
and each of George R. Puskar, Willis Anderson, Jr., Stephen B. Oresman, Robert W. Holman, Jr.
and John G. McDonald.
10.9 Form of Starwood Financial Trust Affiliate Lock-Up Agreement, dated as of June 15, 1999, between
Greenhill & Co., LLC and each of B L.L.C., SOFI-IV SMT Holdings, L.L.C. and Starwood Mezzanine
Investors, L.P.
10.10 Stock Purchase Agreement dated as of June 15, 1999 among Jay Sugarman, Spencer B. Haber, A.
William Stein and Robert Holman, Jr.
10.11 Amendment No. 1 to the Stock Purchase Agreement dated as of July 26, 1999, which amends the
Stock Purchase Agreement dated as of June 15, 1999 among Jay Sugarman, Spencer B. Haber, A.
William Stein and Robert Holman, Jr.
10.12 Shareholder Agreement, dated as of June 15, 1999, among SOFI-IV SMT Holdings, L.L.C., Starwood
Mezzanine Investors, L.P., B Holdings, LLC and TriNet Corporate Realty Trust, Inc.
10.13 First Amendment to Shareholder Agreement dated as of July 15, 1999, which amends the Shareholder
Agreement, dated as of June 15, 1999, among SOFI-IV SMT Holdings, L.L.C., Starwood Mezzanine
Investors, L.P., B Holdings, LLC and TriNet Corporate Realty Trust, Inc.
21.1 Subsidiaries of Starwood Financial.*****
23.1 Consent of Rogers & Wells LLP (contained in the opinions filed as Exhibits 8.1 and 8.2).
23.2 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (contained in the opinions filed as Exhibits
8.3 and 8.4).
23.3 Consent of Mayer Brown & Platt (contained in the opinion filed as Exhibit 8.5).
23.4 Consent of Katten, Muchin & Zavis (contained in the opinion filed as Exhibit 8.6).
23.5 Consent of Ballard Spahr Andrews & Ingersoll, LLP (contained in the opinion filed as Exhibit
5.1).
23.6 Consent of PricewaterhouseCoopers LLP (New York).
23.7 Consent of PricewaterhouseCoopers LLP (San Francisco).
24.1 Powers of Attorney (contained on signature page hereto).
99.1 Fairness Opinion of Bear, Stearns & Co., Inc. (incorporated by reference to Annex D to the Joint
Proxy Statement and Prospectus included in the Registration Statement).
99.2 Fairness Opinion of Greenhill & Co., LLC. (incorporated by reference to Annex C to the Joint
Proxy Statement and Prospectus included in the Registration Statement).
99.3 Fairness Opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc. (incorporated by
reference to Annex E to the Joint Proxy Statement and Prospectus included in the Registration
Statement).
99.4 Consent of Bear, Stearns & Co., Inc.
99.5 Consent of Greenhill & Co., LLC
99.6 Consent of Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
</TABLE>
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*Incorporated by reference from Starwood Financial Trust's Form 8-K filed on
June 22, 1999.
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**Incorporated by reference from Starwood Financial Trust's Registration
Statement on Form S-4 filed on May 12, 1998.
***Incorporated by reference from Starwood Financial Trust's Annual Report on
Form 10-K for the year ended December 31, 1997 filed on April 2, 1998.
****Incorporated by reference from Starwood Financial Trust's Form 8-K filed on
December 23, 1998.
*****Incorporated by reference from Starwood Financial Trust's Annual Report on
Form 10-K for the year ended December 31, 1998 filed on March 31, 1999.
(b) Financial Statement Schedules:
(c) Reports, Opinions and Appraisals:
(1) Fairness Opinion of Bear, Stearns & Co., Inc. (see Exhibit 99.1)
(2) Fairness Opinion of Greenhill & Co., LLC (see Exhibit 99.2)
(3) Fairness Opinion of Houlihan Lokey Howard & Zukin Financial Advisors,
Inc. (see Exhibit 99.3)
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
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(c) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated
by reference in the prospectus and furnishes pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act
of 1934; and, where interim financial information required to be presented
by Article 3 of Regulation S-X are not set forth in the prospectus, to
deliver, or cause to be delivered to each person to whom the prospectus is
sent or given, the latest quarterly report that is specifically incorporated
by reference in the prospectus to provide such interim financial
information.
(d) (1) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other items of the
applicable form.
(2) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act and is
used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the Registration Statement and
will not be used until such amendment is effective, and that, for purpose
of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or aid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to this request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized on August 25, 1999.
<TABLE>
<S> <C> <C>
STARWOOD FINANCIAL TRUST
By: /s/ JAY SUGARMAN
-----------------------------------------
Name: Jay Sugarman
Title: Chief Executive Officer and
President
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Barry S. Sternlicht, Jay Sugarman and
Madison Grose (each with full power to act alone), his or her true and lawful
attorney-in-fact and agent with full power of substitution, in the name and on
behalf of the undersigned, to do any and all acts and things and to execute any
and all instruments which said attorney and agent, may deem necessary or
advisable to enable Starwood Financial Trust (the "Registrant") to comply with
the Securities Act of 1933, and with the Securities Exchange Act of 1934, and
any rules, regulations and requirements of the Securities and Exchange
Commission in respect thereof in connection with this Registration Statement and
any and all amendments thereto or reports that the Registrant is required to
file pursuant to the requirements of federal or state securities laws or any
rules and regulations thereunder. The authority granted under this Power of
Attorney shall include, but not be limited to, the power and authority to sign
the name of the undersigned in the capacity or capacities set forth below to a
Registration Statement on Form S-4 to be filed with the Securities and Exchange
Commission, to any and all amendments (including post-effective amendments) to
that Registration Statement in respect of the same, and to any and all
instruments filed as a part of or in connection with that Registration
Statement; and each of the undersigned hereby ratifies and confirms all that the
attorney-in-fact and agent, shall lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<S> <C> <C>
/s/ BARRY S. STERNLICHT
- ------------------------------ Chairman of the Board of August 25, 1999
Barry S. Sternlicht Trustees
/s/ JAY SUGARMAN
- ------------------------------ Chief Executive Officer August 25, 1999
Jay Sugarman and President
/s/ SPENCER B. HABER
- ------------------------------ Chief Financial Officer August 25, 1999
Spencer B. Haber and Secretary
/s/ JEFFREY G. DISHNER
- ------------------------------ Trustee August 25, 1999
Jeffrey G. Dishner
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ JONATHAN EILIAN
- ------------------------------ Trustee August 25, 1999
Jonathan Eilian
<S> <C> <C>
/s/ MERRICK R. KLEEMAN
- ------------------------------ Trustee August 25, 1999
Merrick R. Kleeman
/s/ ROBIN JOSEPHS
- ------------------------------ Trustee August 25, 1999
Robin Josephs
/s/ WILLIAM MATTHES
- ------------------------------ Trustee August 25, 1999
William Matthes
/s/ KNEELAND C. YOUNGBLOOD
- ------------------------------ Trustee August 25, 1999
Kneeland C. Youngblood
</TABLE>
II-8
<PAGE>
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL, LLP]
Exhibit 5.1
August __, 1999
Starwood Financial, Inc.
27th Floor
1114 Avenue of the Americas
New York, New York 10036
Re: Registration Statement on Form S-4
to be filed on August , 1999
----------------------------------
Ladies and Gentlemen:
We have served as Maryland counsel to Starwood Financial, Inc., a
Maryland corporation (the "Company"), in connection with certain matters of
Maryland law arising out of the issuance by the Company of up to (a)
28,688,008 shares of common stock (the "Common Shares"), par value $0.001 per
share, of the Company (the "Common Stock") and (b) 2,000,000 shares of 9 3/8%
Series B Cumulative Redeemable Preferred Stock (the "Series B Preferred
Shares"), par value $0.001 per share, of the Company (the "Series B Preferred
Stock"), 1,300,000 shares of 9.20% Series C Cumulative Redeemable Preferred
Stock (the "Series C Preferred Shares"), par value $0.001 per share, of the
Company (the "Series C Preferred Stock") and 4,000,000 shares of 8% Series D
Cumulative Redeemable Preferred Stock (the "Series D Preferred Shares," and
together with the Series B Preferred Shares and the Series C Preferred
Shares, collectively referred to as the "Preferred Shares"), par value $0.001
per share, of the Company (the "Series D Preferred Stock," and together with
the Series B Preferred Stock and Series C Preferred Stock, collectively
referred to as the "Preferred Stock"). The Common Shares and the Preferred
Shares are to be issued by the Company to stockholders of TriNet Corporate
Realty Trust, Inc., a Maryland corporation ("TriNet"), in the merger of ST
Merger Sub, Inc., a Maryland corporation and a wholly owned subsidiary of the
Company (the "Merger Sub"), with and into TriNet (the "Merger"), pursuant to
the Agreement and Plan of Merger, dated as of June 15, 1999 (the "Merger
1
<PAGE>
Starwood Financial, Inc.
August __, 1999
Page 2
Agreement"), by and among Starwood Financial Trust, a Maryland real estate
investment trust ("Starwood Trust"), Merger Sub and TriNet, as described in
the above-referenced Registration Statement (the "Registration Statement"),
filed with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "1933 Act"). Capitalized terms
used but not defined herein shall have the meanings given to them in the
Registration Statement.
In connection with our representation of the Company, and as a basis
for the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):
1. The charter of the Company, certified as of a recent date by the
State Department of Assessments and Taxation of Maryland (the "SDAT");
2. The Bylaws of the Company, certified as of the date hereof by its
Secretary;
3. The form of Articles of Amendment and Restatement (the "Articles
of Amendment and Restatement") and the forms of Articles Supplementary for
each class of Preferred Stock (collectively, the "Articles Supplementary") to
be filed by the Company with the SDAT;
4. The form of Amended Bylaws of the Company (the "Amended Bylaws")
to be adopted by the Company prior to the effective time of the Merger;
5. A certificate of the SDAT as of a recent date as to the good
standing of Company;
6. Resolutions adopted by the Board of Directors of the Company, or
a duly authorized committee thereof, relating to the approval of the Merger
and the issuance of the Common Shares and the Preferred Shares in the Merger,
certified as of the date hereof by the Secretary of the Company;
2
<PAGE>
Starwood Financial, Inc.
August __, 1999
Page 3
7. The Merger Agreement, certified as of the date hereof by
the Secretary of the Company;
8. A certificate executed by the Secretary of the Company,
dated the date hereof; and
9. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth in this letter, subject to the
assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed the
following:
1. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents
to which such party is a signatory, and such party's obligations set forth
therein are legal, valid and binding and are enforceable in accordance with
all stated terms.
2. Each individual executing any of the Documents on behalf of a
party (other than the Company) is duly authorized to do so.
3. Each individual executing any of the Documents, whether on behalf
of such individual or another person, is legally competent to do so.
4. Any Documents submitted to us as originals are authentic. Any
Documents submitted to us as certified or photostatic copies conform to the
original documents. All signatures on all such Documents are genuine. All
public records reviewed or relied upon by us or on our behalf are true and
complete. All statements and information contained in the Documents are true
and complete. There has been no oral or written modification of or amendment
to any of the Documents, and there has been no waiver of any provision of any
of the Documents, by action or omission of the parties or otherwise.
5. As described in the Merger Agreement and the Registration
Statement, prior to the effective time of the Merger, Starwood Trust will
merge (the "Incorporation Merger") with and into
3
<PAGE>
Starwood Financial, Inc.
August __, 1999
Page 4
the Company (prior to the effective time of such Incorporation Merger, a
wholly owned subsidiary of Starwood Trust) with the Company as the survivor
in such Incorporation Merger.
6. The Articles of Amendment and Restatement and the Articles
Supplementary will be filed by the Company with, and accepted for record by,
the SDAT prior to the issuance of any of the Common Shares or the Preferred
Shares. The form and content of the Articles of Amendment and Restatement and
each of the Articles Supplementary, as accepted for record by the SDAT, and
the Amended Bylaws, as adopted by the Board of Directors of the Company, will
not differ in any respect relevant to this opinion from the form and content
of any of such Documents as reviewed by us in connection with the preparation
of this opinion.
7. The Board of Directors and the stockholders of TriNet will take
all action necessary to validly approve the Merger under Maryland law.
Articles of Merger relating to the Merger will be filed by the Company and
TriNet with, and accepted for record by, the SDAT.
Based upon the foregoing, and subject to the assumptions,
limitations and qualifications stated herein, it is our opinion that:
1. The Company is a corporation duly incorporated and existing under
and by virtue of the laws of the State of Maryland and is in good standing
with the SDAT.
2. The Common Shares have been duly authorized and, when and if
issued in accordance with the resolutions of the Board of Directors of the
Company authorizing their issuance and the Merger Agreement, will be validly
issued, fully paid and nonassessable.
3. The Preferred Shares have been duly authorized and, when and if
issued in accordance with the resolutions of the Board of Directors of the
Company authorizing their issuance and the Merger Agreement, will be validly
issued, fully paid and nonassessable.
The foregoing opinion is limited to the substantive laws of the
State of Maryland and we do not express any opinion herein concerning any
other law. We express no opinion as to compliance
4
<PAGE>
Starwood Financial, Inc.
August __, 1999
Page 5
with any federal or state securities laws, including the securities laws of
the State of Maryland.
We assume no obligation to supplement this opinion if any applicable
law changes after the date hereof or if we become aware of any fact that
might change the opinion expressed herein after the date hereof.
This opinion is being furnished to you for submission to the
Commission as an exhibit to the Registration Statement. We hereby consent to
the filing of this opinion as an exhibit to the Registration Statement and to
the use of the name of our firm in the section entitled "Legal Matters" in
the Registration Statement. In giving this consent, we do not admit that we
are within the category of persons whose consent is required by Section 7 of
the 1933 Act.
Very truly yours,
5
<PAGE>
<PAGE>
Exhibit 8.1
[Form of R&W Tax Opinion]
___, 1999
TriNet Corporate Realty Trust, Inc.
One Embarcadero Center, 33rd Floor
San Francisco, CA 94111-3722
Re: REIT Status of Starwood Financial Trust
Ladies and Gentlemen:
We have acted as counsel to Starwood Financial Trust, a Maryland real estate
investment trust (the "Company"), in connection with the filing of the
Registration Statement on Form S-4, dated ___, 1999 (the "Registration
Statement"), with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act"), and the
transactions contemplated by the Agreement and Plan of Merger, dated June 15,
1999 (the "Merger Agreement"), by and among the Company, ST Merger Sub, Inc.,
a Maryland corporation ("Merger Sub"), and TriNet Corporate Realty Trust,
Inc., a Maryland corporation ("TriNet"). The transactions include the merger
of Merger Sub into TriNet (the "Merger") with TriNet continuing as the
surviving entity. In addition to the Merger, the Registration Statement
describes certain other transactions including the merger of the Company into
Starwood Financial, Inc., a Maryland corporation (the "Incorporation
Merger"). This opinion is being provided pursuant to Section 6.3(d) of the
Merger Agreement. Capitalized terms not otherwise defined herein shall have
the meanings given to them in the Merger Agreement.
In rendering the opinion expressed herein, we have examined and relied, with
your consent, on the following items:
1. The Merger Agreement;
2. The Registration Statement;
3. The Company's Declaration of Trust, as amended to date;
4. The opinion of Mayer, Brown & Platt, dated ____, 1999 (the
"Mayer Brown Opinion"), regarding the Company's qualification
and taxation as a real estate investment trust ("REIT")
through the effective date of the earlier of the
Incorporation Merger and the Merger;
5. The opinion of Katten, Muchin & Zavis, dated ____, 1999 (the
"Katten Muchin Opinion"), regarding the treatment of the
Company's subsidiary entities as partnerships or disregarded
entities under the Internal Revenue Code of 1986, as amended
(the "Code");
<PAGE>
TriNet Corporate Realty Trust, Inc. Page 2
____, 1999
6. The opinion of Paul, Weiss, Rifkind, Wharton & Garrison, dated
____, 1999 (the "Paul Weiss Opinion"), regarding the
qualification and taxation of TriNet as a REIT through the
effective date of the Merger and the treatment of TriNet's
subsidiary entities as partnerships or disregarded entities
under the Code; and
7. Such other documents, records and instruments as we have
deemed necessary in order to enable us to render the opinion
referred to in this letter.
In our examination of the foregoing documents, we have assumed, with your
consent, that (i) all documents reviewed by us are original documents, or
true and accurate copies of original documents, and have not been
subsequently amended, (ii) the signatures on each original document are
genuine, (iii) each party who executed the document had proper authority and
capacity, (iv) all representations and statements set forth in such documents
are true and correct, (v) all obligations imposed by any such documents on
the parties thereto have been or will be performed or satisfied in accordance
with their terms and (vi) the Company and its subsidiaries have at all times
been and will continue to be organized and operated in accordance with the
terms of such documents. We have also assumed the accuracy of the statements
and description of the Company's intended activities as described in the
Registration Statement and that the Company has operated and will continue to
operate in accordance with the method of operation described in the
Registration Statement. In addition, we have relied, with your consent, upon
(a) the Mayer Brown Opinion with respect to the qualification of the Company
as a REIT through the effective date of the earlier of the Incorporation
Merger and the Merger, (b) the Katten Muchin Opinion with respect to the
classification of the Company's subsidiaries as partnerships or disregarded
entities under the Code, and (c) the Paul Weiss Opinion with respect to the
qualification of TriNet as a REIT through the effective date of the Merger
and the classification of TriNet's subsidiaries as partnerships or
disregarded entities under the Code.
For purposes of rendering the opinion stated below, we have also assumed, with
your consent, the accuracy of the representations contained in the Certificate
of Representations, dated ____, 1999, provided to us by the Company (the
"Starwood Certificate"). We have also assumed, with your consent, the accuracy
of the representations contained in the Certificate of Representations, dated
____, 1999, provided to us by TriNet (the "TriNet Certificate"). These
representations generally relate to the classification and operation of the
Company and TriNet as REITs under the Code.
Based upon and subject to the foregoing, we are of the opinion that:
(1) the Company's proposed method of operation from and after
the earlier of the Incorporation Merger and the Merger,
taking into account the effects of the Incorporation
Merger and the Merger, will enable the Company to continue
to meet the requirements for qualification and taxation
as a REIT under the Code; and
(2) following the Merger, the partnerships, limited liability
companies or joint ventures in which the Company has a direct
or indirect interest in will continue to be treated as
partnerships or disregarded entities for federal income tax
purposes.
<PAGE>
TriNet Corporate Realty Trust, Inc. Page 3
____, 1999
The opinion stated above represents our conclusions as to the application of the
federal income tax laws existing as of the date of this letter in connection
with the transactions contemplated in the Merger Agreement, and we can give no
assurance that legislative enactments, administrative changes or court decisions
may not be forthcoming that would modify or supersede our opinion. In addition,
there can be no assurance that positions contrary to our opinion will not be
taken by the Internal Revenue Service, or that a court considering the issues
would not hold contrary to such opinion. Moreover, the Company's qualification
and taxation as a REIT depend upon the Company's ability to meet, through actual
annual operating results, requirements under the Code regarding income, assets,
distributions and diversity of stock ownership. Because the Company's
satisfaction of these requirements will depend on future events, no assurance
can be given that the actual results of the Company's operations for any
particular taxable year will satisfy the tests necessary to qualify as or be
taxed as a REIT under the Code. Further, the opinion set forth above represents
our conclusions based upon the documents, facts and accuracy of the assumptions
and representations referred to above. Any material amendments to such
documents, changes in any significant facts or inaccuracy of such assumptions or
representations could affect the opinion referred to herein. After reasonable
inquiry, however, we are not aware of any facts or circumstances inconsistent
with such assumptions or representations. Although we have made such inquiries
and performed such investigations as we have deemed necessary to fulfill our
professional responsibilities as counsel, we have not undertaken an independent
investigation of all of the facts referred to in this letter, the Starwood
Certificate and the TriNet Certificate.
The opinion set forth in this letter: (i) is limited to those matters expressly
covered and no opinion is to be implied in respect of any other matter; (ii) is
as of the date hereof; and (iii) is rendered by us solely for your benefit and
may not be provided to or relied upon by any person or entity other than you
without our express consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption
"Material Federal Income Tax Consequences" in the Registration Statement. In
giving this consent, we do not concede that we are within the category of
persons whose consent is required under the Securities Act or the rules and
regulations of the Commission promulgated thereunder.
Very truly yours,
<PAGE>
Exhibit 8.2
[Form of R&W Reorganization Opinion]
___, 1999
Starwood Financial Trust
1114 Avenue of the Americas, 27th Floor
New York, New York 10036
Re: Certain Federal Income Tax Consequences
Ladies and Gentlemen:
We have acted as counsel to Starwood Financial Trust, a Maryland real estate
investment trust (the "Company"), in connection with the filing of the
Registration Statement on Form S-4, dated ___, 1999 (the "Registration
Statement"), with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act"), and the
transactions contemplated by the Agreement and Plan of Merger, dated June 15,
1999 (the "Merger Agreement"), by and among the Company, ST Merger Sub, Inc., a
Maryland corporation ("Merger Sub"), and TriNet Corporate Realty Trust, Inc., a
Maryland corporation ("TriNet"). In addition to the merger of Merger Sub with
and into TriNet (the "Merger"), the Registration Statement describes certain
other transactions including (i) the merger of the Company into Starwood
Financial, Inc., a Maryland corporation (the "Incorporation Merger"), (ii) the
payment of a special dividend of one million of the Company's common shares (the
"Special Dividend"), and (iii) the merger of STW Holdings I, Inc. into Starwood
Financial, Inc. (the "Advisor Transaction"). Capitalized terms not otherwise
defined herein shall have the meanings given to them in the Merger Agreement.
In rendering the opinion expressed herein, we have examined and relied, with
your consent, on the following items:
1. The Agreement and Plan of Merger, dated June 15, 1999, regarding
the Incorporation Merger;
2. The Agreement and Plan of Merger and Interest Contribution
Agreement, dated June 15, 1999, regarding the Advisor
Transaction;
3. The Merger Agreement;
4. The Registration Statement;
<PAGE>
Starwood Financial Trust Page 2
____, 1999
5. The Company's Declaration of Trust, as amended to date; and
6. Such other documents, records and instruments as we have deemed
necessary in order to enable us to render the opinion referred to
in this letter.
In our examination of the foregoing documents, we have assumed, with your
consent, that (i) all documents reviewed by us are original documents, or true
and accurate copies of original documents, and have not been subsequently
amended, (ii) the signatures on each original document are genuine, (iii) each
party who executed the document had proper authority and capacity, (iv) all
representations and statements set forth in such documents are true and correct,
(v) all obligations imposed by any such documents on the parties thereto have
been or will be performed or satisfied in accordance with their terms and (vi)
the Company and its subsidiaries have at all times been and will continue to be
(through the date of the Incorporation Merger) organized and operated in
accordance with the terms of such documents. We have also assumed the accuracy
of the statements and description of the Company's intended activities as
described in the Registration Statement and that the Company has operated and
will continue to operate (through the date of the Incorporation Merger) in
accordance with the method of operation described in the Registration Statement.
For purposes of rendering the opinion stated below, we have assumed, with your
consent, the accuracy of the representations contained in the Certificate of
Representations, dated ____, 1999, provided to us by the Company (the "Starwood
Certificate"). We have also assumed, with your consent, the accuracy of the
representations contained in the Certificate of Representations, dated ___,
1999, provided to us by TriNet (the "TriNet Certificate"). These representations
generally relate to the circumstances surrounding the Merger, the Special
Dividend, the Advisor Transaction and the Incorporation Merger as tax-free
transactions under the Code.
Based upon and subject to the foregoing, we are of the opinion that:
(1) the Incorporation Merger will qualify as a reorganization within
the meaning of Section 368(a) of the Code;
(2) the Special Dividend will constitute a non-taxable stock dividend
to the Company's shareholders under Section 305(a) of the Code;
(3) the Advisor Transaction will not result in the recognition of
gain or loss by the Company or its shareholders; and
(4) the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code.
The opinion stated above represents our conclusions as to the application of the
federal income tax laws existing as of the date of this letter in connection
with the specific transactions described above
<PAGE>
Starwood Financial Trust Page 3
____, 1999
and we can give no assurance that legislative enactments, administrative changes
or court decisions may not be forthcoming that would modify or supersede our
opinion. In addition, there can be no assurance that positions contrary to our
opinion will not be taken by the Internal Revenue Service, or that a court
considering the issues would not hold contrary to such opinion. Further, the
opinion set forth above represents our conclusions based upon the documents,
facts and accuracy of the assumptions and representations referred to above. Any
material amendments to such documents, changes in any significant facts or
inaccuracy of such assumptions or representations could affect the opinion
referred to herein. After reasonable inquiry, however, we are not aware of any
facts or circumstances inconsistent with such assumptions or representations.
Although we have made such inquiries and performed such investigations as we
have deemed necessary to fulfill our professional responsibilities as counsel,
we have not undertaken an independent investigation of all of the facts referred
to in this letter, the Starwood Certificate and the TriNet Certificate.
The opinion set forth in this letter: (i) is limited to those matters expressly
covered and no opinion is to be implied in respect of any other matter; (ii) is
as of the date hereof; and (iii) is rendered by us solely for the benefit of you
and your shareholders and may not be provided to or relied upon by any person or
entity other than you and your shareholders without our express consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption
"Material Federal Income Tax Consequences" in the Registration Statement. In
giving this consent, we do not concede that we are within the category of
persons whose consent is required under the Securities Act or the rules and
regulations of the Commission promulgated thereunder.
Very truly yours,
<PAGE>
Exhibit 8.3
[Form of Paul, Weiss, Rifkind, Wharton & Garrison Tax Opinion]
________ __, 1999
Starwood Financial Trust
1114 Avenue of the Americas
27th Floor
New York, NY 10036
Ladies and Gentlemen:
We have acted as special tax counsel to TriNet Corporate Realty
Trust, Inc., a Maryland corporation (the "Company"), in connection with the
Agreement and Plan of Merger, dated as of June 15, 1999 (the "Merger
Agreement"), by and among the Company, Starwood Financial Trust, a Maryland real
estate investment trust and ST Merger Sub, Inc., a Maryland corporation.
Capitalized terms used herein and not otherwise defined have their respective
meanings specified in the Merger Agreement. This opinion is being furnished to
you pursuant to Section 6.2(d) of the Merger Agreement.
In rendering the opinion expressed herein, we have examined the
Merger Agreement, the Company's Amended and Restated Articles of Incorporation
and such other documents, records and instruments as we have deemed necessary in
order to enable us to render the opinion expressed herein.
<PAGE>
2
In our examination of documents, we have assumed, without
independent investigation, that (i) all documents submitted to us are authentic
originals, or if submitted as photocopies, that they faithfully reproduce the
originals thereof; (ii) all such documents have been duly executed and each
document represents the entire agreement (including amendments) among the
parties with respect to the subject matter thereto; (iii) all representations
and statements set forth in such documents are true and correct; (iv) any
representation or statement made as a belief or made "to the knowledge of," or
similarly qualified is correct and accurate without such qualification; (v) all
obligations imposed by any such documents on the parties thereto have been or
will be performed or satisfied in accordance with their terms; and (vi) the
Company and its subsidiaries at all times have been organized and operated in
accordance with the terms of such documents.
For purposes of rendering the opinions expressed herein, we have,
with your permission, assumed the accuracy of the representations contained in
the Certificate of Representations by the Company, dated ________ __, 1999,
relating to the classification and operation of the Company as a REIT.
Based upon the foregoing, and subject to the assumptions, exceptions
and qualifications set forth herein, we are of the opinion that:
1. For its taxable years ended December 31, 1993 through December
31, 1998 and for the taxable year of the Company ending at the
Effective Time, the Company has been organized and has operated in
conformity with the requirements for qualification and taxation as a
REIT within the meaning of the Code.
2. Commencing with the taxable year of the Company ended December
31, 1993, the partnerships, limited liability companies and joint
ventures in which the Company holds or has held a direct or indirect
interest have been, during the time the Company has held such
interest, properly treated as partnerships or as disregarded
entities for federal income tax purposes.
This opinion is given as of the date hereof and is based on various
Code provisions, Treasury Regulations promulgated under the Code and
interpretations thereof by the Internal Revenue Service and the courts having
jurisdiction over such matters, all of which are subject to change either
prospectively or retroactively. Moreover, the Company's qualification and
taxation as a REIT depends upon the Company's ability
<PAGE>
3
to meet, through actual annual operating results, requirements under the Code
regarding its organization, income, assets, distribution levels and diversity of
stock ownership. Further, any variation or difference in the facts from those
set forth in the documents referred to above or any inaccuracy in the
representations contained in the Certificate of Representations may affect the
conclusions stated herein. Although we have made such inquiries and performed
such investigations as we have deemed necessary to fulfill our professional
responsibilities as counsel, we have not undertaken an independent investigation
of all of the facts referred to in this letter or in the Certificate of
Representations. After reasonable inquiry, however, we are not aware of any
facts or circumstances inconsistent with such assumptions or representations.
We express no opinion as to any federal income tax issue or other
matter except that set forth above.
This letter is furnished by us solely for your benefit in connection
with the transactions referred to in the Merger Agreement, and may not, without
our prior written consent, be circulated to, or relied upon by, any other
person, except that we consent to the reliance on this opinion letter by Rogers
& Wells LLP for the sole purpose of rendering its opinion to be delivered
pursuant to Section 6.3(d) of the Merger Agreement.
Very truly yours,
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE>
Exhibit 8.4
[Form of Paul, Weiss Reorganization Opinion]
________ __, 1999
Board of Directors
TriNet Corporate Realty Trust, Inc.
One Embarcadero Center
33rd Floor
San Francisco, CA 94111
Ladies and Gentlemen:
We have acted as tax counsel to TriNet Corporate Realty Trust, Inc.,
a Maryland corporation ("TriNet"), in connection with the proposed merger
("Merger") of ST Merger Sub, Inc., a Maryland corporation ("Merger Sub") and a
wholly owned subsidiary of Starwood Financial Trust, a Maryland real estate
investment trust ("Starwood"), with and into TriNet, pursuant to the Agreement
and Plan of Merger, dated as of June 15, 1999 ("Merger Agreement") by and among
Starwood, TriNet and the Merger Sub. This opinion is being furnished to you
pursuant to Section 6.3(e) of the Merger Agreement. All capitalized terms used
herein have their respective meanings set forth in the Merger Agreement unless
otherwise stated.
In rendering the opinion expressed herein, we have reviewed copies
of the Merger Agreement and the Registration Statement on Form S-4 (the
"Registration Statement"), as filed by Starwood with the Securities and Exchange
Commission on June 15,
<PAGE>
2
1999. We also have made such other investigations of fact and law and have
examined such other documents, records and instruments as we have deemed
necessary in order to enable us to render the opinion expressed herein.
In our examination of documents, we have assumed, with your consent,
that (i) all documents submitted to us are authentic originals, or if submitted
as photocopies, that they faithfully reproduce the originals thereof; (ii) all
such documents have been or will be duly executed to the extent required; (iii)
all representations and statements set forth in such documents are true and
correct; (iv) any representation or statement made as a belief or made "to the
knowledge of," or similarly qualified is correct and accurate without such
qualification; and (v) all obligations imposed by any such documents on the
parties thereto have been or will be performed or satisfied in accordance with
their terms.
Furthermore, we have assumed, with your consent, the accuracy of the
representations contained in the Tax Certificates from TriNet and Starwood dated
the date hereof. These representations relate to the Merger and its
qualification as a reorganization under the Code.
Based upon and subject to the foregoing, we are of the opinion that
the Merger will qualify as a reorganization under the provisions of section
368(a) of the Code.
This opinion is given as of the date hereof and is based on various
Code provisions, Treasury Regulations promulgated under the Code and
interpretations thereof by the Internal Revenue Service and the courts having
jurisdiction over such matters, all of which are subject to change either
prospectively or retroactively. Further, any variation or difference in the
facts from those set forth in the Registration Statement may affect the
conclusions stated herein.
We express no opinion as to any federal income tax issue or other
matter except that set forth above.
Very truly yours,
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE>
Exhibit 8.5
[Form of Mayer, Brown & Platt REIT Opinion]
August __, 1999
TriNet Realty Trust, Inc.
One Embarcadero Center
Suite 3150
San Francisco, California 94111
Re: STARWOOD FINANCIAL TRUST -- REAL ESTATE INVESTMENT TRUST
STATUS
Gentlemen:
In connection with the merger (the "Merger") of ST Merger Sub, Inc.
("ST Sub"), a Maryland corporation and a wholly owned subsidiary of Starwood
Financial Trust (the "Company"), with and into TriNet Realty Trust, Inc.
("TriNet"), a Maryland corporation, pursuant to the Agreement and Plan of Merger
(the "Merger Agreement") dated as of June 15, 1999, by and among the Company, ST
Sub and TriNet, we have been requested pursuant to Section 6.3(d) of the Merger
Agreement to render our opinion regarding whether the Company's existing legal
organization and its actual and proposed method of operation enable it to
satisfy the requirements for qualification as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code") as of
the time immediately prior to the earlier of the Incorporation Merger and the
Merger. Capitalized terms not defined herein shall have the meanings given such
terms in the Merger Agreement.
In formulating our opinions, we have reviewed and relied upon (i) the
Company's Amended and Restated Declaration of Trust, as amended through June 19,
1998; (ii) the Articles Supplementary of Series A Preferred Shares, dated as of
December 15, 1998; (iii) the Investment Advisory Agreement, dated as of March
16, 1998, by and between the Company and Starwood Financial Advisors, L.L.C.;
and (iv) such other documents and provisions of law as we have deemed necessary
or appropriate for the purpose of rendering the opinion set forth in this letter
(collectively, the "Organizational and Other Documents"). In addition, we have
relied upon (v) certain representations made by the Company as to certain
factual matters relating to the Company's organization, its actual and proposed
method of operation, the number, composition and nature of its shareholders, as
set forth in an Officer's Certificate dated the date hereof; (w) certain
<PAGE>
representations made by the Company concerning the issuance and sale by the
Company of stock and the subsequent purchase by the Company of certain
investments it intends to hold temporarily, as set forth in the Officer's
Certificate dated the date hereof (together with the Officer's Certificate in
clause (v) above, the "Officer's Certificates"); (x) the most recent periodic
portfolio summary (the "Portfolio Summary"), dated June 30, 1999, which has been
represented by the Company to us to be a complete and accurate summary of all
Company assets (other than cash and interest receivables with respect to those
assets) as of the time immediately prior to the earlier of the Incorporation
Merger and the Merger, (y) the Closing Agreement, dated as of March 10, 1998,
between the Company and the Internal Revenue Service that provides that the
Company is eligible to make an election under Section 856(c)(1) of the Code to
be taxed as a REIT for its taxable year beginning January 1, 1998 and
correspondence submitted to the Internal Revenue Service and to us in connection
therewith; and (z) the opinion of Price Waterhouse LLP, dated March 13, 1998,
concerning the Company's eligibility to be treated as a REIT for its taxable
year beginning January 1, 1998. In rendering our opinion, we have not reviewed
and our opinion does not take into account the Incorporation Merger or the
Merger or any assets acquired pursuant to the Merger, and as stated below, our
opinion is being rendered for the period commencing with the Company's taxable
year ending December 31, 1998 up to the time immediately prior to the earlier of
the Incorporation Merger and the Merger.
For purposes of our opinion, we have not made an independent
investigation of the facts set forth in the Officer's Certificates, the
Portfolio Summary, the Closing Agreement and aforementioned correspondence, the
opinion of Price Waterhouse LLP, and the Organizational and Other Documents. We
have, consequently, relied upon your representations that the information
presented in such documents or otherwise furnished to us accurately and
completely describes all material facts. In rendering this opinion, we have also
assumed that all terms and provisions of the Organizational and Other Documents
will be complied with by all parties hereto and are enforceable under applicable
law. No facts have come to our attention, however, that would cause us to
question the accuracy or completeness of such facts or documents in a material
way.
The opinion expressed herein is based on the Code, Treasury regulations
promulgated thereunder, and interpretations of the Code and such regulations by
the courts and the Internal Revenue Service, all as they are in effect and exist
at the date of this letter. It should be noted that statutes, regulations,
judicial decisions, and administrative interpretations are subject to change at
any time and, in some circumstances, with retroactive effect. A material change
that is made after the date hereof in any of the foregoing bases for our opinion
could affect our conclusion.
The opinion expressed herein is limited to the Federal laws of the
United States. We are not purporting to opine on any matter to the extent that
it involves the laws of any other jurisdiction.
<PAGE>
Based upon and subject to the foregoing and the following, it is our
opinion that commencing with the Company's taxable year ending December 31,
1998, the Company has been organized in conformity with the requirements for
qualification as a REIT under Section 856 of the Code, and the Company's
actual and proposed method of operation, as represented in the Officer's
Certificates, has enabled it and will continue to enable it to satisfy the
requirements for qualification as a REIT up to the time immediately prior to
the earlier of the Incorporation Merger and the Merger. However, if the
Internal Revenue Service were to successfully challenge the status of the
Company as a REIT with respect to any 1999 period commencing on the date of
the earlier of the Incorporation Merger and the Merger based on circumstances
arising during such period, the Company would not qualify as a REIT as of
January 1, 1999 and for the four succeeding calendar years unless entitled to
relief under specific statutory provisions under the Code.
The opinion expressed herein has been rendered to you at your request
and may not be relied upon for any other purpose or by any other person (other
than Rogers & Wells LLP for the purpose of rendering opinions in connection with
the Merger regarding the qualification of the Company as a REIT) without our
written consent.
Very truly yours,
MAYER, BROWN & PLATT
<PAGE>
Exhibit 8.6
[Form of Katten Muchin & Zavis Opinion to be Delivered at Closing]
Trinet Corporate Realty Trust, Inc.
One Embarcadero Center
Suite 3150a
San Francisco, California 94111
Ladies and Gentlemen:
We have acted as tax counsel to Starwood Financial Trust, a Maryland real
estate investment trust (the "Company"), in connection with the merger of ST
Merger Sub, Inc., a Maryland corporation, with Trinet Corporate Realty Trust,
Inc., a Maryland corporation, (the "Merger") pursuant to a Merger Agreement
dated June ___, 1999 (the "Merger Agreement"). In our opinion, the partnerships,
limited liability companies, or joint ventures in which the Company has a direct
or indirect interest and all of which are listed below (the "Entities") have
been and will continue to be at all times through the Effective Time of the
Merger, properly classified as partnerships or disregarded entities for federal
income tax purposes. This opinion is based upon and subject to the assumptions
and qualifications set forth herein. All capitalized terms not defined herein
are defined in the Merger Agreement.
For the purpose of rendering this opinion, we have examined (or will
examine on or prior to the Effective Time of the Merger) and are relying (or
will rely) upon (without any investigation thereof) the truth and accuracy at
all relevant times of the statements, covenants, representations, and warranties
contained in the following documents (including all schedules and exhibits
thereto):
1. Representations made to us by members or partners in the Entities,
as the case may be, including those representations made in the
Company Representation Letter attached hereto (the "Representation
Letter").
2. The Entities' respective organizational documents (the
"Agreements").
In connection with rendering this opinion, we are relying on
representations in the Representation Letter (which in the case of Entities not
directly or indirectly controlled by the
<PAGE>
Trinet Corporate Realty Trust
August __, 1999
Page 2
Company are given to the best of the signatory's knowledge), without our
undertaking any subsequent investigation or review, that:
1. None of the Entities, in contradiction to the terms of its
Agreement, has been incorporated under a federal or state statute,
or under a statute of a federally recognized Indian tribe, which
statute describes or refers to the entity as incorporated or as a
corporation, body corporate, body politic, joint-stock company, or
joint-stock association.
2. None of the Entities has filed or will file an election to be
classified as an association under Section 301.7701-3(a) of the
Treasury Regulations under the Internal Revenue Code of 1986, as
amended (the "Code").
3. None of the Entities is an insurance company.
4. None of the Entities is a state-chartered business entity conducting
banking activities.
5. None of the Entities has been determined to be, or claimed to be,
exempt from taxation under Section 501(a) of the Code.
6. None of the Entities has interests traded on an established
securities market, as defined in Section 1.7704-1(b) of the Treasury
Regulations, and which includes a national securities exchange
registered under Section 6 of the Securities Exchange Act of 1934; a
national securities exchange exempt from registration under Section
6 of the Securities Exchange Act of 1934 because of the limited
volume of transactions; a foreign securities exchange that, under
the law of the jurisdiction where it is organized, satisfies
regulatory requirements that are analogous to the regulatory
requirements under the Securities Exchange Act of 1934; a regional
or local exchange; and an inter-dealer quotation system that
regularly disseminates firm buy or sell quotations by identified
brokers or dealers by electronic means or otherwise.
7. All interests in the Entities were issued in a transaction (or
transactions) that was not required to be registered under the
Securities Act of 1933 (15 U.S.C. ss.77a et. seq.), or if such
interests were offered and sold outside the United States, would not
have been required to be so registered if the interests had been so
offered and sold in the United States.
<PAGE>
Trinet Corporate Realty Trust
August __, 1999
Page 3
8. None of the Entities has had or will have more than 100 partners or
members at any time during any taxable year. For purposes of
determining the number of partners or members, each person
indirectly owning an interest through a partnership, grantor trust,
or an S corporation (an "intermediary") is treated as a partner if
(a) substantially all the value of such person's interest in the
intermediary is attributable to the intermediary's interest in the
Entity, and (b) a principal purpose of the tiered ownership
arrangement is to permit the Entity to satisfy the 100-person rule.
9. None of the Entities are an obligor under debt obligations with two
or more maturities where payments on such debt obligations bear a
relationship to payments on the debt obligations held by the Entity
within the meaning of section 7701(i)(2)(A)(ii) and (iii) of the
Code.
10. With regard to any Entity that was in existence prior to January 1,
1997, the Entity and all members of the Entity recognized the
federal tax consequences of any change in the Entity's
classification within the sixty-month period prior to January 1,
1997.
11. With regard to any Entity that was in existence prior to January 1,
1997, neither the Entity nor any member was notified in writing on
or before May 8, 1996, that the classification of the Entity was
under examination.
12. Each of the Entities is engaged in one or more trades or businesses.
13. With regard to RLH Partnership, L.P., Prime/Park LaBrea LLC,
Prime/Park LaBrea Holdings, L.P., Oxford Development
Company-Pittsburgh, Oxford Development Company/Grant Street, and
Prime/Park LaBrea Investment, L.P., that the terms of their original
Agreements do not differ from the terms of their respective amended
and restated Agreements identified below in a manner that would
adversely affect their classification for federal income tax
purposes under the so-called Kintner Regulations.
14. With regard to Largo-Springhill Limited Partnership and City Place
Limited Partnership, that a general partner thereof had meaningful
net worth, determined without reflecting its interest in the
relevant Entity.
15. The Entities are all of the partnerships, limited liability
companies, or joint ventures in which the Company has a direct or
indirect interest other than
<PAGE>
Trinet Corporate Realty Trust
August __, 1999
Page 4
partnerships, limited liability companies, or joint ventures in
which the Company's indirect interest is held by a non-wholly owned
entity that is treated as a corporation for federal income tax
purposes.
In connection with rendering this opinion, nothing has come to our
attention to question the truth or accuracy of any of the foregoing
representations.
The classification of an Entity for federal income tax purposes depends,
in part, on whether the Entity was in existence prior to January 1, 1997.
Generally, a domestic entity formed on or after January 1, 1997 and
eligible to elect its classification for federal income tax purposes ("Eligible
Entity") will be classified as a partnership or a disregarded entity unless it
elects otherwise. Domestic Eligible Entities exclude entities organized as
corporations or joint stock companies, insurance companies, and banks.
Therefore, any of the Entities (other than MD3 Cayman L.P.) which were not in
existence prior to January 1, 1997, and which were not organized as a
corporation or a joint stock company, and are not an insurance company, a bank,
a real estate investment trust, a tax-exempt organization, a taxable mortgage
pool, or a publicly-traded partnership, and which have not elected otherwise,
will be classified as partnerships or disregarded entities for federal income
tax purposes.
A different rule applies in the case of foreign entities formed on or
after January 1, 1997. Generally, a foreign entity is treated as a so-called per
se corporation if it is included in a list of such corporations in the Treasury
Regulations. If not so included, then unless it elects otherwise, the foreign
entity will be treated as (i) a partnership if it has two or more members and at
least one member does not have limited liability, (ii) a corporation if all
members have limited liability, or (iii) disregarded as a separate entity if it
has a single owner that does not have limited liability. Therefore, any foreign
Entity formed on or after January 1, 1997 will be treated as either a
partnership or a disregarded entity if it is not a per se corporation and at
least one of its members lacks limited liability and/or it has filed an election
to be treated as a partnership or disregarded entity.
Generally, under the check-the-box regulations, the claimed classification
of an entity that was in existence prior to January 1, 1997, under the so-called
Kintner Regulations, will be respected for periods prior to January 1, 1997 if
the entity had a reasonable basis for its claimed classification, the entity and
all members of the entity recognized the federal tax
<PAGE>
Trinet Corporate Realty Trust
August __, 1999
Page 5
consequences of any change in the entity's classification within the sixty-month
period prior to January 1, 1997, and neither the entity nor any member was
notified in writing on or before May 8, 1996, that the classification of the
entity was under examination. For periods beginning on and after January 1,
1997, such entities, other than entities with a single owner that claimed
partnership status prior to January 1, 1997 and which will be treated as
disregarded entities, will retain the classification that they claimed for
periods prior to January 1, 1997 under the Kintner Regulations.
An entity was classified as a partnership under the Kintner Regulations if
it was not an insurance company, bank, taxable mortgage pool, or publicly-traded
partnership; had at least two partners; and, under local law, it lacked at least
two of the following: (i) continuity of life, (ii) centralized management, (iii)
limited liability, and (iv) free transferability of interests.
With regard to each of the Entities, we have reached our opinion, in
reliance on the representations and with the qualifications expressed herein, by
applying the analysis prescribed by the Treasury Regulations as follows:
1. Starwood/Denver Place L.L.C.
Starwood/Denver Place L.L.C. (f/k/a Brown Funding I, LLC), a
Delaware Limited Liability Company, ("Denver Place") was formed on October
4, 1996. Because Denver Place was in existence prior to January 1, 1997,
it is classified for federal income tax purposes under the Kintner
Regulations' four-factor test. Under Article IX of the Operating Agreement
of Brown Funding I, LLC (the "Denver Place Agreement"), the retirement,
bankruptcy, death, insanity, termination of a member trust, dissolution,
revocation of a member's corporate charter, and distribution of a member
estate's entire interest in Denver Place, will cause the dissolution of
Denver Place unless the majority of the remaining members consent to
continue the business, indicating that Denver Place lacks continuity of
life. Under Article X of the Denver Place Agreement, a member cannot
substitute in its place a new member without consent of the General
Manager, which consent may be unreasonably withheld, indicating that
Denver Place lacks free transferability of interest. Therefore, Denver
Place lacks at least two of the four Kintner Regulations' corporate
characteristics and it is our opinion that Denver Place has been and will
continue to be at all times through the Effective Time of the Merger,
properly classified as a partnership or a disregarded entity for federal
income tax purposes.
2. New Par, LLC
<PAGE>
Trinet Corporate Realty Trust
August __, 1999
Page 6
New Par, LLC, ("New Par") was formed on June 26, 1997. Because New
Par was formed on or after January 1, 1997 and it is a domestic Eligible
Entity under the check-the-box regulations, it is our opinion that New Par
has been and will continue to be at all times through the Effective Time
of the Merger, properly classified as a partnership or a disregarded
entity for federal income tax purposes.
3. SFT Venturer, LLC
SFT Venturer, LLC ("Venturer") was formed on July 16, 1998, and its
Certificate of Limited Liability Company was filed on July 15, 1998.
Because Venturer was formed on or after January 1, 1997 and it is a
domestic Eligible Entity under the check-the-box regulations, it is our
opinion that Venturer has been and will continue to be at all times
through the Effective Time of the Merger, properly classified as a
partnership or a disregarded entity for federal income tax purposes.
4. FMAC Star Fund, L.L.P.
FMAC Star Fund, L.L.P. ("FMAC") was formed on July 16, 1998. Because
FMAC was formed on or after January 1, 1997 and it is a domestic Eligible
Entity under the check-the-box regulations, it is our opinion that FMAC
has been and will continue to be at all times through the Effective Time
of the Merger, properly classified as a partnership or a disregarded
entity for federal income tax purposes.
5. F/S Subsidiary, L.L.C.
F/S Subsidiary, L.L.C. ("F/S") was formed on August 26, 1998.
Because F/S was formed on or after January 1, 1997 and it is a domestic
Eligible Entity under the check-the-box regulations, it is our opinion
that F/S has been and will continue to be at all times through the
Effective Time of the Merger, properly classified as a partnership or a
disregarded entity for federal income tax purposes.
6. MD3 Cayman L.P.
MD3 Cayman L.P. ("MD3") was formed on December 15, 1998 and it was
registered on December 9, 1998. We have been advised by Maples and Calder,
Cayman Islands counsel to MD3, that the general partner in MD3 has
unlimited
<PAGE>
Trinet Corporate Realty Trust
August __, 1999
Page 7
liability. Because MD3 was formed on or after January 1, 1997, it is not a
per se corporation under the check-the-box regulations, and at least one
of its members does not have limited liability, it is our opinion that MD3
has been and will continue to be at all times through the Effective Time
of the Merger, properly classified as a partnership or a disregarded
entity for federal income tax purposes.
7. BM Center, LLC
BM Center, LLC ("BM") was formed on January 20, 1999 and its
certificate of limited liability company was filed on December 30, 1998.
Because BM was formed on or after January 1, 1997 and it is a domestic
Eligible Entity under the check-the-box regulations, it is our opinion
that BM has been and will continue to be at all times through the
Effective Time of the Merger, properly classified as a partnership or a
disregarded entity for federal income tax purposes.
8. RLH Partnership, L.P.
RLH Partnership, L.P. ("RLH") was formed on February 15, 1995 and
its Limited Partnership Agreement was amended and restated by the Amended
and Restated Limited Partnership Agreement of RLH Partnership, L.P. (the
"Restated RLH Agreement") dated August 1, 1995. Because RLH was in
existence before January 1, 1997, it is classified for federal income tax
purposes under the Kintner Regulations' four-factor test. Because RLH was
organized under the Delaware Revised Uniform Limited Partnership Act and,
moreover, because under Article 8 of the Restated RLH Agreement, RLH will
be dissolved if the general partner becomes incapacitated unless a
majority of the remaining partners votes to continue the partnership, RLH
lacks continuity of life. Under Section 7.1 of the Restated RLH Agreement,
no partner may transfer its partnership interest without the consent of
the general partner, which consent may be given or withheld at the general
partner's sole and absolute discretion. Under Section 7.3 of the Restated
RLH Agreement, assignees of partnership interest are entitled to receive
distributions and allocations of income or loss, but all other rights
remain with the transferring partner. Thus, RLH lacks free transferability
of interests. Therefore, RLH lacks at least two of the four Kintner
Regulations' corporate characteristics and it is our opinion that RLH has
been and will continue to be at all times through the Effective Time of
the Merger, properly classified as a partnership or a disregarded entity
for federal income tax purposes.
9. Prime/Park LaBrea LLC
<PAGE>
Trinet Corporate Realty Trust
August __, 1999
Page 8
Prime Park LaBrea LLC ("Prime/Park") was formed on December 8, 1994
and its LLC Agreement was amended and restated by the Amended and Restated
Operating Agreement for Prime/Park LaBrea, LLC dated January 12, 1998 (the
"Restated Prime/Park Agreement"). Because Prime/Park was in existence
before January 1, 1997, it is classified for federal income tax purposes
under the Kintner Regulations' four-factor test. Under Section 7.1 of the
Restated Prime/Park Agreement, no member can transfer its membership
interest without the consent of all other members, as they may determine
at their sole discretion. The special member, which owns 25% of
Prime/Park, may only transfer its membership interest without the other
members' consent to an affiliate or, after the fifth anniversary of the
Restated Prime/Park Agreement, to any other person. Thus, there is no free
transferability of the partnership interests. Under Article 5.1 of the
Restated Prime/Park Agreement, Investments, Inc. ("JCA") is the sole
manager of the Company and may be removed only upon occurrence of a
substitution event, the unanimous consent of the members, or the death or
physical or mental incapacity of John C. Atwater. Since JCA owns more than
20% of the total interests in Prime/Park and the non-managing members do
not have a substantially non-restricted power to remove JCA, Prime/Park
lacks centralized management. Therefore, Prime Park lacks at least two of
the four Kintner Regulations' corporate characteristics and it is our
opinion that Prime/Park has been and will continue to be at all times
through the Effective Time of the Merger, properly classified as a
partnership or a disregarded entity for federal income tax purposes.
10. Prime/Park LaBrea Holdings, L.P.
Prime/Park LaBrea Holdings, L.P. ("Prime/Park Holdings") was formed
on December 12, 1994 and its Limited Partnership Agreement was amended and
restated by the Amended and Restated Limited Partnership Agreement of
Prime/Park LaBrea Holdings, L.P. dated January 12, 1998 (the "Restated
Prime/Park Holdings Agreement"). Because Prime/Park Holdings was in
existence before January 1, 1997, it is classified for federal income tax
purposes under the Kintner Regulations' four-factor test. Because
Prime/Park LaBrea Holdings was formed under the California Revised Limited
Partnership Act and, moreover, because under Section 7.2 of the Restated
Prime/Park Holdings Agreement the partnership will be dissolved in the
case of death, incompetency, legal incapacity, withdrawal, retirement,
bankruptcy, or insolvency of the general partner, unless the limited
partner elects to continue the business, it lacks continuity of life.
Under Section 7.1 of the Restated Prime/Park
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Trinet Corporate Realty Trust
August __, 1999
Page 9
Holdings Agreement, the general partner may not transfer its partnership
interest without the consent of the limited partner, and under Section 8.1
of the Restated Prime/Park Holdings Agreement, the limited partner may not
transfer its interests in the partnership, indicating a lack of free
transferability of interest. Therefore, Prime/Park Holdings lacks at least
two of the four Kintner Regulations' corporate characteristics and it is
our opinion that Prime/Park Holdings has been and will continue to be at
all times through the Effective Time of the Merger, properly classified as
a partnership or a disregarded entity for federal income tax purposes.
11. Oxford Development Company-Pittsburgh
The Oxford Development Company-Pittsburgh ("Pittsburgh") original
Partnership Agreement was amended and restated by the Amended and Restated
Agreement of Partnership of Oxford Development Company-Pittsburgh dated
January 1, 1992 and then by the Amended and Restated Agreement of Limited
Partnership of Oxford Development Company-Pittsburgh dated March 10, 1998
(the "Restated Pittsburgh Agreement") and a Certificate of Limited
Partnership was filed on March 16, 1994. Because Pittsburgh was in
existence before January 1, 1997, it is classified for federal income tax
purposes under the Kintner Regulations' four-factor test. Because
Pittsburgh was formed under the Pennsylvania Revised Uniform Limited
Partnership Act and, moreover, because under Article 9.1 of the Restated
Pittsburgh Agreement, Pittsburgh will be dissolved if the managing general
partner resigns, is dissolved or becomes bankrupt, unless all of the
remaining partners consent to continue the business, it lacks continuity
of life. Under Section 8.1 of the Restated Pittsburgh Agreement, the
partners cannot transfer their Partnership interests without the consent
of the Managing General Partner, which consent the Managing General
Partner is not required to give under any circumstances, indicating a lack
of free transferability of interest. Therefore, Pittsburgh lacks at least
two of the four Kintner Regulations' corporate characteristics and it is
our opinion that Pittsburgh has been and will continue to be at all times
through the Effective Time of the Merger, properly classified as a
partnership or a disregarded entity for federal income tax purposes.
12. Oxford Development Company/Grant Street
Oxford Development Company/Grant Street ("Grant Street") was formed
on February 1, 1980 and its Limited Partnership Agreement was amended and
restated by the Amended and Restated Agreement of Limited Partnership of
Oxford Development Company/Grant Street dated March 10, 1998 (the
"Restated Grant Street Agreement"). Because Grant Street was in existence
before January 1, 1997, it is classified for
<PAGE>
Trinet Corporate Realty Trust
August __, 1999
Page 10
federal income tax purposes under the Kintner Regulations' four-factor
test. Because Grant Street was formed under the Pennsylvania Revised
Uniform Limited Partnership Act and, moreover, under Section 15.1 of the
Restated Grant Street Agreement, Grant Street will be dissolved in the
case of the death, insanity, retirement, resignation, removal or
withdrawal of the general partner unless the majority of the remaining
limited partners elect to continue the partnership, it lacks continuity of
life. Under Section 13.1 of the Restated Grant Street Agreement, no
transfers of partnership interests are permitted without the consent of
the General Partner, which consent may be withheld at the General
Partner's complete discretion indicating a lack of free transferability of
partnership interests. Therefore, Grant Street lacks at least two of the
four Kintner Regulations' corporate characteristics and it is our opinion
that Grant Street has been and will continue to be at all times through
the Effective Time of the Merger, properly classified as a partnership or
a disregarded entity for federal income tax purposes.
13. Montague Park, LLC
Montague Park, LLC ("Montague Park") was formed on January 7, 1997.
Because Montague Park was formed on or after January 1, 1997 and it is a
domestic Eligible Entity under the check-the-box regulations, it is our
opinion that Montague Park has been and will continue to be at all times
through the Effective Time of the Merger, properly classified as a
partnership or a disregarded entity for federal income tax purposes.
14. Montague LLC
Montague LLC ("Montague") was formed on January 7, 1997. Because
Montague was formed on or after January 1, 1997 and it is a domestic
Eligible Entity under the check-the-box regulations, it is our opinion
that Montague has been and will continue to be at all times through the
Effective Time of the Merger, properly classified as a partnership or a
disregarded entity for federal income tax purposes.
15. Fox Plaza II, LLC
Fox Plaza II, LLC ("Fox II") was formed on October 22, 1997. Because
Fox II was formed on or after January 1, 1997 and it is a domestic
Eligible Entity under the
<PAGE>
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August __, 1999
Page 11
check-the-box regulations, it is our opinion that Fox II has been and will
continue to be at all times through the Effective Time of the Merger,
properly classified as a partnership or a disregarded entity for federal
income tax purposes.
16. Fox Plaza LLC
Fox Plaza LLC ("Fox") was formed on October 22, 1997. Because Fox
was formed on or after January 1, 1997 and it is a domestic Eligible
Entity under the check-the-box regulations, it is our opinion that Fox has
been and will continue to be at all times through the Effective Time of
the Merger, properly classified as a partnership or a disregarded entity
for federal income tax purposes.
17. Largo-Springhill Limited Partnership
Largo-Springhill Limited Partnership ("Largo") was formed on January
2, 1990. Because Largo was in existence before January 1, 1997, it is
classified for federal income tax purposes under the Kintner Regulations'
four-factor test. Because Largo was formed pursuant to the Revised Uniform
Limited Partnership Act of the State of Maryland, it lacks continuity of
life. Since, as represented, a general partner in Largo had meaningful net
worth, determined without reflecting its interest in Largo, and because
Largo was formed under the Revised Uniform Limited Partnership Act of the
State of Maryland, Largo lacks limited liability. Therefore, Largo lacks
at least two of the four Kintner Regulations' corporate characteristics
and it is our opinion that Largo has been and will continue to be at all
times through the Effective Time of the Merger, properly classified as a
partnership or a disregarded entity for federal income tax purposes.
18. City Place Limited Partnership
City Place Limited Partnership ("City Place") was formed on April
26, 1989. Because City Place was in existence before January 1, 1997, it
is classified for federal income tax purposes under the Kintner
Regulations' four-factor test. Because City Place was formed under the
Revised Uniform Limited Partnership Act of the State of Maryland, it lacks
continuity of life. Since, as represented, a general partner in City Place
had meaningful net worth, determined without reflecting its interest in
City Place, and because City Place was formed under the Revised Uniform
Limited Partnership Act of the State of Maryland, City Place lacks limited
liability. Therefore, City Place lacks at least two of the four Kintner
Regulations' corporate characteristics and it is our opinion that City
Place has been and will continue to be at all times
<PAGE>
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August __, 1999
Page 12
through the Effective Time of the Merger, properly classified as a
partnership or a disregarded entity for federal income tax purposes.
19. Zapco 1500 Investment L.P.
Zapco 1500 Investment L.P. ("Zapco") was formed on September 14,
1995 and its Certificate of Limited Partnership was filed on September 18,
1995. Because Zapco was in existence before January 1, 1997, it is
classified for federal income tax purposes under the Kintner Regulations'
four-factor test. Because Zapco was formed under the Delaware Revised
Uniform Limited Partnership Act and, moreover, because under Article 7.1
of the Agreement of Limited Partnership of Zapco 1500, Investment, L.P.
(the "Zapco Agreement"), the retirement, withdrawal, insanity, death, and
dissolution and/or bankruptcy of any general partner will cause the
dissolution of the partnership unless all of the remaining general
partners or 70% of the limited partners elect to continue Zapco, it lacks
continuity of life. Under Article 6.1(a) of the Zapco Agreement, no
partner can transfer or assign his interest in the Partnership without the
consent of the general partner and the Class A limited partner, and under
Article 6.1(b) of the Zapco Agreement, no assignee or transferee of a
partner can be admitted to Zapco as a substituted partner without prior
consent of the General Partner and the Class A Limited Partner, indicating
lack of free transferability of interest. Therefore, Zapco lacks at least
two of the four Kintner Regulations' corporate characteristics and it is
our opinion that Zapco has been and will continue to be at all times
through the Effective Time of the Merger, properly classified as a
partnership or a disregarded entity for federal income tax purposes.
20. Commerce-Square Partners-Philadelphia Plaza, L.P.
Commerce-Square Partners-Philadelphia Plaza, L.P.
("Commerce-Square") was formed on March 16, 1998. Because Commerce-Square
was formed on or after January 1, 1997 and it is a domestic Eligible
Entity under the check-the-box regulations, it is our opinion that
Commerce-Square has been and will continue to be at all times through the
Effective Time of the Merger, properly classified as a partnership or a
disregarded entity for federal income tax purposes.
21. Prime/Park LaBrea Investment, L.P.
<PAGE>
Trinet Corporate Realty Trust
August __, 1999
Page 13
Prime/Park LaBrea Investment, L.P. ("Prime/Park Investment") was
formed on December 15, 1994 and its Limited Partnership Agreement was
amended and restated by the Amended and Restated Limited Partnership
Agreement of Prime/Park LaBrea Investment, L.P. (the "Restated Prime/Park
Investment Agreement") dated January 12, 1998. Because Prime/Park
Investment was in existence before January 1, 1997, it is classified for
federal income tax purposes under the Kintner Regulations' four-factor
test. Because Prime/Park Investment was formed under the California
Revised Limited Partnership Act and, moreover, because under Section 7.2
of the Restated Prime/Park Investment Agreement, in the event of the
death, incompetency, legal incapacity, withdrawal, retirement, bankruptcy
or insolvency of the general partner, the partnership will be dissolved
unless limited partners holding at least 75% of the interest in the
partnership elect to continue the partnership, it lacks continuity of
life. Under Section 7.1 of the Restated Prime/Park Investment Agreement,
the general partner may not voluntarily withdraw, assign or transfer its
interest in the partnership without the consent of limited partners
holding at least 75% of the interest in the partnership; under Section 8.1
of the Restated Prime/Park Investment Agreement, no limited partner may
transfer its interest in the partnership without the consent of the
general partner which consent may be given at the general partner's sole
discretion, indicating a lack of free transferability of interest.
Therefore, Prime/Park Investment lacks at least two of the four Kintner
Regulations' corporate characteristics and it is our opinion that
Prime/Park Investment has been and will continue to be at all times
through the Effective Time of the Merger, properly classified as a
partnership or a disregarded entity for federal income tax purposes.
22. PLBGP, L.P.
PLBGP, L.P. ("PLBGP") was formed on January 12, 1998. Because PLBGP
was formed on or after January 1, 1997 and it is a domestic Eligible
Entity under the check-the-box regulations, it is our opinion that PLBGP
has been and will continue to be at all times through the Effective Time
of the Merger, properly classified as a partnership or a disregarded
entity for federal income tax purposes.
Our opinion expressed above is limited to the matters addressed, and we do
not express any opinions herein concerning any other legal issues. In particular
(but without limitation), we express no opinion concerning the Entities' tax
treatment under the law of any state. This opinion is given as of the date
hereof, and we assume no obligation to advise you of changes that may hereafter
be brought to our attention. We are rendering this opinion solely for the
purposes of the Merger. This opinion is not to be quoted in whole or in part,
relied upon by (other than by Rogers & Wells LLP for purposes of rendering
opinions in connection with the
<PAGE>
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August __, 1999
Page 14
Merger), referred to, or filed with any governmental agency or any other person,
without our prior written consent.
We note also that we did not seek on your behalf to obtain any ruling on these
issues from the Internal Revenue Service and that an opinion of counsel is not
binding upon the Internal Revenue Service or the courts.
<PAGE>
Exhibit 10.7
FORM OF ADVISOR LOCK-UP AGREEMENT
LOCK-UP AGREEMENT (this "Agreement"), dated as of June ___, 1999,
between [Name] (the "Original Shareholder") and Greenhill & Co., LLC, a New York
limited liability company (the "Representative").
RECITALS
A. Pursuant to the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of June ___, 1999, by and among Starwood Financial Trust,
a Maryland real estate investment trust ("Starwood"), ST Merger Sub, Inc., a
Maryland corporation ("Starwood Sub"), and TriNet Corporate Realty Trust, Inc.,
a Maryland corporation ("TriNet"), Starwood, Starwood Sub and TriNet have
agreed, among other things, to enter into a transaction (the "Merger") in which,
subject to the terms and conditions of the Merger Agreement, Starwood Sub will
merge with and into TriNet, with TriNet being the surviving corporation.
B. Pursuant to an Agreement and Plan of Merger (the "Incorporation
Merger Agreement"), dated as of June __, 1999, by and between Starwood and
Starwood Financial, Inc., a newly-formed Maryland corporation ("New Starwood"),
Starwood intends to merge with and into New Starwood (the "Incorporation
Merger").
C. Immediately prior to the consummation of the Merger, pursuant to
the Agreement and Plan of Merger and Contribution Agreement, dated as of June
__, 1999 (the "Advisor Transaction Agreement"), STW Holdings I, Inc., a Delaware
corporation, intends, among other things, to merge with and into a subsidiary of
New Starwood and Starwood Capital Group, a Connecticut limited liability
company, will contribute interests in certain other companies to such subsidiary
of New Starwood (the "Advisor Transaction"). Pursuant to the Advisor Transaction
Agreement, upon the consummation of the Advisor Transaction, the Original
Shareholder will receive Common Stock (as defined below). The parties hereto
wish to restrict the transfer of such Common Stock.
D. The continuing force and effect of this Agreement is a condition
precedent to the consummation of the Merger by TriNet.
In consideration of the foregoing and of the mutual covenants
contained herein and for other good and valuable consideration, the sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
Section 1. Definitions. The following terms shall have the following
meanings for purposes of this Agreement:
<PAGE>
2
"Affiliate" means, with respect to a Person, any other Person
directly or indirectly controlling, controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the power to direct or cause the direction of the
management or policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agreed Counsel" means a reputable law firm other than those
retained by the parties to an Enforcement Action, which law firm is jointly
selected by the attorneys representing such parties and agreed-upon by such
parties.
"Board of Directors" means, with respect to a Person, the board of
directors, board of trustees, board of managers or similar body of such Person.
"Change of Control" means that the common shareholders of the
Company immediately prior to the consummation of a merger, consolidation,
acquisition of assets or securities or a disposition of assets or securities
(other than a public offering of common stock), own less than 50% of the equity
of the surviving or successor entity resulting from such transaction.
"Closing Date" shall have the meaning ascribed to it in the Merger
Agreement.
"Common Stock" means, (i) prior to the consummation of the
Incorporation Merger, Starwood Common Stock and (ii) subsequent to the
consummation of the Incorporation Merger, New Starwood Common Stock.
"Company" means, prior to the consummation of the Incorporation
Merger, Starwood and, subsequent to the consummation of the Incorporation
Merger, New Starwood.
"Deed of Adherence" means a Deed of Adherence to this Agreement
substantially in the form of Exhibit 1 hereto.
"Enforcement Action" shall have the meaning ascribed to it in
Section 4.2 hereof.
"New Starwood Common Stock" means the common stock, par value $0.001
per share, of New Starwood.
"Permitted Holders" means (i) with respect to a Person other than a
natural person, all Affiliates of such Person and (ii) with respect to a Person
who is a natural person, the spouse or any lineal descendant of such Person, a
trust established for the benefit of any of the foregoing or any personal
representative, estate or executor under any will of such Person or pursuant to
the laws of intestate succession, that, in either case (i) or (ii), has executed
a Deed of Adherence.
<PAGE>
3
"Permitted Transfer" means a Transfer permitted by Section 3 hereof.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Pro Rata Share" means, (i) with respect to a Person other than the
Representative, the fraction, the numerator of which is the number of shares of
Common Stock then owned as of record by such Person and the denominator of which
is the total number of shares of Common Stock then outstanding and (ii) with
respect to the Representative, zero.
"Rightholder" means each of (i) the Representative and (ii) each
third-party beneficiary described in Section 7.2 hereof.
"Representative Contact Persons" means those individuals listed on
Schedule A hereto and any other employees or agents of the Representative
appointed to be Representative Contact Persons by written notice provided to the
Original Shareholder.
"Restricted Security" means all Starwood Common Stock, New Starwood
Common Stock and any other securities convertible into, exchangeable for or
exercisable for, Starwood Common Stock or New Starwood Common Stock, in each
case, that was received by the Original Shareholder in connection with the
Advisor Transaction but only for so long as such securities are subject to the
transfer restrictions contained in Section 2.1 and 2.2 hereof.
"Shareholder" means each of the Original Shareholder and any other
Persons who hold Restricted Securities and execute a Deed of Adherence in
accordance with Section 2.2 hereof.
"Starwood Common Stock" means the Class A shares of beneficial
interest, par value $1.00 per share, and the Class B shares of beneficial
interest, par value $0.01 per share, of Starwood.
"Stock Dividend" shall have the meaning ascribed to it in the Merger
Agreement.
"Transfer" shall have the meaning ascribed to it in Section 2.1
hereof.
<PAGE>
4
"Warranted" means, with respect to an Enforcement Action, that such
Enforcement Action was based on the best knowledge, information and belief,
formed after an inquiry reasonable under the circumstances, of the parties
bringing such Enforcement Action that this Agreement has been breached and that
such Enforcement Action was not presented for any improper purpose, such as to
harass or to cause unnecessary delay or needless increase in litigation costs.
References in this Agreement to a "party" or "parties" are references to a party
or parties (respectively) to this Agreement unless the context requires
otherwise. Capitalized terms used but not otherwise defined in this Agreement
shall have the meanings ascribed to them by the Merger Agreement.
Section 2. Transfer Restrictions. Except as provided in Section 3
hereof:
2.1 During the period from the date hereof until the date
falling 12 months after the Closing Date, no Shareholder shall directly or
indirectly sell, pledge, encumber, transfer, enter into any voting or similar
agreement with respect to or otherwise dispose of (collectively, "Transfer") or
enter into any agreement or series of agreements to Transfer, any Restricted
Securities other than to a Permitted Holder. For the avoidance of doubt, the
term "Transfer" shall not include any conversion or exchange occurring by
operation of law.
2.2 No Shareholder shall adopt a plan for liquidation or
dissolution of such Shareholder or make any distributions of the Restricted
Securities to any Persons in respect of such Shareholder's capital stock or
other ownership interests unless all Persons that will receive Restricted
Securities in connection with such liquidation, dissolution or distribution have
executed a Deed of Adherence.
Section 3. Exceptions to Transfer Restrictions. The restrictions set
forth in Section 2 hereof shall not apply to (i) a Transfer of Restricted
Securities that is made by the Shareholder in response to a "tender offer" with
respect to which the completion of such tender offer is conditioned upon such
completion resulting in a Change of Control; (ii) a Transfer of Restricted
Securities that is made to the Person (or any Affiliate of such Person)
receiving control of the Company as a result of a Change of Control; (iii) a
pledge of Restricted Securities that is made in order to establish a margin
account at a reputable brokerage firm; (iv) a pledge of Restricted Securities to
a lender in order to effect a bona-fide loan or financing transaction with such
lender which transaction is not intended to circumvent the transfer restrictions
of Section 2 hereof; (v) a Transfer of Restricted Securities to the lender or
brokerage firm that is the pledgee with respect to a pledge described in clause
(iii) or (iv) above, or to an Affiliate of such lender or such brokerage firm or
to a purchaser in a foreclosure sale; and (vi) a Transfer that occurs because of
entry by the Shareholders into a voting
<PAGE>
5
agreement, proxy or other arrangement deemed reasonably necessary by the Board
of Directors of the Company to effectuate a merger, consolidation, amalgamation
or other business combination that has been approved by the Board of Directors
of the Company; and (vii) the granting of a proxy with respect to any annual or
special meeting of the shareholders of the Company. For the avoidance of doubt,
all Restricted Securities Transferred pursuant to exceptions (i), (ii) and (v)
listed in this Section 3 shall no longer be deemed to be Restricted Securities
subsequent to such Transfer.
Section 4. Remedies.
4.1 The parties declare and agree that it is impossible to
measure in money the damages that would be suffered by a party by reason of the
failure by any other party to perform any of its obligations under this
Agreement. Therefore, if any party institutes any action or proceeding to
enforce the provisions of this Agreement, any party against whom such action or
proceeding is brought hereby waives any claim or defense therein that the other
party has an adequate remedy at law and, consequently, the parties hereby agree
that the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement.
4.2 If any Rightholder or group of Rightholders institutes any
action or proceeding (an "Enforcement Action") to enforce the provisions of this
Agreement against a Shareholder:
4.2.1 If (i) such Enforcement Action results in a court
of competent jurisdiction entering a final judgment in favor of such Shareholder
and (ii) Agreed Counsel determines that such Enforcement Action was Warranted,
each Rightholder bringing such Enforcement Action shall pay such Shareholder an
amount equal to the product of (x) such Rightholder's Pro Rata Share times (y)
the reasonable costs and expenses (including the fees and disbursements of
attorneys other than Agreed Counsel) of such Shareholder incurred in connection
with the resolution of such Enforcement Action, and the fees and disbursements
of Agreed Counsel shall be borne equally among all parties to such Enforcement
Action.
4.2.2 If (i) such Enforcement Action results in a court
of competent jurisdiction entering a final judgment in favor of such Shareholder
and (ii) Agreed Counsel determines that such Enforcement Action was not
Warranted, the Rightholders bringing such Enforcement Action (other than the
Representative) shall pay such Shareholder an amount equal to the reasonable
costs and expenses (including the fees and disbursements of attorneys other than
Agreed Counsel) of such Shareholder incurred in connection with the resolution
of such Enforcement Action,
<PAGE>
6
and the fees and disbursements of Agreed Counsel shall be borne equally among
the Rightholders instituting such Enforcement Action.
4.2.3 If such Enforcement Action results in a court of
competent jurisdiction entering a final judgment against such Shareholder, the
Shareholder shall pay each Rightholder bringing such Enforcement Action an
amount equal to the reasonable costs and expenses (including the fees and
disbursements of attorneys) of such Rightholder incurred in connection with the
resolution of such Enforcement Action.
4.2.4 Otherwise, each party shall bear its own expenses
incurred in connection with the resolution of Enforcement Actions.
4.3 If any amount payable under Section 4.2 hereof is not paid
in full by the party liable for such amount (the "Liable Party") within 30
calendar days after written notice requesting such payment is provided to the
Liable Party by the party entitled to such amount (the "Entitled Party"), the
Entitled Party may provide written notice to the Company of such failure to pay
and the amount owed by the Liable Party. Upon receipt of such notice, the
Company shall not make any distributions (whether cash or otherwise) to the
Liable Party in respect of its equity interests in the Company and shall make
such distributions to the Entitled Party until the amount of such distributions
made to the Entitled Party equals the amount owed by the Liable Party.
4.4 Any Rightholder (other than the Representative) bringing
an Enforcement Action shall not hold fewer than 100 shares of Common Stock
during the pendency of such Enforcement Action.
Section 5. Term and Termination. Unless earlier terminated by a
writing executed by all parties, this Agreement shall terminate on the date
falling 12 months and one day after the Closing Date.
Section 6. Representations and Warranties. The Original Shareholder
represents and warrants that:
6.1 As of the date hereof, the Original Shareholder has all
requisite power and authority to enter into this Agreement, and the consummation
of all transactions contemplated by this Agreement have been duly authorized by
all necessary action on its part;
6.2 As of the date hereof, this Agreement has been duly
executed and delivered by the Original Shareholder and constitutes the valid and
binding agreement of it and is enforceable against it in accordance with its
terms,
<PAGE>
7
subject to applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally and general principles of equity;
6.3 As of the date hereof, the execution, delivery and
performance of this Agreement by the Original Shareholder does not and will not
violate or conflict with any organizational document, Law, contract, instrument
or arrangement to which it is a party or by which it is bound;
6.4 Both upon consummation of the Incorporation Merger and on
the Closing Date, the Original Shareholder will be the record holder and
beneficial owner of the securities described on Schedule 6.4 hereto, free and
clear of any and all liens, charges, encumbrances, pledges, voting agreements or
other commitments of any kind (in each case, assuming the consummation of the
Merger, the Advisor Transaction and the Incorporation Merger), other than
Permitted Transfers;
6.5 Both upon consummation of the Incorporation Merger and on
the Closing Date, the Original Shareholder will own (either beneficially or of
record) no Restricted Securities other than the securities described on Schedule
6.4 hereto (in each case, assuming the consummation of the Merger, the Advisor
Transaction and the Incorporation Merger) except for (i) Class B shares of
beneficial interest of Starwood, par value $0.01 per share ("Class B Shares"),
and (ii) Class A shares of beneficial interest of Starwood, par value $1.00 per
share ("Class A Shares"), issued to the Original Shareholder pursuant to the
Stock Dividend; provided that between the date hereof and the Closing Date,
Restricted Securities may be Transferred in a Permitted Transfer;
6.6 The Original Shareholder will be, on both the date the
Advisor Transaction is consummated and the Closing Date, the record holder and
beneficial owner of the securities described on Schedule 6.6 hereto, free and
clear of any and all liens, charges, encumbrances, pledges, voting agreements or
other commitments of any kind (in each case, assuming the consummation of the
Merger and the Advisor Transaction but not the consummation of the Incorporation
Merger), other than Permitted Transfers; and
6.7 As of the date hereof, the Original Shareholder owns
(either beneficially or of record), and on the Closing Date, will own (either
beneficially or of record), no Restricted Securities other than the securities
described on Schedule 6.6 hereto (in each case, assuming the consummation of the
Merger and the Advisor Transaction but not the consummation of the Incorporation
Merger) except for (i) Class B Shares and (ii) Class A Shares issued to the
Original Shareholder pursuant to the Stock Dividend; provided that between the
date hereof and the Closing Date, Restricted Securities may be Transferred in a
Permitted Transfer.
Section 7. Miscellaneous.
<PAGE>
8
7.1 Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally or sent by
registered mail or overnight delivery service, in either case postage prepaid,
or delivered by telecopy, facsimile or similar telecommunications equipment. Any
such notice shall be deemed given when so delivered personally or, if sent by
registered mail, five days after the date of deposit in the mails or, if sent by
overnight delivery service, on the business day following deposit with such
delivery service or, if delivered by telecopy, facsimile or similar
telecommunications equipment, at the time of receipt thereof, as follows:
If to the Original Shareholder, to:
c/o Starwood Capital Group, L.L.C.
Three Pickwick Plaza, Suite 250
Greenwich, CT 06830
Attention: Madison Grose
Telecopy: (203) 861-2101
with copies to:
Katten, Muchin & Zavis
525 W. Monroe St. #1600
Chicago, IL 60661
Attention: Nina Matis, Kenneth M. Jacobson
Telecopy: (312) 902-1061
If to the Representative, to:
Greenhill & Co., LLC
31 West 52nd Street, 16th Floor
New York, NY 10019
Telecopy: (212) 408-0660
All correspondence must be sent to the attention of
a Representative Contact Person
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Telecopy: (212) 848-7179
Attention: John A. Marzulli, Jr.
<PAGE>
9
Any party may, by notice to the other parties, designate another address or
person for receipt of notices hereunder. Any additional parties agreeing to be
bound by the terms of this Agreement who execute a Deed of Adherence shall
receive notices hereunder at the location specified in such Deed of Adherence.
7.2 At any given time, all holders of Common Stock who then
hold 100 or more shares of Common Stock are hereby acknowledged (as of such
time) as intended third-party beneficiaries of this Agreement. The rights and
privileges granted under this Agreement to the Rightholders shall inure to the
benefit of such holders, and the provisions of this Agreement shall be binding
upon any such holder who brings an Enforcement Action. Any waiver of a provision
of this Agreement granted by the Representative pursuant to Section 7.5 hereof
shall be binding upon and effective against all Rightholders.
7.3 In the event any provision hereof is held void or
unenforceable by any court, such provision shall be severable and shall not
affect the remaining provisions hereof.
7.4 This Agreement reflects the entire agreement among the
parties and supersedes all prior agreements and communications, either oral or
in writing, among the parties with respect to the subject matter hereof;
provided that, for the avoidance of doubt, this provision shall not affect the
validity of the Engagement Letter (the "Engagement Letter") between the
Representative and TriNet, dated as of June __, 1999, and, in the event of any
conflict between the terms and provisions of this Agreement and those of the
Engagement Letter, the terms and provisions of the Engagement Letter shall
prevail.
7.5 This Agreement may be amended, superseded, canceled,
renewed or extended, and the terms hereof may be waived (i) in the case of a
waiver by the Rightholders, by a written instrument signed on behalf of the
Representative by any Representative Contact Person; (ii) in the case of a
waiver by any other parties, by an written instrument signed by all such parties
waiving compliance. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of any party of any such right, power or privilege, nor any
single or partial exercise of any such right, power or privilege, preclude any
further exercise thereof or the exercise of any other such right, power or
privilege. The rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies that any party may otherwise have at law or
in equity. The Representative shall not be liable for any error of judgment or
any action taken, suffered or omitted to be taken under this Agreement except in
the case of its gross negligence, bad faith or willful misconduct. The
Representative may consult with counsel of its own choice and shall have full
and complete authorization and protection
<PAGE>
10
for any action taken or suffered by it under this Agreement in good faith and in
accordance with the opinion of such counsel.
7.6 This Agreement may not be assigned by any party without
the prior written consent of the other parties except in connection with a
transfer of Restricted Securities in accordance with this Agreement. The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and permitted transferees from and
after the date hereof.
7.7 Each of the parties shall execute such documents and other
papers and take such further actions as may be reasonably required or desirable
to carry out the provisions hereof and the transactions contemplated hereby.
7.8 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE (WITHOUT REGARD TO THE CONFLICTS
OF LAWS, PRINCIPLES OF SUCH STATE).
7.9 Each party to this Agreement agrees that all disputes
between them arising out of or relating to the relationship established between
them in connection with this Agreement, whether arising in contract, tort,
equity, or otherwise, shall be resolved only by federal courts located in New
York, New York, to the extent such courts have jurisdiction. Each of the parties
waives any objection that each may have (including, without limitation, any
objection to the laying of venue or based on forum non conveniens) to the
location of the court in which any proceeding is commenced in accordance with
this paragraph. Each party waives personal service of any process upon him or it
and irrevocably consents to service of process of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage pre-paid, to such persons address
specified in this Agreement or such other address designated by such person in
accordance with the terms of this Agreement.
7.10 No partner or member in, a Shareholder or the
Representative shall have any individual or personal liability on account of
this Agreement, and no officer, director, member, shareholder or partner of any
such partner or member shall have any individual or personal liability on
account of this Agreement unless, in either case, such Person has executed a
Deed of Adherence. For the avoidance of doubt, no negative or deficit capital
accounts shall be considered to be assets of a Shareholder or other Person, and
no obligation of a partner or member to contribute capital or make loans shall
be considered such an asset.
<PAGE>
11
7.11 This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
[Name of Original Shareholder]
________________________________
S-1
<PAGE>
GREENHILL & CO., LLC
By: ___________________________
Name: Scott L. Bok
Title: Managing Director
S-2
<PAGE>
Accepted and agreed
as to Section 4.3:
STARWOOD FINANCIAL TRUST
By _______________________
Name:
Title:
S-3
<PAGE>
Exhibit 1
DEED OF ADHERENCE
THIS DEED OF ADHERENCE is made the __________ day of _________
AMONG:
(#) [The Persons then party to the Agreement]; and
(#) [Name of New Shareholder] (the "New Shareholder").
WHEREAS:
(A) On the ___ day of June 1999, the Original Shareholder and the Rightholders
entered into a Lock-up Agreement (the "Agreement") to which a form of this
Deed is attached as Exhibit 1.
(B) The New Shareholder wishes to [have transferred to him/her/it] [______]
shares of [designate security to be transferred] (the "Shares"), from
[name of Old Shareholder] (the "Old Shareholder") and in accordance with
Section 2.3 of the Agreement or as a Permitted Transferee has agreed to
enter into this Deed.
NOW THIS DEED WITNESSES as follows:
1. Interpretation.
In this Deed, except as the context may otherwise require, all capitalized
terms used but not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
2. Covenant.
The New Shareholder hereby covenants with and to the Rightholders and the
other Shareholders, to adhere to and be bound by all the duties, burdens
and obligations of a Shareholder under the Agreement and all documents
expressed in writing to be supplemental or ancillary thereto as if the New
Shareholder had been a Shareholder under the Agreement since the date
thereof.
3. Enforceability.
<PAGE>
2
Each other Shareholder and the Rightholders shall be entitled to enforce
the Agreement against the New Shareholder, and the New Shareholder shall
be entitled to all rights and benefits of the Old Shareholder (other than
those that are non-assignable) under the Agreement in each case as if the
New Shareholder had been a Shareholder under the Agreement since the date
thereof.
4. Representations and Warranties.
The New Shareholder represents and warrants as of the date hereof that:
(i) the New Shareholder has all requisite power and authority to enter
into this Deed and the Agreement, and the consummation of all transactions
contemplated by this Deed and the Agreement have been duly authorized by
all necessary action on its part; (ii) this Deed has been duly executed
and delivered by the New Shareholder, and this Deed and the Agreement
constitute the valid and binding agreements of it and are enforceable
against it in accordance with their terms; and (iii) the execution,
delivery of this Deed and performance of this Deed and the Agreement by
the New Shareholder does not and will not violate or conflict with any
organizational document, Law, contract, instrument or arrangement to which
it is a party or by which it is bound.
5. Notices.
All notices to the New Shareholder under Section 7.1 of the Agreement
shall be delivered to:
[Contact Information]
6. Governing Law.
THIS DEED OF ADHERENCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND
TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
IN WITNESS WHEREOF, this Deed of Adherence has been executed as a
deed on the date first above written.
[Appropriate Signature Block]
<PAGE>
Schedule A
The Representative Contact Persons shall be:
1. Mr. Robert F. Greenhill
2. Mr. Scott L. Bok
<PAGE>
Exhibit 10.8
FORM OF OPTION STANDSTILL AGREEMENT
OPTION STANDSTILL AGREEMENT (this "Agreement"), dated as of June __,
1999, between [Director] (the "Original Optionholder") and Starwood Financial
Trust, a Maryland real estate investment trust (the "Rightholder").
RECITALS
A. Pursuant to the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of June ___, 1999, by and among the Rightholder, ST Merger
Sub, Inc., a Maryland corporation ("Starwood Sub"), and TriNet Corporate Realty
Trust, Inc., a Maryland corporation ("TriNet"), the Rightholder, Starwood Sub
and TriNet have agreed, among other things, to enter into a transaction (the
"Merger") in which, subject to the terms and conditions of the Merger Agreement,
Starwood Sub will merge with and into TriNet, with TriNet being the surviving
corporation.
B. Pursuant to an Agreement and Plan of Merger (the "Incorporation
Merger Agreement"), dated as of June___, 1999, by and between the Rightholder
and Starwood Financial, Inc., a newly-formed Maryland corporation ("New
Starwood"), the Rightholder intends to merge with and into New Starwood (the
"Incorporation Merger"), with New Starwood being the surviving corporation.
C. The Original Optionholder, holds options to acquire common stock,
par value $0.01 per share, of TriNet, which options, pursuant to the Merger
Agreement, will be converted into options to purchase Common Stock (as
hereinafter defined), and the parties hereto wish to restrict the exercise of
such options to purchase Common Stock.
In consideration of the foregoing and of the mutual covenants
contained herein and for other good and valuable consideration, the sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
Section 1. Certain Definitions. The following terms shall have the
following meanings for purposes of this Agreement:
"Affiliate" means, with respect to a Person, any other Person
directly or indirectly controlling, controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the power to direct or cause the direction of the
management or policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
<PAGE>
2
"Board of Directors" means, with respect to a Person, the board of
directors, board of trustees, board of managers or similar body of such Person.
attorneys representing such parties and agreed-upon by such parties.
"Change of Control" means that the common shareholders of the
Company immediately prior to the consummation of a merger, consolidation,
acquisition of assets or securities or a disposition of assets or securities
(other than a public offering of common stock), own less than 50% of the equity
of the surviving or successor entity resulting from such transaction.
"Common Stock" means, (i) prior to the consummation of the
Incorporation Merger, Starwood Common Stock and (ii) subsequent to the
consummation of the Incorporation Merger, New Starwood Common Stock.
"Company" means, prior to the consummation of the Incorporation
Merger, the Rightholder and, subsequent to the consummation of the Incorporation
Merger, New Starwood.
"Deed of Adherence" means a Deed of Adherence to this Agreement
substantially in the form of Exhibit 1 hereto.
"Director" means, (i) prior to the consummation of the Incorporation
Merger, a member of the Board of Trustees of the Rightholder and (ii) subsequent
to the consummation of the Incorporation Merger, a member of the Board of
Directors of New Starwood.
"Enforcement Action" shall have the meaning ascribed to it in
Section 4.2 hereof.
"New Starwood Common Stock" means the common stock, par value $0.001
per share, of New Starwood.
"Optionholder" means each of the Original Optionholder and any other
Persons who hold Restricted Options and execute a Deed of Adherence in
accordance with Section 2.2 hereof.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Pro Rata Share" means, with respect to a Person, the fraction, the
numerator of which is the number of shares of Common Stock then owned as of
record by such Person and the denominator of which is the total number of shares
of Common Stock then outstanding.
<PAGE>
3
"Restricted Options" means all options to purchase Common Stock
issued to the Original Optionholder pursuant the Merger but only for so long as
such options are subject to the transfer restrictions of Sections 2.1 and 2.2
hereof.
"Starwood Common Stock" means the Class A shares of beneficial
interest, par value $1.00 per share, and the Class B shares of beneficial
interest, par value $0.01 per share, of the Rightholder.
"Warranted" means, with respect to an Enforcement Action, that such
Enforcement Action was based on the best knowledge, information and belief,
formed after an inquiry reasonable under the circumstances, of the parties
bringing such Enforcement Action that this Agreement has been breached and that
such Enforcement Action was not presented for any improper purpose, such as to
harass or to cause unnecessary delay or needless increase in litigation costs.
References in this Agreement to a "party" or "parties" are references to a party
or parties (respectively) to this Agreement unless the context requires
otherwise. Capitalized terms used but not otherwise defined in this Agreement
shall have the meanings ascribed to them by the Merger Agreement.
Section 2. Restrictions on Options. Except as provided in Section 3
hereof:
2.1 During the period from the Closing Date until the date
this Agreement terminates in accordance with Section 5 hereof, no Optionholder
shall exercise any Restricted Options.
2.2 No Optionholder shall directly or indirectly sell, pledge,
encumber, transfer, enter into any voting or similar agreement with respect to
or otherwise dispose of (collectively, "Transfer") or enter into any agreement
or series of agreements to Transfer, Restricted Options unless (i) such Transfer
is in accordance with the provisions of the Rightholder's 1996 Long-Term
Incentive Plan; and (ii) all Persons that will receive Restricted Options have
executed a Deed of Adherence prior to such Transfer.
Section 3. Exceptions to Option Restrictions. The restrictions set
forth in Section 2 shall not apply to (i) a Transfer or exercise of Restricted
Options that is made by the Optionholder in response to a "tender offer" with
respect to which the completion of such tender offer is conditioned upon such
completion resulting in a Change of Control; (ii) a Transfer of Restricted
Options (or an exercise of Restricted Options and a Transfer of the Common Stock
issued in respect thereof) that is made to the Person (or any Affiliate of such
Person) receiving control of the Company as a result of a Change of Control;
(iii) a pledge of Restricted Options that is made in order
<PAGE>
4
to establish a margin account at a reputable brokerage firm; (iv) a pledge of
Restricted Options to a lender in order to effect a bona-fide loan or financing
transaction with such lender which transaction is not intended to circumvent the
transfer restrictions of Section 2 hereof; (v) a Transfer of Restricted Options
to the lender or brokerage firm that is the pledgee with respect to a pledge
described in clause (iii) or (iv) above, or to an Affiliate of such lender or
such brokerage firm or to a purchaser in a foreclosure sale; (vi) a Transfer of
Restricted Options that occurs because of entry by the Shareholders into a
voting agreement, proxy or other arrangement deemed reasonably necessary by the
Board of Directors of the Company to effectuate a merger, consolidation,
amalgamation or other business combination that has been approved by the Board
of Directors of the Company. For the avoidance of doubt, all Restricted Options
Transferred pursuant to exceptions (i), (ii) or (v) listed in this Section 3
shall no longer be deemed to be Restricted Options subsequent to such Transfer.
Section 4. Remedies.
4.1 The parties declare and agree that it is impossible to
measure in money the damages that would be suffered by a party by reason of the
failure by any other party to perform any of its obligations under this
Agreement. Therefore, if any party institutes any action or proceeding to
enforce the provisions of this Agreement, any party against whom such action or
proceeding is brought hereby waives any claim or defense therein that the other
party has an adequate remedy at law and, consequently, the parties hereby agree
that the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement.
4.2 If the Rightholder institutes any action or proceeding (an
"Enforcement Action") to enforce the provisions of this Agreement against an
Optionholder:
4.2.1 If such Enforcement Action results in a court of
competent jurisdiction entering a final judgment in favor of such Optionholder,
the Rightholder shall pay such Optionholder an amount equal to the reasonable
costs and expenses (including the fees and disbursements of attorneys other than
Agreed Counsel) of such Optionholder incurred in connection with the resolution
of such Enforcement Action.
4.2.2 If such Enforcement Action results in a court of
competent jurisdiction entering a final judgment against such Optionholder, the
Optionholder shall pay the Rightholder an amount equal to the product of (x) the
Optionholder's Pro Rata Share times (y) the reasonable costs and expenses
(including the fees and disbursements of attorneys) of such Rightholder incurred
in connection with the resolution of such Enforcement Action.
<PAGE>
5
4.2.3 Otherwise, each party shall bear its own expenses
incurred in connection with the resolution of Enforcement Actions.
4.3 If any amount payable under Section 4.2.2 hereof is not
paid in full by an Optionholder liable for such amount within 30 calendar days
after written notice requesting such payment is provided to the Optionholder by
the Rightholder, the Company shall not make any distributions (whether cash or
otherwise) to such Optionholder in respect of its equity interests in the
Company until the amount of such distributions withheld equals the amount owed
by such Optionholder.
Section 5. Term and Termination. Unless earlier terminated by a
writing executed by all parties, this Agreement shall terminate on the earlier
of (i) the date falling 12 months and one day after the Closing Date and (ii)
earliest date after the Closing Date on which the Original Optionholder no
longer is a Director.
Section 6. Representations and Warranties. The Original Optionholder
represents and warrants that:
6.1 As of the date hereof, this Agreement has been duly
executed and delivered by the Original Optionholder and constitutes the valid
and binding agreement of the Original Optionholder and is enforceable against
the Original Optionholder in accordance with its terms; and
6.2 As of the date hereof and as of the Closing Date, the
execution, delivery and performance of this Agreement by the Original
Optionholder does not and will not violate or conflict with any Law, contract,
instrument or arrangement to which the Original Optionholder is a party or by
which the Original Optionholder is bound.
Section 7. Miscellaneous.
7.1 Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally or sent by
registered mail or overnight delivery service, in either case postage prepaid,
or delivered by telecopy, facsimile or similar telecommunications equipment. Any
such notice shall be deemed given when so delivered personally or, if sent by
registered mail, five days after the date of deposit in the mails or, if sent by
overnight delivery service, on the business day following deposit with such
delivery service or, if delivered by telecopy, facsimile or similar
telecommunications equipment, at the time of receipt thereof, as follows:
<PAGE>
6
If to the Original Shareholder, to:
c/o REIT Consulting Services
701 South Fitch Mountain Rd.
Healdsburg, CA 95448
Telecopy: (707) 433-8309
If to the Rightholder, to:
Starwood Financial Trust
1114 Avenue of the Americas, 27th Floor
New York, NY 10036
Telecopy: (212) 931-9494
Attention: Nina Matis, General Counsel
with a copy to:
Katten, Muchin & Zavis
525 W. Monroe St. #1600
Chicago, IL 60661
Attention: Kenneth M. Jacobson
Telecopy: (312) 902-1061
Any party may, by notice to the other parties, designate another address or
person for receipt of notices hereunder. Any additional parties agreeing to be
bound by the terms of this Agreement who execute a Deed of Adherence shall
receive notices hereunder at the location specified in such Deed of Adherence.
7.2 In the event any provision hereof is held void or
unenforceable by any court, such provision shall be severable and shall not
affect the remaining provisions hereof.
7.3 This Agreement reflects the entire agreement among the
parties and supersedes all prior agreements and communications, either oral or
in writing, among the parties with respect to the subject matter hereof.
7.4 This Agreement may be amended, superseded, canceled,
renewed or extended, and the terms hereof may be waived, only by an written
instrument signed by all of the parties or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part
<PAGE>
7
of any party of any such right, power or privilege, nor any single or partial
exercise of any such right, power or privilege, preclude any further exercise
thereof or the exercise of any other such right, power or privilege. The rights
and remedies herein provided are cumulative and are not exclusive of any rights
or remedies that any party may otherwise have at law or in equity.
7.5 This Agreement may not be assigned by any party without
the prior written consent of the other parties except in connection with a
transfer of Restricted Options in accordance with this Agreement. The provisions
of this Agreement shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted transferees from and after the
date hereof.
7.6 Each of the parties shall execute such documents and other
papers and take such further actions as may be reasonably required or desirable
to carry out the provisions hereof and the transactions contemplated hereby.
7.7 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE (WITHOUT REGARD TO THE CONFLICTS
OF LAWS, PRINCIPLES OF SUCH STATE).
7.8 Each party to this Agreement agrees that all disputes
between them arising out of or relating to the relationship established between
them in connection with this Agreement, whether arising in contract, tort,
equity, or otherwise, shall be resolved only by federal courts located in New
York, New York, to the extent such courts have jurisdiction. Each of the parties
waives any objection that each may have (including, without limitation, any
objection to the laying of venue or based on forum non conveniens) to the
location of the court in which any proceeding is commenced in accordance with
this paragraph. Each party waives personal service of any process upon him or it
and irrevocably consents to service of process of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage pre-paid, to such persons address
specified in this Agreement or such other address designated by such person in
accordance with the terms of this Agreement.
7.9 This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Option
Standstill Agreement as of the date first above written.
[Original Optionholder]
_______________________
<PAGE>
STARWOOD FINANCIAL TRUST
By: ___________________________
Name:
Title:
<PAGE>
Exhibit 1
DEED OF ADHERENCE
THIS DEED OF ADHERENCE is made the __________ day of _________
AMONG:
(#) [The Persons then party to the Agreement]; and
(#) [Name of New Optionholder] (the "New Optionholder").
WHEREAS:
(A) On the ___ day of June 1999, the Original Optionholder and the Rightholder
entered into a Option Standstill Agreement (the "Agreement") to which a
form of this Deed is attached as Exhibit 1.
(B) The New Optionholder wishes to [have transferred to him/her/it] options to
purchase [______] Class A Shares, from [name of Old Optionholder] (the
"Old Optionholder") and in accordance with Section 2.2 of the Agreement
has agreed to enter into this Deed.
NOW THIS DEED WITNESSES as follows:
1. Interpretation.
In this Deed, except as the context may otherwise require, all capitalized
terms used but not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
2. Covenant.
The New Optionholder hereby covenants with and to the Rightholder and the
other Optionholders, to adhere to and be bound by all the duties, burdens
and obligations of an Optionholder under the Agreement and all documents
expressed in writing to be supplemental or ancillary thereto as if the New
Optionholder had been an Optionholder under the Agreement since the date
thereof.
3. Enforceability.
<PAGE>
Each other Optionholder and the Rightholder shall be entitled to enforce
the Agreement against the New Optionholder, and the New Optionholder shall
be entitled to all rights and benefits of the Old Optionholder (other than
those that are non-assignable) under the Agreement in each case as if the
New Optionholder had been an Optionholder under the Agreement since the
date thereof.
4. Representations and Warranties.
The New Optionholder represents and warrants as of the date hereof that:
(i) the New Optionholder has all requisite power and authority to enter
into this Deed and the Agreement, and the consummation of all transactions
contemplated by this Deed and the Agreement have been duly authorized by
all necessary action on its part; (ii) this Deed has been duly executed
and delivered by the New Optionholder, and this Deed and the Agreement
constitute the valid and binding agreements of it and are enforceable
against it in accordance with their terms; and (iii) the execution,
delivery of this Deed and performance of this Deed and the Agreement by
the New Optionholder does not and will not violate or conflict with any
organizational document, Law, contract, instrument or arrangement to which
it is a party or by which it is bound.
5. Notices.
All notices to the New Optionholder under Section 7.1 of the Agreement
shall be delivered to:
[Contact Information]
6. Governing Law.
THIS DEED OF ADHERENCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND
TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
IN WITNESS WHEREOF, this Deed of Adherence has been executed as a
deed on the date first above written.
[Appropriate Signature Block]
<PAGE>
Exhibit 10.9
FORM OF AFFILIATE LOCK-UP AGREEMENT
LOCK-UP AGREEMENT (this "Agreement"), dated as of June ___, 1999,
between [Affiliate] (the "Original Shareholder"), and Greenhill & Co., LLC, a
New York limited liability company (the "Representative").
RECITALS
A. Pursuant to the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of June ___, 1999, by and among Starwood Financial Trust,
a Maryland real estate investment trust ("Starwood"), ST Merger Sub, Inc., a
Maryland corporation ("Starwood Sub"), and TriNet Corporate Realty Trust, Inc.,
a Maryland corporation ("TriNet"), Starwood, Starwood Sub and TriNet have
agreed, among other things, to enter into a transaction (the "Merger") in which,
subject to the terms and conditions of the Merger Agreement, Starwood Sub will
merge with and into TriNet, with TriNet being the surviving corporation.
B. Pursuant to an Agreement and Plan of Merger (the "Incorporation
Merger Agreement"), dated as of June ___, 1999, by and between Starwood and
Starwood Financial, Inc., a newly-formed Maryland corporation ("New Starwood"),
Starwood intends to merge with and into New Starwood (the "Incorporation
Merger"), with New Starwood being the surviving corporation.
C. The parties hereto wish to restrict the transfer of certain
securities of Starwood and New Starwood that will be held by the Original
Shareholder or certain successors in interest thereto.
D. The continuing force and effect of this Agreement is a condition
precedent to the consummation of the Merger by TriNet.
In consideration of the foregoing and of the mutual covenants
contained herein and for other good and valuable consideration, the sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
Section 1. Certain Definitions. The following terms shall have the
following meanings for purposes of this Agreement:
"Affiliate" means, with respect to a Person, any other Person
directly or indirectly controlling, controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the power to direct or cause the direction of the
management or policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by
<PAGE>
2
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Agreed Counsel" means a reputable law firm other than those
retained by the parties to an Enforcement Action, which law firm is jointly
selected by the attorneys representing such parties and agreed-upon by such
parties.
"Board of Directors" means, with respect to a Person, the board of
directors, board of trustees, board of managers or similar body of such Person.
"Change of Control" means that the common shareholders of the
Company immediately prior to the consummation of a merger, consolidation,
acquisition of assets or securities or a disposition of assets or securities
(other than a public offering of common stock), own less than 50% of the equity
of the surviving or successor entity resulting from such transaction.
"Closing Date" shall have the meaning ascribed to it in the Merger
Agreement.
"Common Stock" means, (i) prior to the consummation of the
Incorporation Merger, Starwood Common Stock and (ii) subsequent to the
consummation of the Incorporation Merger, New Starwood Common Stock.
"Company" means, prior to the consummation of the Incorporation
Merger, Starwood and, subsequent to the consummation of the Incorporation
Merger, New Starwood.
"Deed of Adherence" means a Deed of Adherence to this Agreement
substantially in the form of Exhibit 1 hereto.
"Enforcement Action" shall have the meaning ascribed to it in
Section 4.2 hereof.
"Initial Holdings" shall have the meaning ascribed to it in Section
6.8 hereof.
"New Starwood Common Stock" means the common stock, par value $0.001
per share, of New Starwood.
"Permitted Foreclosure" means any foreclosure or other realization
upon security upon the Restricted Securities permitted by Section 3.1(a) of the
Shareholder Agreement.
"Permitted Holders" means (i) with respect to a Person other than a
natural person, all Affiliates of such Person and (ii) with respect to a Person
who is a natural person, the spouse or any lineal descendant of such Person, a
trust established for the benefit of any of the foregoing or any personal
representative, estate or executor
<PAGE>
3
under any will of such Person or pursuant to the laws of intestate succession,
that, in either case (i) or (ii), has executed a Deed of Adherence.
"Permitted Liens" means any pledges of Restricted Securities
permitted by Section 3.1(a) of the Shareholder Agreement.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Pro Rata Share" means, (i) with respect to a Rightholder other than
the Representative, the fraction, the numerator of which is the number of shares
of Common Stock then owned as of record by such Rightholder and the denominator
of which is the total number of shares of Common Stock then outstanding and (ii)
with respect to the Representative, zero.
"Public Offering" means a public offering of securities in which a
Shareholder has the right to participate pursuant to Section 3 of the Amended
and Restated Registration Rights Agreement (the "Registration Rights
Agreement"), dated as of March 18, 1998 among Starwood Financial Trust, a
California business trust (as predecessor in interest to Starwood), Starwood
Mezzanine Investors, L.P., a Delaware limited partnership, SAHI Partners, a
Delaware general partnership and SOFI-IV SMT Holdings, L.L.C., a Delaware
limited liability company.
"Rightholder" means each of (i) the Representative and (ii) each
third-party beneficiary described in Section 7.2 hereof.
"Representative Contact Persons" means those individuals listed on
Schedule A hereto and any other employees or agents of the Representative
appointed to be Representative Contact Persons by written notice provided to the
Original Shareholder.
"Restricted Security" means all Starwood Common Stock, New Starwood
Common Stock and any other securities convertible into, exchangeable for or
exercisable for, Starwood Common Stock or New Starwood Common Stock, in each
case, that was received by the Original Shareholder in connection with the
Merger but only for so long as such securities are subject to the transfer
restrictions contained in Sections 2.1, 2.2, 2.3 and 2.4 hereof.
"Shareholder" means each of the Original Shareholder and any other
Persons who hold Restricted Securities and execute a Deed of Adherence in
accordance with Section 2.6 hereof.
<PAGE>
4
"Shareholder Agreement" means the Shareholder Agreement, of even
date herewith, among TriNet, SOFI-IV SMT Holdings, L.L.C., a Delaware limited
liability company, and Starwood Mezzanine Investors, L.P., a Delaware limited
partnership.
"Stock Dividend" shall have the meaning ascribed to it in the Merger
Agreement.
"Starwood Common Stock" means the Class A shares of beneficial
interest, par value $1.00 per share, and the Class B shares of beneficial
interest, par value $0.01 per share, of Starwood.
"Six-Month Anniversary" shall have the meaning ascribed to it in
Section 2.1 hereof.
"Six-Month Holdings" means the number of shares of Common Stock
represented by all Restricted Securities owned as of record by all Shareholders
on the Six-Month Anniversary.
"Warranted" means, with respect to an Enforcement Action, that such
Enforcement Action was based on the best knowledge, information and belief,
formed after an inquiry reasonable under the circumstances, of the parties
bringing such Enforcement Action that this Agreement has been breached and that
such Enforcement Action was not presented for any improper purpose, such as to
harass or to cause unnecessary delay or needless increase in litigation costs.
References in this Agreement to a "party" or "parties" are references to a party
or parties (respectively) to this Agreement unless the context requires
otherwise. Capitalized terms used but not otherwise defined in this Agreement
shall have the meanings ascribed to them by the Merger Agreement.
Section 2. Transfer Restrictions. Except as provided in Section 3
hereof:
2.1 During the period from the Closing Date until the date
(the Six-Month Anniversary") falling six months after the Closing Date, the
Shareholders shall not directly or indirectly sell, pledge, encumber, transfer,
enter into any voting or similar agreement with respect to or otherwise dispose
of (collectively, "Transfer") or enter into any agreement or series of
agreements to Transfer any Restricted Securities other than to a Permitted
Holder; provided, however, that during such six-month period, the Shareholders
may Transfer to a party other than a Permitted Holder: (i) Restricted Securities
representing, in the aggregate, no more than 5% of
<PAGE>
5
the Initial Holdings (the "Initial Exemption"); (ii) Restricted Securities
representing, in the aggregate, up to 30% of the Initial Holdings in a
transaction or series of transactions not consummated on any securities
exchange, quotation system or other form of securities market (the "Off-Market
Sale Exemption"); and (iii) Restricted Securities representing, in the
aggregate, up to 20% of the Initial Holdings in a Public Offering in accordance
with Section 3 of the Registration Rights Agreement (the "Public Offering
Exemption"). All Restricted Securities sold under any one of (x) the Initial
Exemption, (y) the Off-Market Sale Exemption and (z) the Public Offering
Exemption shall count as Restricted Securities sold under the other two of the
Initial Exemption, the Off-Market Sale Exemption and the Public Offering
Exemption. For the avoidance of doubt, all Restricted Securities Transferred
pursuant to the Initial Exemption, the Off-Market Sale Exemption or the Public
Offering Exemption shall be deemed not to be Restricted Securities after such
Transfer. For the avoidance of doubt, the term "Transfer" shall not include any
conversion or exchange occurring by operation of law. If any Restricted
Securities that are (a) registered under the Securities Act of 1933, as amended,
or (b) entitled to registration rights exercisable prior to the Six-Month
Anniversary, are Transferred to a purchaser by a Shareholder using the
Off-Market Sale Exemption, such Transfer shall not be for the purpose of
circumventing the restrictions set forth in this Section 2, and such Transfer
shall not occur until such purchaser has signed a Deed of Adherence agreeing to
abide by the terms and provisions of this Section 2.1.
2.2 During the period from the day after the Six-Month
Anniversary until the date falling 12 months after the Closing Date, the
Shareholders shall not Transfer or enter into any agreement or series of
agreements to Transfer, Restricted Securities representing, in the aggregate,
more than one-third of the Six-Month Holdings to a party other than a Permitted
Holder.
2.3 During the period from the day after the Six-Month
Anniversary until the date falling 18 months after the Closing Date, the
Shareholders shall not Transfer or enter into any agreement or series of
agreements to Transfer, Restricted Securities representing, in the aggregate,
more than two-thirds of the Six-Month Holdings to a party other than a Permitted
Holder.
2.4 After the date falling 18 months and one day after the
Closing Date, the Shareholders may Transfer 100% of the Six-Month Holdings to a
party other than a Permitted Holder.
2.5 For the avoidance of doubt, all Restricted Securities
Transferred as permitted by Section 2.2, 2.3 or 2.4 hereof shall be deemed not
to be Restricted Securities after such Transfer.
<PAGE>
6
2.6 No Shareholder shall adopt a plan for liquidation or
dissolution of such Shareholder or make any distributions of the Restricted
Securities to any Persons in respect of such Shareholder's capital stock or
other ownership interests unless all Persons that will receive Restricted
Securities in connection with such liquidation, dissolution or distribution have
executed a Deed of Adherence.
Section 3. Exceptions to Transfer Restrictions. The restrictions set
forth in Section 2 hereof shall not apply to (i) a Transfer of Restricted
Securities that is made by the Shareholder in response to a "tender offer" with
respect to which the completion of such tender offer is conditioned upon such
completion resulting in a Change of Control; (ii) a Transfer of Restricted
Securities that is made to the Person (or any Affiliate of such Person)
receiving control of the Company as a result of a Change of Control; (iii) a
pledge of Restricted Securities that is made in order to establish a margin
account at a reputable brokerage firm; (iv) a pledge of Restricted Securities to
a lender in order to effect a bona-fide loan or financing transaction with such
lender which transaction is not intended to circumvent the transfer restrictions
of Section 2 hereof; (v) a Transfer of Restricted Securities to the lender or
brokerage firm that is the pledgee with respect to a pledge described in clause
(iii) or (iv) above or to an Affiliate of such lender or such brokerage firm or
to a purchaser in a foreclosure sale; (vi) a Transfer that occurs because of
entry by the Shareholders into a voting agreement, proxy or other arrangement
deemed reasonably necessary by the Board of Directors of the Company to
effectuate a merger, consolidation, amalgamation or other business combination
that has been approved by the Board of Directors of the Company; and (vii) the
granting of a proxy with respect to any annual or special meeting of the
shareholders of the Company. For the avoidance of doubt, all Restricted
Securities Transferred pursuant to exceptions (i), (ii) or (v) listed in this
Section 3 shall no longer be deemed to be Restricted Securities subsequent to
such Transfer.
Section 4. Remedies.
4.1 The parties declare and agree that it is impossible to
measure in money the damages that would be suffered by a party by reason of the
failure by any other party to perform any of its obligations under this
Agreement. Therefore, if any party institutes any action or proceeding to
enforce the provisions of this Agreement, any party against whom such action or
proceeding is brought hereby waives any claim or defense therein that the other
party has an adequate remedy at law and, consequently, the parties hereby agree
that the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement.
<PAGE>
7
4.2 If any Rightholder or group of Rightholders institutes any
action or proceeding (an "Enforcement Action") to enforce the provisions of this
Agreement against a Shareholder:
4.2.1 If (i) such Enforcement Action results in a court
of competent jurisdiction entering a final judgment in favor of such Shareholder
and (ii) Agreed Counsel determines that such Enforcement Action was Warranted,
each Rightholder bringing such Enforcement Action shall pay such Shareholder an
amount equal to the product of (x) such Rightholder's Pro Rata Share times (y)
the reasonable costs and expenses (including the fees and disbursements of
attorneys other than Agreed Counsel) of such Shareholder incurred in connection
with the resolution of such Enforcement Action, and the fees and disbursements
of Agreed Counsel shall be borne equally among all parties to such Enforcement
Action.
4.2.2 If (i) such Enforcement Action results in a court
of competent jurisdiction entering a final judgment in favor of such Shareholder
and (ii) Agreed Counsel determines that such Enforcement Action was not
Warranted, the Rightholders bringing such Enforcement Action (other than the
Representative) shall pay such Shareholder an amount equal to the reasonable
costs and expenses (including the fees and disbursements of attorneys other than
Agreed Counsel) of such Shareholder incurred in connection with the resolution
of such Enforcement Action, and the fees and disbursements of Agreed Counsel
shall be borne equally among the Rightholders instituting such Enforcement
Action.
4.2.3 If such Enforcement Action results in a court of
competent jurisdiction entering a final judgment against such Shareholder, the
Shareholder shall pay each Rightholder bringing such Enforcement Action an
amount equal to the reasonable costs and expenses (including the fees and
disbursements of attorneys) of such Rightholder incurred in connection with the
resolution of such Enforcement Action.
4.2.4 Otherwise, each party shall bear its own expenses
incurred in connection with the resolution of Enforcement Actions.
4.3 If any amount payable under Section 4.2 hereof is not paid
in full by the party liable for such amount (the "Liable Party") within 30
calendar days after written notice requesting such payment is provided to the
Liable Party by the party entitled to such amount (the "Entitled Party"), the
Entitled Party may provide written notice to the Company of such failure to pay
and the amount owed by the Liable Party. Upon receipt of such notice, the
Company shall not make any distributions (whether cash or otherwise) to the
Liable Party in respect of its equity interests in the Company and shall make
such distributions to the Entitled Party until
<PAGE>
8
the amount of such distributions made to the Entitled Party equals the amount
owed by the Liable Party.
4.4 Any Rightholder (other than the Representative) bringing
an Enforcement Action shall not hold fewer than 100 shares of Common Stock
during the pendency of such Enforcement Action.
Section 5. Term and Termination. Unless earlier terminated by a
writing executed by all parties, this Agreement shall terminate on the date
falling 24 months and one day after the Closing Date.
Section 6. Representations and Warranties. The Original Shareholder
represents and warrants that:
6.1 As of the date hereof, the Original Shareholder has all
requisite power and authority to enter into this Agreement, and the consummation
of all transactions contemplated by this Agreement have been duly authorized by
all necessary action on its part;
6.2 As of the date hereof, this Agreement has been duly
executed and delivered by the Original Shareholder and constitutes the valid and
binding agreement of it and is enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally and general principles of equity;
6.3 As of the date hereof, the execution, delivery and
performance of this Agreement by the Original Shareholder does not and will not
violate or conflict with any organizational document, Law, contract, instrument
or arrangement to which it is a party or by which it is bound;
6.4 Both upon consummation of the Incorporation Merger and on
the Closing Date, the Original Shareholder will be the record holder and
beneficial owner of the securities described on Schedule 6.4 hereto, free and
clear of any and all liens, charges, encumbrances, pledges, voting agreements or
other commitments of any kind (in each case, assuming the consummation of both
the Merger and the Incorporation Merger) other than Permitted Liens;
6.5 Both upon consummation of the Incorporation Merger and on
the Closing Date, the Original Shareholder will own (either beneficially or of
record) no Restricted Securities other than the securities described on Schedule
6.4 hereto (in each case, assuming the consummation of both the Merger and the
Incorporation Merger), except for (i) Class B shares of beneficial interest of
Starwood, par value $0.01 per share ("Class B Shares"), and (ii) Class A shares
of beneficial
<PAGE>
9
interest of Starwood, par value $1.00 per share ("Class A Shares"), issued to
the Original Shareholder pursuant to the Stock Dividend; provided that between
the date hereof and the Closing Date, Restricted Securities may be Transferred
in a Permitted Foreclosure;
6.6 The Original Shareholder is, as of the date hereof, and
will be, on the Closing Date, the record holder and beneficial owner of the
securities described on Schedule 6.6 hereto, free and clear of any and all
liens, charges, encumbrances, pledges, voting agreements or other commitments of
any kind (in each case, assuming the consummation of the Merger but not the
consummation of the Incorporation Merger), other than Permitted Liens;
6.7 As of the date hereof, the Original Shareholder owns
(either beneficially or of record), and will own (either beneficially or of
record), on the Closing Date, no Restricted Securities other than the securities
described on Schedule 6.6 hereto (in each case, assuming the consummation of the
Merger but not the consummation of the Incorporation Merger), except for (i)
Class B Shares and (ii) Class A Shares issued to the Original Shareholder
pursuant to the Stock Dividend; provided that between the date hereof and the
Closing Date, Restricted Securities may be Transferred in a Permitted
Foreclosure; and
6.8 On the Closing Date, the Original Shareholder will own
(either beneficially or of record) a number of shares of Common Stock other than
Class B Shares (the "Initial Holdings") equal to 10,759,890 shares of Common
Stock owned as of the date hereof plus additional Common Stock to be issued to
it pursuant to the Stock Dividend.
Section 7. Miscellaneous.
7.1 Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally or sent by
registered mail or overnight delivery service, in either case postage prepaid,
or delivered by telecopy, facsimile or similar telecommunications equipment. Any
such notice shall be deemed given when so delivered personally or, if sent by
registered mail, five days after the date of deposit in the mails or, if sent by
overnight delivery service, on the business day following deposit with such
delivery service or, if delivered by telecopy, facsimile or similar
telecommunications equipment, at the time of receipt thereof, as follows:
If to the Original Shareholder, to:
c/o Starwood Capital Group, L.L.C.
Three Pickwick Plaza, Suite 250
<PAGE>
10
Greenwich, CT 06830
Attention: Madison Grose
Telecopy: (203) 861-2101
with copies to:
Katten, Muchin & Zavis
525 W. Monroe St. #1600
Chicago, IL 60661
Attention: Nina Matis, Kenneth M. Jacobson
Telecopy: (312) 902-1061
If to the Representative, to:
Greenhill & Co., LLC
31 West 52nd Street, 16th Floor
New York, NY 10019
Telecopy: (212) 408-0660
All correspondence must be sent to the attention of
a Representative Contact Person
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Telecopy: (212) 848-7179
Attention: John A. Marzulli, Jr.
Any party may, by notice to the other parties, designate another address or
person for receipt of notices hereunder. Any additional parties agreeing to be
bound by the terms of this Agreement who execute a Deed of Adherence shall
receive notices hereunder at the location specified in such Deed of Adherence.
7.2 At any given time, all holders of Common Stock who then
hold 100 or more shares of Common Stock are hereby acknowledged (as of such
time) as intended third-party beneficiaries of this Agreement. The rights and
privileges granted under this Agreement to the Rightholders shall inure to the
benefit of such holders, and the provisions of this Agreement shall be binding
upon any such holder who brings an Enforcement Action. Any waiver of a provision
of this Agreement granted by the Representative pursuant to Section 7.5 hereof
shall be binding upon and effective against all Rightholders.
<PAGE>
11
7.3 In the event any provision hereof is held void or
unenforceable by any court, such provision shall be severable and shall not
affect the remaining provisions hereof.
7.4 This Agreement reflects the entire agreement among the
parties and supersedes all prior agreements and communications, either oral or
in writing, among the parties with respect to the subject matter hereof;
provided that, for the avoidance of doubt, this provision shall not affect the
validity of the Engagement Letter (the "Engagement Letter") between the
Representative and TriNet, dated as of June __, 1999, and, in the event of any
conflict between the terms and provisions of this Agreement and those of the
Engagement Letter, the terms and provisions of the Engagement Letter shall
prevail.
7.5 This Agreement may be amended, superseded, canceled,
renewed or extended, and the terms hereof may be waived (i) in the case of a
waiver by the Rightholders, by a written instrument signed on behalf of the
Representative by any Representative Contact Person; (ii) in the case of a
waiver by any other parties, by an written instrument signed by all such parties
waiving compliance. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of any party of any such right, power or privilege, nor any
single or partial exercise of any such right, power or privilege, preclude any
further exercise thereof or the exercise of any other such right, power or
privilege. The rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies that any party may otherwise have at law or
in equity. The Representative shall not be liable for any error of judgment or
any action taken, suffered or omitted to be taken under this Agreement except in
the case of its gross negligence, bad faith or willful misconduct. The
Representative may consult with counsel of its own choice and shall have full
and complete authorization and protection for any action taken or suffered by it
under this Agreement in good faith and in accordance with the opinion of such
counsel.
7.6 This Agreement may not be assigned by any party without
the prior written consent of the other parties except in connection with a
transfer of Restricted Securities in accordance with this Agreement. The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and permitted transferees from and
after the date hereof.
7.7 Each of the parties shall execute such documents and other
papers and take such further actions as may be reasonably required or desirable
to carry out the provisions hereof and the transactions contemplated hereby.
7.8 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF
<PAGE>
12
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH
STATE (WITHOUT REGARD TO THE CONFLICTS OF LAWS, PRINCIPLES OF SUCH STATE).
7.9 Each party to this Agreement agrees that all disputes
between them arising out of or relating to the relationship established between
them in connection with this Agreement, whether arising in contract, tort,
equity, or otherwise, shall be resolved only by federal courts located in New
York, New York, to the extent such courts have jurisdiction. Each of the parties
waives any objection that each may have (including, without limitation, any
objection to the laying of venue or based on forum non conveniens) to the
location of the court in which any proceeding is commenced in accordance with
this paragraph. Each party waives personal service of any process upon him or it
and irrevocably consents to service of process of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage pre-paid, to such persons address
specified in this Agreement or such other address designated by such person in
accordance with the terms of this Agreement.
7.10 No partner or member in a Shareholder or the
Representative shall have any individual or personal liability on account of
this Agreement, and no officer, director, member, shareholder or partner of any
such partner or member shall have any individual or personal liability on
account of this Agreement unless, in either case, such Person has executed a
Deed of Adherence. For the avoidance of doubt, no negative or deficit capital
accounts shall be considered to be assets of a Shareholder or other Person, and
no obligation of a partner or member to contribute capital or make loans shall
be considered such an asset.
Section 7.11 It is agreed that nothing contained in this Agreement
is binding upon the GECC or its successors and assigns, as secured parties under
the GECC Pledge Agreement, or upon any Person who acquires Restricted Securities
pursuant to the exercise of the foreclosure, other realization or sale rights
and remedies under the GECC Pledge Agreement, the GECC Credit Agreement (as
defined in the Shareholder Agreement) or applicable law unless GECC or such
Person (as the case may be) has executed a Deed of Adherence (it being
understood neither GECC nor such Person is obligated under this Agreement to
execute such a Deed of Adherence with respect to such Restricted Securities). In
the event of any conflict under this Agreement, the provisions of this Section
7.11 shall control.
7.12 This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
13
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
<PAGE>
S-1
GREENHILL & CO., LLC
By: ___________________________
Name: Scott L. Bok
Title: Managing Director
<PAGE>
S-2
Accepted and agreed
as to Section 4.3:
STARWOOD
By: __________________________
Name:
Title:
<PAGE>
Exhibit 1
DEED OF ADHERENCE
THIS DEED OF ADHERENCE is made the __________ day of _________
AMONG:
(#) [The Persons then party to the Agreement]; and
(#) [Name of New Shareholder] (the "New Shareholder").
WHEREAS:
(A) On the ___ day of June 1999, the Original Shareholder and the
Representative entered into a Lock-up Agreement (the "Agreement") to which
a form of this Deed is attached as Exhibit 1.
(B) The New Shareholder wishes to [have transferred to him/her/it] [______]
shares of [designate security to be transferred] (the "Shares"), from
[name of Old Shareholder] (the "Old Shareholder") and in accordance with
Section 2.3 of the Agreement or as a Permitted Transferee has agreed to
enter into this Deed.
NOW THIS DEED WITNESSES as follows:
1. Interpretation.
In this Deed, except as the context may otherwise require, all capitalized
terms used but not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
2. Covenant.
The New Shareholder hereby covenants with and to the Rightholders and the
other Shareholders, to adhere to and be bound by all the duties, burdens
and obligations of a Shareholder under the Agreement and all documents
expressed in writing to be supplemental or ancillary thereto as if the New
Shareholder had been a Shareholder under the Agreement since the date
thereof.
3. Enforceability.
<PAGE>
2
Each other Shareholder and the Rightholders shall be entitled to enforce
the Agreement against the New Shareholder, and the New Shareholder shall
be entitled to all rights and benefits of the Old Shareholder (other than
those that are non-assignable) under the Agreement in each case as if the
New Shareholder had been a Shareholder under the Agreement since the date
thereof.
4. Representations and Warranties.
The New Shareholder represents and warrants as of the date hereof that:
(i) the New Shareholder has all requisite power and authority to enter
into this Deed and the Agreement, and the consummation of all transactions
contemplated by this Deed and the Agreement have been duly authorized by
all necessary action on its part; (ii) this Deed has been duly executed
and delivered by the New Shareholder, and this Deed and the Agreement
constitute the valid and binding agreements of it and are enforceable
against it in accordance with their terms; and (iii) the execution,
delivery of this Deed and performance of this Deed and the Agreement by
the New Shareholder does not and will not violate or conflict with any
organizational document, Law, contract, instrument or arrangement to which
it is a party or by which it is bound.
5. Notices.
All notices to the New Shareholder under Section 7.1 of the Agreement
shall be delivered to:
[Contact Information]
6. Governing Law.
THIS DEED OF ADHERENCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND
TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
IN WITNESS WHEREOF, this Deed of Adherence has been executed as a
deed on the date first above written.
[Appropriate Signature Block]
<PAGE>
Schedule A
The Representative Contact Persons shall be:
1. Mr. Robert F. Greenhill
2. Mr. Scott L. Bok
<PAGE>
Exhibit 10.10
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") is dated as of June
15, 1999 among Jay Sugarman and Spencer Haber (collectively, the
"PURCHASERS") and A. William Stein and Robert Holman, Jr. (collectively, the
"TRINET STOCKHOLDERS"). The TriNet Stockholders are the holders of all of the
voting common stock (other than voting common stock held by TriNet Corporate
Realty Trust, Inc. ("TRINET")) of TriNet Management Operating Company, Inc.
("TRINET MANAGEMENT"), a subsidiary of TriNet.
RECITALS
A. The TriNet Stockholders are the owners, beneficially or of record,
of shares of voting common stock, par value $0.01 per share, of TriNet
Management (the "SHARES") as set forth on Schedule A to this Agreement;
B. Starwood Financial Trust ("STARWOOD"), ST Merger Sub, Inc. and
TriNet entered into an Agreement and Plan of Merger, dated as of June __, 1999,
(the "MERGER AGREEMENT") pursuant to which ST Merger Sub, Inc. will merge with
and into TriNet, with TriNet being the surviving corporation (the "MERGER"); and
C. As an inducement to entering into the Merger Agreement, Starwood
requires that the TriNet Stockholders enter into this Agreement, dated as of
June , 1999 which provides that the TriNet Stockholders agree to sell to the
Purchasers, and the Purchasers agree to purchase from the TriNet Stockholders,
all of the TriNet Stockholders' right, title and interest in and to the Shares
upon the terms and subject to the conditions provided for herein.
In consideration of the premises and mutual covenants and agreements
contained in this Agreement and the Merger Agreement, the parties agree as
follows:
ARTICLE 1
SALE OF SHARES AND CLOSING
1.1 Subject to the terms and conditions of this Agreement, the TriNet
Stockholders agree to sell to the Purchasers, and the Purchasers agree to
purchase from the TriNet Stockholders, all of the TriNet Stockholders' right,
title and interest in and to the Shares at a total purchase price of $6,000.00
(the "PURCHASE PRICE"). If any TriNet Stockholder makes a cash capital
contribution to TriNet Management, the Purchase Price shall be increased by the
dollar amount of such capital contribution with respect to the Shares held by
such TriNet Stockholder.
ARTICLE 2
PAYMENT OF PURCHASE PRICE AND DELIVERY OF CERTIFICATES
2.1 The closing of the purchase and sale of the Shares (the "CLOSING") shall be
held at the offices of Rogers & Wells LLP, 200 Park Avenue, New York, New York
10166, or at such other place as the parties hereto may agree, but in no event
later than five days after the Effective Time (as defined in
<PAGE>
the Merger Agreement) (the "MERGER CLOSING"). At the Closing (a) the Purchasers
will pay to the TriNet Stockholders the Purchase Price in cash or by wire
transfer of immediately available funds pursuant to the TriNet Stockholders'
instructions and (b) upon receipt of such payment the TriNet Stockholders will
assign and transfer to the Purchasers good and valid title in and to the Shares,
free and clear of all liens, security interests mortgages, assessments, leases,
adverse claim, levy, charge or other encumbrance of any kind, or any conditional
sale contract or any other contract providing any of the foregoing ("LIENS") by
delivering a certificate or certificates representing the Shares, in genuine and
unaltered form, duly endorsed in blank or accompanied by duly executed stock
powers endorsed in blank, with requisite stock transfer tax stamps, if any,
attached, in the denominations and registered in such names designated to the
TriNet Stockholders in writing by the Purchasers.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 POWER AND AUTHORITY OF THE PURCHASERS. Each of the Purchasers
hereby represents and warrants to the TriNet Stockholders that he has the full
power and authority to enter into and perform his obligations hereunder.
3.2 POWER AND AUTHORITY OF TRINET STOCKHOLDERS. Each of the TriNet
Stockholders represents and warrants to the Purchasers that he has full power
and authority to enter into this Agreement and to perform his obligations
hereunder.
3.3 TITLE. Each of the TriNet Stockholders represents and warrants to
the Purchasers that they are the owners, beneficially or of record of, and have
good and valid title to, the Shares, free and clear of all Liens.
ARTICLE 4
CONDITIONS TO CLOSING
4.1 CONSUMMATION OF THE MERGER. The obligations of each of the
Purchasers and the TriNet Stockholders are subject to the fulfillment of the
transactions contemplated under the Merger Agreement at or before the Closing.
ARTICLE 5
GENERAL PROVISIONS
5.1 TERMINATION. This Agreement shall terminate immediately upon
termination of the Merger Agreement.
5.2 CONSENTS. The Purchasers and the TriNet Stockholders shall take, or
cause to be taken, all reasonable action to consummate and effect the
transactions contemplated by this Agreement, including, without limitation
reasonable best efforts to obtain any necessary consents of third parties and
governmental agencies.
5.3 SEVERABILITY. It is the desire and intent of the parties that the
provisions of this Agreement be enforced to the fullest extent permissible under
the laws and public policies applied in each jurisdiction in which enforcement
is sought. Accordingly, in the event that any provision of this Agreement would
be held in any jurisdiction to be invalid, prohibited or unenforceable for any
reason,
2
<PAGE>
such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
5.4 SPECIFIC PERFORMANCE. The parties agree and acknowledge that in the
event of a breach of any provision of this Agreement, the aggrieved party would
be without an adequate remedy at law. The parties therefore agree that in the
event of a breach of any provision of this Agreement, the aggrieved party may
elect to institute and prosecute proceedings in any court of competent
jurisdiction to enforce specific performance or to enjoin the continuing breach
of such provision, as well as to obtain damages for breach of this Agreement. By
seeking or obtaining any such relief, the aggrieved party will not be precluded
from seeking or obtaining any other relief to which it may be entitled.
5.5 AMENDMENTS. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the Purchasers and the TriNet Stockholders.
5.6 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to be
sufficient if contained in a written instrument and shall be deemed given if
delivered personally, telecopied, sent by nationally recognized, overnight
courier or mailed by registered or certified mail (return receipt requested),
postage prepaid, to the other party at the following addresses (or such other
address for a party as shall be specified by like notice):
If to the Purchasers:
c/o Starwood Financial Trust
1114 Avenue of the Americas
27th Floor
New York, NY 100136
Attention: Jay Sugarman
Spencer Haber
Telecopier: (212) 931-9494
with a copy to:
Starwood Financial Trust
1114 Avenue of the Americas
27th Floor
New York, NY 100136
Attention: Nina Matis
Telecopier: (212) 931-9494
and
Rogers & Wells LLP
200 Park Avenue
New York, NY 10166
Attention: Robert E. King, Jr., Esq.
John A. Healy, Esq.
3
<PAGE>
Telecopier: (212) 878-8375
If to the TriNet Stockholders:
c/o TriNet Corporate Realty Trust, Inc.
One Embarcadero Center
33rd Floor
San Francisco, CA 94111
Attention: A. William Stein
Robert Holman, Jr.
Telecopier: (415) 391-3092
with a copy to:
TriNet Corporate Realty Trust, Inc.
One Embarcadero Center
33rd Floor
San Francisco, CA 94111
Attention: Geoff Dugan
Telecopier: (415) 391-3092
and
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Attention: James M. Dubin
Telecopier: (212) 373-3990
5.7 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
5.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
5.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed therein.
5.10 JURISDICTION AND VENUE. Each of the TriNet Stockholders and the
Purchasers hereby agrees that any proceeding relating to this Agreement shall be
brought in a state court of New York. Each of the TriNet Stockholders and the
Purchasers hereby consents to personal jurisdiction in any such action brought
in any such New York court, consents to service of process by registered mail
made upon such party and such party's agent and waives any objection to venue in
any such New York court or to any claim that any such New York court is an
inconvenient forum.
5.11 ENTIRE AGREEMENT. This Agreement and the Merger Agreement and any
documents and instruments referred to herein and therein constitute the entire
agreement between the parties hereto and thereto with respect to the subject
matter hereof and thereof and supersede all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and thereof. This Agreement shall be binding upon, inure
to the benefit of, and be enforceable by the
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<PAGE>
successors and permitted assigns of the parties hereto. Nothing in this
Agreement shall be construed to give any person other than the parties to this
Agreement or their respective successors or permitted assigns any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision contained therein.
5.12 EXPENSES. Except as otherwise provided in this Agreement, each
party shall pay its own expenses incurred in connection with this Agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized as of the date first
written above.
PURCHASERS
By:
-------------------------------------------
Name: Jay Sugarman
By:
-------------------------------------------
Name: Spencer Haber
TRINET STOCKHOLDERS
By:
-------------------------------------------
Name: A. William Stein
By:
-------------------------------------------
Name: Robert Holman, Jr.
6
<PAGE>
SCHEDULE A
STOCKHOLDER INTERESTS
<TABLE>
<CAPTION>
Trinet Stockholders Number of Shares
------------------- ----------------
<S> <C>
A. William Stein 49.5 Class A Shares of Common Stock
200.5 Class B Shares of Common Stock
Robert Holman, Jr. 49.5 Class A Shares of Common Stock
200.5 Class B Shares of Common Stock
</TABLE>
<PAGE>
Exhibit 10.11
AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT
This is Amendment No. 1 (the "AMENDMENT") to the Stock Purchase
Agreement, dated as of June 15, 1999 (the "AGREEMENT"), among Jay Sugarman
and Spencer Haber, as Purchasers, and A. William Stein and Robert Holman,
Jr., as TriNet Stockholders.
RECITAL
The Purchasers and the TriNet Stockholders desire to amend the
Agreement as set forth herein.
1. AMENDMENTS.
a. The term "TriNet Stockholders" in the Agreement is hereby
changed to "TriNet Stockholder" in each place in which it
appears in the Agreement and shall mean solely Robert Holman,
Jr.
b. All amendments to the Agreement which are necessary to reflect
the fact that the term "TriNet Stockholders" is a singular
term are hereby deemed made.
c. The reference to "A. William Stein" in Section 5.6 is hereby
deleted.
2. MISCELLANEOUS.
a. Except as otherwise provided herein, the Agreement shall
remain unmodified and in full force and effect.
b. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York applicable
to contracts made and to be performed therein.
c. This Amendment may be executed in one or more counterparts,
each of which together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties have caused this Amendment to be signed
as of July 26, 1999.
PURCHASERS
----------------------
Name: Jay Sugarman
----------------------
Name: Spencer Haber
TRINET STOCKHOLDERS
----------------------
Name: A. William Stein
----------------------
Name: Robert Holman, Jr.
<PAGE>
Exhibit 10.12
SHAREHOLDER AGREEMENT
This SHAREHOLDER AGREEMENT, dated as of June 15, 1999 (this "Agreement"),
is made and entered into among TriNet Corporate Realty Trust, Inc., a Maryland
corporation ("Company") and each of the shareholders of Starwood Financial
Trust, a Maryland real estate investment trust ("Starwood"), listed on the
signature page of this Agreement (each, individually, a "Shareholder" and
together, the "Shareholders").
RECITALS:
A. Starwood, ST Merger Sub, Inc., a Maryland corporation and wholly-owned
subsidiary of Starwood ("Merger Sub"), and Company are, simultaneously herewith,
entering into an Agreement and Plan of Merger, dated as of the date hereof (the
"Merger Agreement"), pursuant to which Merger Sub will merge with and into
Company (the "Merger") on the terms and subject to the conditions set forth in
the Merger Agreement and, as a result (and after giving effect to the
Incorporation Merger and the Advisor Transaction (each as defined in the Merger
Agreement)), Company will become a wholly-owned Subsidiary of Starwood
Financial, Inc. (or, in connection with Section 1.7 of the Merger Agreement, of
Starwood), a Maryland corporation ("New Starwood"), Starwood's
successor-in-interest. Except as otherwise defined herein, capitalized terms
used herein without definition have the respective meanings ascribed to them in
the Merger Agreement.
B. As of the date hereof, each Shareholder beneficially owns and is
entitled to vote (or to direct the voting of) the number of Class A shares of
beneficial interest, par value $1.00 per share ("Class A Shares"), of Starwood
and the number of Class B shares of beneficial interest, par value $.01 per
share, of Starwood ("Class B Shares," and, together with the Class A Shares, the
"Starwood Shares") set forth opposite such Shareholder's name on Annex A hereto
(such Starwood Shares, together with any other Starwood Shares or other equity
or voting interests in Starwood the beneficial ownership of which is hereafter
acquired by such Shareholder and any shares of common stock of New Starwood or
other equity interests of New Starwood into which such Starwood Shares or other
equity or voting interests are converted, are collectively referred to herein as
such Shareholder's "Subject Shares").
C. As a condition and inducement to Company's willingness to enter into
the Merger Agreement, Company has requested that each Shareholder agree, and
each Shareholder has agreed, to enter into this Agreement and to irrevocably
grant to Company an irrevocable proxy in the form attached hereto as Exhibit A
(each a "Proxy").
<PAGE>
D. Simultaneously with the execution and delivery of this Agreement, each
Shareholder has irrevocably granted Company a Proxy to vote its shares in a
manner consistent with the covenants set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and covenants contained in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
VOTING OF SUBJECT SHARES
Section 1.1 Agreement to Vote Subject Shares. At any meeting of the
shareholders of Starwood called to consider and vote upon the approval of the
Advisor Transaction or the Merger or adoption of the Advisor Transaction
Agreement or the Merger Agreement or the issuance of Starwood Shares to the
shareholders of Company pursuant to the Merger or to the Shareholders, the
stockholders of STW Holdings I, Inc., a Delaware corporation ("Advisor"), the
members of Starwood Capital Group, L.L.C., a Delaware limited liability company
("SCG") and/or SCG pursuant to the Advisor Transaction (including any and all
postponements and adjournments thereof), and in connection with any action to be
taken in respect of the adoption of the Advisor Transaction Agreement or the
Merger Agreement or approval of the issuance of Starwood Shares to the
shareholders of the Company pursuant to the Merger or to the Shareholders, the
stockholders of Advisor, the members of SCG and/or SCG pursuant to the Advisor
Transaction by written consent of the shareholders of Starwood, each Shareholder
shall vote or cause to be voted (including by written consent, if applicable)
all of such Shareholder's Subject Shares in favor of the approval and adoption
of the Advisor Transaction Agreement, the Merger Agreement and the issuance of
Starwood Shares to the shareholders of Company pursuant to the Merger and to the
Shareholders, the stockholders of Advisor, the members of SCG and/or SCG
pursuant to the Advisor Transaction and in favor of any other matter necessary
for the consummation of the transactions contemplated by the Advisor Transaction
Agreement and the Merger Agreement and considered and voted upon at any such
meeting or made the subject of any such written consent, as applicable. At any
meeting of the shareholders of Starwood called to consider and vote upon any
Adverse Proposal (as defined below) (and at any and all postponements and
adjournments thereof), and in connection with any action to be taken in respect
of any Adverse Proposal by written consent of shareholders of Starwood, each
Shareholder shall vote or cause to be voted (including by written consent, if
applicable) all of such Shareholder's Subject Shares against such Adverse
Proposal. For purposes of this Agreement, the term "Adverse Proposal" means any
(a) proposal or action that would reasonably be expected to result in a breach
of any covenant, representation or warranty of Starwood set forth in the
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<PAGE>
Advisor Transaction Agreement or the Merger Agreement or (b) proposal or action
that is intended or would reasonably be expected to impede, interfere with,
delay or materially and adversely affect the Advisor Transaction, the Merger or
any of the other transactions contemplated by the Merger Agreement, the
Incorporation Merger Agreement, the Advisor Transaction Agreement or this
Agreement.
Section 1.2 Actions Regarding Former Company Directors. Each
Shareholder agrees that it will not vote or cause to be voted its Subject
Shares, at any special or annual meeting of the shareholders of Starwood or New
Starwood (including any postponement or adjournment thereof) or in connection
with any action to be taken by written consent of the shareholders of Starwood
or the stockholders of New Starwood, in favor of (and shall vote such Subject
Shares against) any of the following actions:
(a) the removal (other than for cause) of any of the persons
listed on Schedule I to this Agreement (collectively, the "Class T Directors")
as a director of New Starwood at any time prior to the date on which such person
shall have served as a member of the Board of Directors through the expiration
of such member's initial term; or
(b) the amendment of the Charter of New Starwood changing the
classification or term of service of directors of New Starwood in any manner
that would shorten the initial term to be served by any Class T Director on the
Board of Directors of New Starwood.
Section 1.3 Actions to be Taken if the Incorporation Merger does not
Occur. If the Incorporation Merger does not occur prior to or on the Closing
Date, the Shareholders, prior to or on the Closing Date, shall cause (either by
a vote of the shareholders of the Company at a general or special meeting of the
Company or by written consent) Starwood to amend its declaration of trust and
bylaws in the manner provided by Maryland law to substantially conform such
declaration of trust and bylaws, to the extent permitted by applicable Maryland
law governing Maryland's real estate investment trusts, to the forms of charter
and bylaws of New Starwood, respectively, set forth as Exhibits J and K to the
Merger Agreement, including, without limitation, to eliminate the Starwood Class
B Common Shares and cause the conversion of all Starwood Class B Common Shares
into Starwood Class A Common Shares on the basis of 49 Starwood Class B Common
Shares for one Starwood Class A Common Shares.
3
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Certain Representations and Warranties of the
Shareholders. Each Shareholder, severally and not jointly, represents and
warrants as of the date hereof to Company as follows:
(a) Ownership. Such Shareholder is the sole record and
beneficial owner of the number of Starwood Shares set forth opposite such
Shareholder's name on Annex A hereto and has full, unrestricted and sole power
to dispose of and to vote such Starwood Shares, except, in the case of SOFI-IV
SMT Holdings, L.L.C., a Delaware limited liability company ("SMT"), as such
power may be limited by the exercise of the rights of foreclosure, sale and
other realization upon security with respect to the Starwood Shares held by SMT
(the "SMT Shares") pursuant to the lien of General Electric Capital Corporation,
a New York corporation ("GECC"), and its successors and assigns (collectively,
together with GECC, the "GECC Parties") granted pursuant to the Pledge and
Security Agreement, Facility B (the "GECC Pledge Agreement"), dated as of May
27, 1999, among SMT, Starwood Opportunity Fund IV, L.P., a Delaware limited
partnership ("SOF-IV LP"), certain pledgors named therein and GECC and the
related Credit and Guaranty Agreement (the "GECC Credit Agreement"), dated as of
May 27, 1999, by and among SMT, SOF-IV LP, certain guarantors named therein and
GECC. Such Starwood Shares are now, and at all times prior to the Closing Date
will be, held by such Shareholder, or by a nominee or custodian for the benefit
of such Shareholder, free and clear of all liens, voting trusts or agreements,
powers of attorney, proxies or any other arrangement or agreement with any
person or entity limiting or affecting the Shareholders' legal power or
authority to vote or sell the Starwood Shares, except for those restrictions
arising hereunder or under the Proxy delivered by such Shareholder or set forth
under applicable securities laws and except, in the case of SMT, for the lien on
the SMT Shares granted to the GECC Parties pursuant to the GECC Pledge Agreement
and the conditional rights to the SMT Shares granted to the GECC Parties in
Article 5(b) of the GECC Pledge Agreement upon the occurrence of an "Event of
Default" or "Additional Acceleration Event" under the GECC Credit Agreement.
Except as set forth in Annex A hereto and except with respect to the issuance of
(i) additional Class B Shares in accordance with the Declaration of Trust of
Starwood, (ii) additional Class A Shares upon the conversion of Class B Shares,
(iii) additional Class A Shares upon the exercise of outstanding options and
(iv) additional Class A Shares pursuant to the Stock Dividend (as defined in the
Merger Agreement), such Shareholder does not beneficially own or hold any rights
to acquire any additional securities of Starwood on the date hereof other than
such Starwood Shares.
(b) Power and Authority; Execution and Delivery. Such
Shareholder has all requisite power and authority to enter into this Agreement
to grant the Proxy and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the Proxy by such Shareholder and
the consummation by such Shareholder of the transactions contemplated hereby
have been duly authorized by all necessary action, if any, on the part of such
Shareholder. This Agreement and the Proxy have been duly executed and delivered
by such Shareholder and, assuming
4
<PAGE>
that this Agreement constitutes the valid and binding obligation of the other
parties hereto, each of this Agreement and the Proxy constitutes a valid and
binding obligation of such Shareholder, enforceable against such Shareholder in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and to general principles of equity.
The Proxy is an irrevocable proxy, coupled with an interest, and Company shall,
by operation of the Proxy, have the power to vote such Shareholder's Subject
Shares in accordance with, and as contemplated by, Section 1.1 and by the terms
of the Proxy, except, with respect to SMT, that the GECC Parties may be entitled
to exercise voting and consensual rights with respect to the SMT Shares pursuant
to Article 5(b) of the GECC Pledge Agreement upon the occurrence of an "Event of
Default" or "Additional Acceleration Event" under the GECC Credit Agreement.
(c) No Conflicts. The execution and delivery of this Agreement
or of the Proxy does not, and the consummation of the transactions contemplated
hereby and compliance with the provisions hereof will not, conflict with, result
in a breach or violation of or default (with or without notice or lapse of time
or both) under, or give rise to a material obligation, a right of termination,
cancellation, or acceleration of any obligation or a loss of a material benefit
under, or require notice to or the consent of any person under any
organizational documents of such Shareholder or any agreement, instrument,
undertaking, Law, judgment, order, injunction, decree, determination or award
binding on such Shareholder, other than any such conflicts, breaches,
violations, defaults, obligations, rights or losses that, individually or in the
aggregate, would not reasonably be expected to (i) impair the ability of such
Shareholder to perform such Shareholder's obligations under this Agreement or
(ii) prevent or delay the consummation of any of the transactions contemplated
hereby.
(d) Other Proxies Revoked. Any proxies (other than the Proxy)
heretofore given in respect of such Shareholder's Subject Shares are not
irrevocable and all such proxies are hereby revoked, except, with respect to
SMT, that the GECC Parties may be entitled to exercise voting and consensual
rights with respect to the SMT Shares pursuant to Article 5(b) of the GECC
Pledge Agreement upon the occurrence of an "Event of Default" or "Additional
Acceleration Event" under the GECC Credit Agreement.
ARTICLE III
CERTAIN COVENANTS
Section 3.1 Certain Covenants of Shareholders.
5
<PAGE>
(a) Restriction on Transfer of Subject Shares, Proxies and
Noninterference. No Shareholder shall, prior to the Closing Date, directly or
indirectly: (A) (i) except pursuant to the terms of this Agreement, (ii) except
for the conversion of Subject Shares at the Effective Time under the
Incorporation Merger Agreement or the Advisor Transaction and (iii) except, with
respect to SMT, for a transfer or sale of the SMT Shares in connection with a
foreclosure or other realization upon security under the GECC Pledge Agreement,
offer for sale, sell, transfer, pledge, tender, encumber, assign or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to or consent to the offer for sale, sale, transfer,
tender, encumbrance, assignment or other disposition of, any or all of such
Shareholder's Subject Shares; (B) (i) except pursuant to the terms of this
Agreement, (ii) except for the execution and delivery of the Proxy and (iii)
except, with respect to SMT, for the right of the GECC Parties to exercise
voting, consensual, foreclosure or other realization rights with respect to the
SMT Shares pursuant to Article 5(b) of the GECC Pledge Agreement upon the
occurrence of an "Event of Default" or "Additional Acceleration Event" under the
GECC Credit Agreement, grant any proxies or powers of attorney, deposit any of
such Shareholder's Subject Shares into a voting trust or enter into a voting
agreement with respect to any of such Shareholder's Subject Shares; or (C) take
any action that would reasonably be expected to make any representation or
warranty contained herein untrue or incorrect or, except with respect to SMT for
the exercise by the GECC Parties of voting, consensual, foreclosure or other
realization rights with respect to the SMT Shares pursuant to Article 5(b) of
the GECC Pledge Agreement upon the occurrence of an "Event of Default" or
"Additional Acceleration Event" under the GECC Credit Agreement, have the effect
of impairing the ability of such Shareholder to perform such Shareholder's
obligations under this Agreement or preventing or delaying the consummation of
any of the transactions contemplated hereby or revoke or invalidate the Proxy;
provided, however, that a Shareholder may pledge its Subject Shares to a lender
in order to effect a bona-fide loan or financing transaction with such lender
(an "Exempt Transaction"), and such lender may foreclose upon or sell such
pledged Subject Shares so long as (i) such Exempt Transaction is not intended to
circumvent the transfer restrictions of this Section 3.1(a) and (ii) the
documentation relating to such Exempt Transaction provides that any party
acquiring such pledged Subject Shares in connection with such Exempt Transaction
will, upon acquiring such pledged Subject Shares, become a party to this
Agreement as a holder of Subject Shares and issue to Company a proxy
substantially in the form of the Proxy, except that any party acquiring any SMT
Shares in connection with a foreclosure, sale or other realization upon security
under the GECC Pledge Agreement shall not be required to become a party to this
Agreement or issue a proxy to Company. For the avoidance of doubt, the
transactions entered into by SMT under the GECC Credit Agreement and the GECC
Pledge Agreement are acknowledged hereby as transactions not intended to
circumvent the restrictions of this Section 3.1(a).
(b) Reliance by Company; Cooperation. The Shareholder
understands and acknowledges that Company is entering into the Merger Agreement
in
6
<PAGE>
reliance upon the Shareholders' execution and delivery of this Agreement and the
Proxy. Each Shareholder shall cooperate fully with Starwood and Company in
connection with the respective reasonable best efforts of Starwood and Company
to fulfill the conditions to the Merger set forth in Article VI of the Merger
Agreement.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Fees and Expenses. Each party hereto shall pay its own
expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the transactions contemplated hereby.
Section 4.2 Indemnification. Each Shareholder jointly and severally
shall indemnify and hold harmless Company and its directors, officers,
employees, affiliates, successors and assigns from and against any and all
losses, lawsuits, liabilities (including, without limitation, liability arising
under principles of strict or joint and several liability), damages (including,
without limitation, such amounts as constitute punitive damages), deficiencies,
demands, claims (including, without limitation, demands, allegations, orders or
other actions by governmental agencies or other third parties), actions,
judgments or causes of action, assessments, costs, all amounts paid in
investigation, defense or settlement of any of the foregoing and expenses
(including, without limitation, interest, penalties and reasonable attorneys'
fees and disbursements or other third party claims) based upon, arising out of
or otherwise in connection with any inaccuracy in, or any breach of, any
representation, warranty, covenant or agreement of such Shareholder in this
Agreement.
Section 4.3 Amendment; Termination. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto. This Agreement shall terminate immediately upon the termination
of the Merger Agreement in accordance with its terms. In addition, this
Agreement may be terminated (i) prior to the Effective Time, by mutual written
consent of Company and the Shareholders and (ii) following the Effective Time,
by the mutual written consent of New Starwood (as Starwood's successor in
interest), the Shareholders and a majority of the Class T Directors (as
beneficiaries hereof). In the event of termination of this Agreement pursuant to
this Section 4.3, this Agreement shall become null and void and of no effect
with no liability on the part of any party hereto and all Proxies shall
automatically terminate; provided, however, that no such termination shall
relieve any party hereto from any liability for any breach of this Agreement
occurring prior to such termination, and provided further that the
representations and warranties set forth in Section 2.1 shall survive the
termination of this Agreement. All covenants and agreements which contemplate
performance after the Effective Time shall survive the Effective Time.
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<PAGE>
Section 4.4 Extension, Waiver. Any agreement on the part of a party
to waive any provision of this Agreement, or to extend the time for any
performance hereunder, shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
Section 4.5 Entire Agreement; No Third-Party Beneficiaries. This
Agreement constitutes the entire agreement, and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement, and subject to the succeeding proviso, is not
intended to confer upon any person other than the parties any rights or
remedies; provided, however, that this Agreement is intended to be for the
benefit of and shall be enforceable by any Class T Director.
SECTION 4.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF
LAWS THEREOF, EXCEPT TO THE EXTENT THAT THIS AGREEMENT IS REQUIRED TO BE
GOVERNED BY THE LAWS OF THE STATE OF MARYLAND.
Section 4.7 Notices. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally, by hand delivery or telecopy (with a
confirmation copy sent for next day delivery via courier service, such as
Federal Express), or sent by overnight courier, such as Federal Express
(providing proof of delivery). All communications hereunder shall be delivered
to the respective parties at the following addresses:
If to the Shareholders:
to the address set forth on Annex A hereto.
with copies to:
Katten, Muchin & Zavis
525 W. Monroe St. #1600
Chicago, IL 60661
Attention: Nina Matis, Kenneth M. Jacobson
Telecopy: (312) 902-1061
If to Company:
8
<PAGE>
Trinet Corporate Realty Trust, Inc.
One Embarcadero Center, 33rd Floor
San Francisco, CA 94111
Attention: Geoff Dugan, Esq.
Telecopy: (415) 391-3092
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: James M. Dubin, Esq.
Telecopy: (212) 757-3990
Section 4.8 Assignment. Subject to the terms of the GECC Pledge
Agreement and the GECC Credit Agreement, neither this Agreement nor any of the
rights, interests or obligations under this Agreement may be assigned or
delegated, in whole or in part, by operation of law or otherwise, by any
Shareholder without the prior written consent of Company, or by Company without
the prior written consent of the Shareholders and any such assignment or
delegation that is not consented to shall be null and void. Subject to the
preceding sentence, and to the terms of the GECC Pledge Agreement, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns (including, without
limitation, any person to whom any Subject Shares are sold, transferred or
assigned).
Section 4.9 Further Assurances. Each Shareholder shall execute and
deliver such other documents and instruments and take such further actions as
may be necessary or appropriate or as may be reasonably requested by Company or
any Class T Director in order to ensure that Company and each Class T Director
receives the full benefit of this Agreement.
Section 4.10 Enforcement. Irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. Accordingly,
the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement in the federal court of the United States located in the State
of New York, this being in addition to any other remedy to which they are
entitled at law or in equity. Each of the parties hereto (i) shall submit itself
to the jurisdiction of the federal courts of the United States of America
located in the State of New York in the event any dispute arises out of this
Agreement or any of the transactions contemplated hereby, (ii) shall not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court, and (iii) shall not bring any action relating to this
Agreement or any of the
9
<PAGE>
transactions contemplated hereby in any court other than the federal courts of
the United States of America located in the State of New York.
Section 4.11 Severability. Whenever possible, each provision or
portion of any provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law but if any provision or
portion of any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement shall be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision had
never been contained herein.
Section 4.12 No Personal Liability. No partner or member in a
Shareholder shall have any individual or personal liability on account of this
Agreement, and no officer, director, member, shareholder or partner of such
partner or member shall have any individual or personal liability on account of
this Agreement unless, in either case, such Person has executed an instrument in
writing stating that it wishes to be bound hereby as a Shareholder. For the
avoidance of doubt, no negative or deficit capital accounts shall be considered
to be assets of a Shareholder or other Person, and no obligation of a partner or
member to contribute capital or make loans shall be considered such an asset.
Section 4.13 GECC. It is agreed (a) that nothing contained in this
Agreement, in the Proxy or in any other document executed and delivered pursuant
to this Agreement is binding upon the GECC Parties, as secured parties under the
GECC Pledge Agreement, or upon any person who acquires the SMT Shares pursuant
to the exercise of the foreclosure, other realization or sale rights and
remedies under the GECC Pledge Agreement, GECC Credit Agreement or applicable
law; and (b) that the Proxy with respect to the SMT Shares shall be
automatically revoked upon the acquisition of the SMT Shares pursuant to the
exercise of such rights and remedies. In the event of any conflict under this
Agreement, the provisions of this Section 4.13 shall control.
Section 4.14 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same instrument
and shall become effective when one or more counterparts have been signed by
each party and delivered to the other parties.
10
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
signed as of the day and year first written above.
TRINET CORPORATE REALTY TRUST, INC.
By: _______________________________________
Name: Mr. Robert W. Holman, Jr.
Title: Chairman and Chief Executive Officer
<PAGE>
SHAREHOLDERS:
STARWOOD MEZZANINE INVESTORS, L.P.
By: Starwood Capital Group I, L.P.
(General Partner)
By: BSS Capital Partners, L.P.
(General Partner)
By: Sternlicht Holdings II, Inc.
(General Partner)
By: _______________________________________
Name:
Title:
12
<PAGE>
SOFI-IV SMT HOLDINGS, L.L.C.
By: Starwood Opportunity Fund IV, L.P.
(Managing Member)
By: SOFI IV Management, L.L.C.
(General Partner)
By: Starwood Capital Group, L.L.C.
(General Partner)
By: _______________________________________
Name:
Title:
13
<PAGE>
B HOLDINGS, L.L.C.
By: _______________________________________
Name:
Title:
14
<PAGE>
ANNEX A
Total Number of
Company Shares of
Name and Address of Shareholder Starwood Common Stock Owned
- ------------------------------- ---------------------------
Class A Class B
------- -------
STARWOOD MEZZANINE 10,759,890 --
INVESTORS, L.P.
c/o Starwood Capital Group, L.P.
Three Pickwick Plaza, Suite 250
Greenwich, CT 06830
Attention: Jerome C. Silvey
Telecopy: (203) 861-2101
SOFI-IV SMT HOLDINGS, L.L.C. 41,079,912 --
c/o SOFI IV Management, L.L.C.
Three Pickwick Plaza, Suite 250
Greenwich, CT 06830
Attention: Jerome C. Silvey
Telecopy: (203) 861-2101
B HOLDINGS, L.L.C. -- 26,235,475
c/o Starwood Capital Group, L.P.
Three Pickwick Plaza, Suite 250
Greenwich, CT 06830
Attention: Jerome C. Silvey
Telecopy: (203) 861-2101
<PAGE>
SCHEDULE I
Willis Andersen, Jr.
Robert W. Holman, Jr.
John G. McDonald
Stephen B. Oresman
George R. Puskar
<PAGE>
Exhibit 10.13
FIRST AMENDMENT TO SHAREHOLDER AGREEMENT
This First Amendment (the "Amendment") to the Shareholder Agreement (the
"Agreement"), dated as of June 15, 1999 by and among TriNet Corporate Realty
Trust, Inc. and each of the Shareholders of Starwood Financial Trust listed on
the signature page of this Amendment is made as of this 15th day of July, 1999.
Pursuant to the authority granted under Section 4.3 of the Agreement, the
parties hereto wish to amend the Agreement in the manner set forth herein. Terms
used herein and not otherwise defined shall have the meanings ascribed to them
in the Agreement.
1. Amendment. Section 3.1(a) of the Agreement is hereby deleted and replaced in
its entirety with the revised Section 3.1(a) attached to this Amendment as Annex
A.
3. No Other Amendments. Except as expressly otherwise amended herein, the
Agreement is in all respects ratified and confirmed and shall remain in full
force and effect in accordance with its terms.
4. Governing Law. This Amendment will be governed by, and construed in
accordance with, the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflict of laws thereof,
except to the extent that this Amendment is required to be governed by the laws
of the State of Maryland.
5. Counterparts. This Amendment may be executed in counterparts, each of which
will constitute an original and all of which, when taken together, will
constitute one agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date first written above.
TRINET CORPORATE REALTY TRUST, INC.
By: /s/ Elisa F. DiTommaso
--------------------------
Elisa F. DiTommaso
Senior Vice President, Finance and Chief
Financial Officer
STARWOOD MEZZANINE INVESTORS, L.P.
By: Starwood Capital Group I, L.P.,
General Partner
By: BSS Capital Partners, L.P.,
General Partner
By: Sternlicht Holdings II, Inc.
General Partner
<PAGE>
2
By: /s/ Jerome C. Silvey
------------------------
Jerome C. Silvey
Vice President
SOFI-IV SMT HOLDINGS, L.L.C.
By: Starwood Opportunity Fund IV, L.P.
Managing Member
By: SOFI IV Management , L.L.C.,
General Partner
By: Starwood Capital Group I, L.L.C.,
Managing Member
By: /s/ Jerome C. Silvey
------------------------
Jerome C. Silvey
Senior Vice President
B HOLDINGS, L.L.C.
By: /s/ Madison Grose
---------------------
Madison Grose
Senior Managing Director
ANNEX A
ARTICLE III
CERTAIN COVENANTS
Section 3.1 Certain Covenants of Shareholders.
(a) Restriction on Transfer of Subject Shares, Proxies and
Noninterference. No Shareholder shall, prior to the Closing
Date, directly or indirectly: (A) (i) except pursuant to the
terms of this agreement, (ii) except for the conversion of
Subject Shares at the Effective Time under the Incorporation
Merger Agreement or the Advisor Transaction and (iii) except,
with respect to SMT, for a transfer or sale of the SMT Shares
in connection with a foreclosure or other realization upon
security under the GECC Pledge Agreement, offer for sale,
sell, transfer, pledge, tender, encumber, assign or otherwise
dispose of, or enter into any contract, option or other
<PAGE>
3
arrangement or understanding with respect to or consent to the
offer for sale, sale, transfer, encumbrance, assignment, or
other disposition of, any or all of such Shareholder's Subject
Shares (any or all of such actions being a "Transfer"); (B)
(i) except pursuant to the terms of this Agreement, (ii)
except for the execution and delivery of the Proxy and (iii)
except, with respect to SMT, for the right of the GECC Parties
to exercise voting, consensual, foreclosure or other
realization rights with respect to the SMT Shares pursuant to
Article 5(b) of the GECC Pledge Agreement upon the occurrence
of an "Event of Default" or "Additional Acceleration Event"
under the GECC Credit Agreement, grant any proxies or powers
of attorney, deposit any of such Shareholder's Subject Shares
into a voting trust or enter into a voting agreement with
respect to any of such Shareholder's Subject Shares; or (C)
take any action that would reasonably be expected to make any
representation or warranty contained herein untrue or
incorrect or, except with respect to SMT for the exercise by
the GECC Parties of voting, consensual, foreclosure or other
realization rights with respect to the SMT Shares pursuant to
Article 5(b) of the GECC Pledge Agreement upon the occurrence
of an "Event of Default" or "Additional Acceleration Event"
under the GECC Credit Agreement, have the effect of impairing
the ability of such Shareholder to perform such Shareholder's
obligations under this Agreement or preventing or delaying the
consummation of any of the transactions contemplating hereby
or revoke or invalidate the Proxy; provided, however, that
notwithstanding anything in the foregoing to the contrary, a
Shareholder may (1) Transfer some or all of its Subject Shares
to a Person so long as the documentation relating to such
Transfer provides that, and no such Transfer shall be effected
unless, any party acquiring Subject Shares in connection with
a Transfer will, immediately prior to any such Transfer,
become a party to and agree to be bound by this Agreement as a
holder of Subject Shares and issue to Company a proxy
substantially in the form of the Proxy and (2) pledge its
Subject Shares to a lender in order to effect a bona-fide loan
or financing transaction with such lender (an "Exempt
Transaction"), and such lender may foreclose upon or sell such
pledged Subject Shares so long as (i) such Exempt Transaction
is not intended to circumvent the transfer restrictions of
this Section 3.1(a) and (ii) the documentation relating to
such Exempt Transaction provides that any party acquiring such
pledged Subject Shares in connection with such Exempt
Transaction will, upon acquiring such pledged Subject Shares,
become a party to this Agreement as a holder of Subject Shares
and issue to Company a proxy substantially in the form of the
Proxy, except that any party acquiring any SMT Shares in
connection with a foreclosure,
<PAGE>
4
sale or other realization upon security under the GECC Pledge
Agreement shall not be required to become party to this
Agreement or issue a proxy to Company. For the avoidance of
doubt, the transactions entered into by SMT under the GECC
Credit Agreement and the GECC Pledge Agreement are
acknowledged hereby as transactions not intended to circumvent
the restrictions of this Section 3.1(a).
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Starwood Financial Inc. of our report dated March 15,
1999 relating to the financial statements and financial statement schedules
appearing in Starwood Financial Trust's Annual Report on Form 10-K for the year
ended December 31, 1998. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
New York, NY
August 24, 1999
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Starwood Financial Inc. of our reports dated January
22, 1999, except for Note 16, as to which the date is March 12, 1999, relating
to the financial statements and financial statement schedules appearing in
TriNet Corporate Realty Trust Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1998. We also consent to the reference to us under the
heading "Experts" in such Registration Stetement.
PricewaterhouseCoopers LLP
San Francisco, CA
August 24, 1999
<PAGE>
Exhibit 99.4
CONSENT OF FINANCIAL ADVISOR
We hereby consent to being named as financial advisor to Starwood
Financial Trust in this Registration Statement, to the references to our firm
under the headings "Summary" and "The Merger" in the proxy statement/prospectus
constituting a part of this Registration Statement and to the inclusion of
our fairness opinion letter dated June 15, 1999 as an exhibit to this
Registration Statement. In giving this consent, we do not thereby admit that
we are within the category of persons whose consent is required under Section
7, and we do not admit that we are "experts" for purposes of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
BEAR, STEARNS & CO. INC.
By: /s/ Charles Edelman
------------------------
Name: Charles Edelman
Title: Managing Director
Date: August 24, 1999
<PAGE>
Exhibit 99.5
[LETTERHEAD OF GREENHILL & CO.]
CONSENT OF
GREENHILL & CO., LLC
August 24, 1999
TriNet Corporate Realty Trust, Inc.
One Embarcadero Center
33rd Floor
San Francisco, California 94111
Dear Sirs:
We refer to the Registration Statement (the "Registration
Statement") of Starwood Financial Trust ("Starwood Financial") on Form S-4,
with respect to the shares of (i) common stock, par value $.01 per share,
(ii) 9.375% Series B Cumulative Redeemable Preferred Stock, par value $.001
per share, (iii) 9.200% Series C Cumulative Redeemable Preferred Stock, par
value $.001 per share, and (iv) 8.000% Series D Cumulative Redeemable
Preferred Stock, par value $.001 per share, each of Starwood Financial, to be
issued to stockholders of TriNet Corporate Realty Trust, Inc. ("TriNet") in
connection with the merger of a subsidiary of Starwood Financial with TriNet.
We hereby consent to the inclusion of our opinion letter dated
June 15, 1999 to the Board of Directors of TriNet appearing as Annex C to the
Registration Statement, and to the references of our firm name therein. In
giving such consent, we do not thereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations adopted by the Securities and
Exchange Commission thereunder, nor do we thereby admit that we are experts
with respect to any part of such Registration Statement within the meaning of
the term "experts" as used in the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
GREENHILL & CO., LLC
By: /s/ Scott L. Bok
---------------------------------
Name: Scott L. Bok
Title: Managing Director
<PAGE>
Exhibit 99.6
[HOULIHAN LOKEY HOWARD & ZUKIN LETTERHEAD]
VIA FACSIMILE @ 212-878-8375
- ----------------------------
August 24, 1999
Michael McTiernan, Esq.
Rogers & Wells
200 Park Avenue
New York, NY 10161
Dear Mike:
We understand that on behalf of Starwood Financial Trust ("SFT" or the
"Company") you seek our consent to include our fairness opinion letter (the
"Opinion") in SFT's proxy materials in connection with the pending merger of
SFT and TriNet Realty. Please note that our engagement letter with the
Independent Trustees of SFT includes the following language:
"Houlihan Lokey consents to a description of and the inclusion of
the text of its written Opinion in any filing required to be made by the
Company with the Securities and Exchange Commission in connection with
the Transaction and in materials delivered to the Company's stockholders
that are a part of such filings, provided that any such description or
inclusion shall be subject to Houlihan Lokey's prior review and approval,
which approval shall not be unreasonably withheld. Any summary of, or
reference to, the Opinion, any verbal presentation with respect thereto,
or other references to Houlihan Lokey in connection with the Transaction,
will in each instance be subject to Houlihan Lokey's prior review and
written approval (which shall not be unreasonably withheld). Other than
as set forth above, the Opinion will not be included in, summarized or
referred to in any manner in any materials distributed to the public or
the securityholders of the Company, or filed with or submitted to any
governmental agency, without Houlihan Lokey's express, prior written
consent (which shall not be unreasonably withheld). Neither Houlihan
Lokey's verbal conclusions nor the Opinion will be used for any purpose
other than in connection with the Transaction."
We have reviewed the proposed description and inclusion of our Opinion in the
relevant filing, and hereby consent to including our Opinion and such
description in such filing. Please do not hesitate to contact me directly
should you require additional assistance.
Most sincerely,
/s/ Marjorie L. Bowen
- ----------------------
Marjorie L. Bowen
Managing Director
