-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NZ9poksIMXI8NKfuQ43YRSlLMIaFemAj0dgFvhdEBtJo7mFBdmGxoVVrloAeKJmY R2WXMbRhkWuz97zUfESvVQ== 0000950153-98-001346.txt : 19981109 0000950153-98-001346.hdr.sgml : 19981109 ACCESSION NUMBER: 0000950153-98-001346 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STARWOOD HOTELS & RESORTS CENTRAL INDEX KEY: 0000048595 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 520901263 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06828 FILM NUMBER: 98739908 BUSINESS ADDRESS: STREET 1: 777 WESTCHESTER AVENUE STREET 2: STE 410 CITY: WHITE PLAINS STATE: NY ZIP: 10604 BUSINESS PHONE: 6028523900 MAIL ADDRESS: STREET 1: 2231 E CAMELBACK RD STREET 2: STE 410 CITY: PHOENIX STATE: AZ ZIP: 85016 FORMER COMPANY: FORMER CONFORMED NAME: STARWOOD LODGING TRUST DATE OF NAME CHANGE: 19950215 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL INVESTORS TRUST /MD/ DATE OF NAME CHANGE: 19930506 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL INVESTORS TRUST DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STARWOOD HOTEL & RESORTS WORLDWIDE INC CENTRAL INDEX KEY: 0000316206 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 521193298 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07959 FILM NUMBER: 98739909 BUSINESS ADDRESS: STREET 1: 777 WESTERCHESTER AVENUE STREET 2: SUITE 400 CITY: WHITE PLAINS STATE: NY ZIP: 10604 BUSINESS PHONE: 6028523900 MAIL ADDRESS: STREET 1: 2231 E CAMELBACK RD. 4TH FL STREET 2: SUITE 4O0 CITY: PHOENOX STATE: AZ ZIP: 85016 FORMER COMPANY: FORMER CONFORMED NAME: STARWOOD LODGING CORP DATE OF NAME CHANGE: 19950215 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL INVESTORS CORP DATE OF NAME CHANGE: 19920703 10-Q 1 10-Q 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 1-6828 COMMISSION FILE NUMBER: 1-7959 STARWOOD HOTELS & RESORTS STARWOOD HOTELS (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS & RESORTS CHARTER) WORLDWIDE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MARYLAND MARYLAND (STATE OR OTHER JURISDICTION (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) OF INCORPORATION OR ORGANIZATION) 52-0901263 52-1193298 (I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.) 777 WESTCHESTER AVENUE 777 WESTCHESTER AVENUE WHITE PLAINS, NY 10604 WHITE PLAINS, NY 10604 (ADDRESS OF PRINCIPAL EXECUTIVE (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) OFFICES, INCLUDING ZIP CODE) (914) 640-8100 (914) 640-8100 (REGISTRANT'S TELEPHONE NUMBER, (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) INCLUDING AREA CODE)
Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 175,521,662 common shares of beneficial interest, par value $0.01 per share, of Starwood Hotels & Resorts paired with 175,521,662 shares of common stock, par value $0.01 per share, of Starwood Hotels & Resorts Worldwide, Inc., outstanding as of November 5, 1998. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. TABLE OF CONTENTS
ITEM PAGE - ---- ---- PART I. FINANCIAL INFORMATION 1. Financial Statements Starwood Hotels & Resorts and Starwood Hotels & Resorts Worldwide, Inc.: Combined Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997............................. 3 Combined Consolidated Statements of Income for the Three and Nine Months Ended September 30, 1998 and 1997.......... 4 Combined Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 1998 and 1997................................................... 5 Combined Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1998 and 1997............... 6 Starwood Hotels & Resorts: Consolidated Balance Sheet as of September 30, 1998......... 7 Consolidated Statements of Income for the Three Months Ended September 30, 1998 and for the Period from February 23, 1998 to September 30, 1998............................. 8 Consolidated Statement of Cash Flows for the Period from February 23, 1998 to September 30, 1998................ 9 Starwood Hotels & Resorts Worldwide, Inc.: Consolidated Balance Sheet as of September 30, 1998......... 10 Consolidated Statements of Income for the Three and Nine Months Ended September 30, 1998........................ 11 Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 1998......... 12 Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1998............................... 13 Notes to Financial Statements............................... 14 Unaudited Condensed Combined Consolidated Pro Forma Statements of Income for the Three and Nine Months Ended September 30, 1998............................... 27 Notes to Unaudited Condensed Combined Consolidated Pro Forma Statements of Income................................... 29 Unaudited Funds from Operations............................. 30 Management's Discussion and Analysis of Financial Condition 2. and Results of Operations.............................. 31 PART II. OTHER INFORMATION 1. Legal Proceedings........................................... 46 2. Changes in Securities and Use of Proceeds................... 46 6. Exhibits and Reports on Form 8-K............................ 46
1 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The following unaudited financial statements of Starwood Hotels & Resorts (the "Trust") and Starwood Hotels & Resorts Worldwide, Inc. (the "Corporation" and, together with the Trust, "Starwood Hotels" or the "Company") are provided pursuant to the requirements of this Item. In the opinion of management, all adjustments necessary for fair presentation, consisting of normal recurring adjustments and the adjustment for restructuring and other special charges as disclosed in Note 6, have been included. The financial statements presented herein have been prepared in accordance with the accounting policies described in the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1997 and the accounting policies described in the notes to ITT Corporation's historical financial statements included in the Company's Current Report on Form 8-K filed April 27, 1998 (see Note 3) and should be read in conjunction therewith. See Note 1 in the Notes to Financial Statements for the basis of presentation. The financial statements should be read in conjunction with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. Results for the three and nine months ended September 30, 1998 are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 1998. 2 4 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. COMBINED CONSOLIDATED BALANCE SHEETS (IN MILLIONS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (AUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 260 $ 201 Accounts receivable, net.................................. 640 424 Inventories............................................... 67 63 Prepaid expenses and other................................ 228 105 ------- ------ Total current assets............................... 1,195 793 Plant, property and equipment, net.......................... 9,853 4,832 Investment in Madison Square Garden......................... 43 85 Other investments........................................... 317 368 Long-term receivables, net.................................. 408 281 Other assets................................................ 381 450 Goodwill, net............................................... 3,602 1,257 Net assets held for sale.................................... 394 386 Net assets of discontinued operations....................... 34 73 ------- ------ $16,227 $8,525 ======= ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 271 $ 273 Accrued expenses.......................................... 1,112 1,078 Notes payable and current maturities of long-term debt.... 982 898 Other current liabilities................................. 200 161 ------- ------ Total current liabilities.......................... 2,565 2,410 Long-term debt.............................................. 7,436 1,070 Deferred income taxes....................................... 585 97 Other liabilities........................................... 450 423 Net liabilities of discontinued operations.................. -- 1,600 Minority interest........................................... 583 181 ------- ------ 11,619 5,781 ------- ------ Equity put options and forward equity contracts............. 430 -- ------- ------ Class B exchangeable preferred shares, at redemption value..................................................... 153 -- ------- ------ Commitments and contingencies Stockholders' equity: Class A exchangeable preferred shares..................... 5 -- Corporation common stock at September 30, 1998 and December 31, 1997; $0.01 par value; authorized 1,050,000,000 and 308,600,000 shares; outstanding 182,837,403 and 126,653,880 at September 30, 1998 and December 31, 1997, respectively......................... 2 1 Trust common shares of beneficial interest at September 30, 1998 and December 31, 1997; $0.01 par value; authorized 1,200,000,000 and 308,600,000 shares; outstanding 182,837,403 and 126,653,880 at September 30, 1998 and December 31, 1997, respectively................ 2 1 Additional paid-in capital................................ 2,500 2,934 Cumulative translation and marketable securities adjustment.............................................. (103) (135) Retained earnings (accumulated deficit)................... 1,619 (57) ------- ------ Total stockholders' equity......................... 4,025 2,744 ------- ------ $16,227 $8,525 ======= ======
The accompanying notes to financial statements are an integral part of the above statements. 3 5 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. COMBINED CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------- ------------------ 1998 1997 1998 1997 ------ ------ ------- ------- Revenues.................................................... $2,286 $1,458 $6,296 $4,273 Costs and expenses: Salaries, benefits and other operating.................... 1,657 1,110 4,614 3,242 Selling, general and administrative....................... 231 151 676 485 Restructuring and other special charges................... 310 -- 310 58 Depreciation and amortization............................. 143 64 414 198 ------ ------ ------ ------ 2,341 1,325 6,014 3,983 ------ ------ ------ ------ (55) 133 282 290 Interest expense, net of interest income of $5 and $4 for the three months ended September 30, 1998 and 1997, respectively, and $22 and $13 for the nine months ended September 30, 1998 and 1997, respectively................. (156) (27) (399) (70) Gain on sale of Alcatel Alsthom shares...................... -- -- -- 183 Gain on investment in Madison Square Garden................. -- -- 31 200 Miscellaneous income (expense), net......................... (3) (14) 6 (33) ------ ------ ------ ------ (214) 92 (80) 570 Income tax (expense) benefit................................ 109 (46) 79 (246) Minority equity............................................. 4 (3) (2) (3) ------ ------ ------ ------ Income (loss) from continuing operations.................... (101) 43 (3) 321 Discontinued operations: Net income (loss) from operations, net of taxes and minority interest of $1 and $27 for the three months ended September 30, 1998 and 1997, respectively, and $5 and $39 for the nine months ended September 30, 1998 and 1997, respectively...................................... -- 15 (9) 14 Gain on sale of Educational Services, Inc. shares, net of taxes and minority interest of $100..................... -- -- 153 -- Gain on disposition of World Directories, net of taxes and minority interest of $15 and $543 for the three and nine months ended September 30, 1998, respectively........... 24 -- 972 -- Cumulative effect of accounting change, net of tax benefit of $6............................................. -- -- -- (11) ------ ------ ------ ------ Net income (loss)........................................... $ (77) $ 58 $1,113 $ 324 ====== ====== ====== ====== Basic earnings per Paired Share: Income (loss) from continuing operations.................. $(0.56) $ 0.34 $(0.10) $ 2.55 Income from discontinued operations....................... 0.13 0.12 5.97 0.11 Cumulative effect of accounting change.................... -- -- -- (0.09) ------ ------ ------ ------ Net income (loss)........................................... $(0.43) $ 0.46 $ 5.87 $ 2.57 ====== ====== ====== ====== Diluted earnings per Paired Share: Income (loss) from continuing operations.................. $(0.56) $ 0.34 $(0.10) $ 2.51 Income from discontinued operations....................... 0.13 0.11 5.97 0.11 Cumulative effect of accounting change.................... -- -- -- (0.09) ------ ------ ------ ------ Net income (loss)........................................... $(0.43) $ 0.45 $ 5.87 $ 2.53 ====== ====== ====== ====== Weighted average number of Paired Shares.................... 188 126 187 126 ====== ====== ====== ====== Weighted average number of equivalent Paired Shares......... 188 128 187 128 ====== ====== ====== ======
The accompanying notes to financial statements are an integral part of the above statements. 4 6 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. COMBINED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN MILLIONS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------- 1998 1997 1998 1997 ----- ----- ------ ----- Net income (loss).............................. $(77) $ 58 $1,113 $ 324 Other comprehensive income: Foreign currency translation adjustments -- Foreign currency translation arising during the period................................ 46 (51) -- (126) Reclassification adjustment for losses included in net income.................... -- -- 33 -- Unrealized gains on securities -- Unrealized holding gains (losses) arising during the period......................... -- -- (1) 176 Reclassification adjustment for gains included in net income.................... -- -- -- (114) ---- ---- ------ ----- 46 (51) 32 (64) ---- ---- ------ ----- Comprehensive income (loss).................... $(31) $ 7 $1,145 $ 260 ==== ==== ====== =====
The accompanying notes to financial statements are an integral part of the above statements. 5 7 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------ 1998 1997 ------- ------- OPERATING ACTIVITIES Net income.................................................. $ 1,113 $ 324 Exclude: Discontinued operations -- Net (income) loss from operations......................... 9 (14) Gain on sale of World Directories and Educational Services, Inc........................................... (1,125) -- Cumulative effect of accounting change...................... -- 11 ------- ------- Income (loss) from continuing operations.................... (3) 321 Adjustments to income (loss) from continuing operations: Depreciation and amortization............................. 414 198 Amortization of deferred loan costs....................... 15 -- Non-cash portion of restructuring and other special charges................................................. 150 -- Provision for doubtful receivables........................ 31 28 Minority equity in net income............................. 2 3 Equity income, net of dividends received.................. (17) -- Gain on sale of real estate and investments -- pretax..... (58) (410) Changes in working capital: Accounts receivable....................................... (93) (30) Inventories............................................... 2 (2) Accounts payable.......................................... 15 (30) Accrued expenses.......................................... (279) 119 Accrued and deferred income taxes........................... (111) 10 Other, net.................................................. (40) (24) ------- ------- Cash from continuing operations........................... 28 183 ------- ------- Cash used for discontinued operations..................... -- (10) ------- ------- Cash from operating activities............................ 28 173 ------- ------- INVESTING ACTIVITIES Additions to plant, property and equipment.................. (694) (762) Proceeds from sale of real estate and investments........... 2,811 1,618 Collection of Cablevision note receivable................... -- 169 Acquisitions, net of acquired cash.......................... (60) (284) Employee benefit trust...................................... 146 (119) Other, net.................................................. (286) (20) ------- ------- Cash from investing activities............................ 1,917 602 ------- ------- FINANCING ACTIVITIES Short-term debt, net........................................ 504 (154) Long-term debt issued....................................... 2,454 665 Long-term debt repaid....................................... (1,481) (1,088) Proceeds from equity offering............................... 245 -- Dividends paid.............................................. (3,249) -- Stock repurchases........................................... (343) -- Other, net.................................................. (16) 25 ------- ------- Cash used for financing activities........................ (1,886) (552) ------- ------- Exchange rate effect on cash and cash equivalents........... -- (5) ------- ------- Increase in cash and cash equivalents....................... 59 218 Cash and cash equivalents -- beginning of period............ 201 205 ------- ------- Cash and cash equivalents -- end of period.................. $ 260 $ 423 ======= ======= Supplemental disclosures of cash flow information: Cash paid during the period for -- Interest.................................................. $ 352 $ 39 ======= ======= Income taxes, net of refunds.............................. $ 47 $ 231 ======= =======
The accompanying notes to financial statements are an integral part of the above statements. 6 8 STARWOOD HOTELS & RESORTS CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1998 (IN MILLIONS, EXCEPT SHARE DATA) ASSETS Current assets: Cash and cash equivalents................................. $ 9 Accounts receivable, net.................................. 13 Receivable, Corporation................................... 251 Prepaid expenses and other................................ 75 ------ Total current assets.............................. 348 Plant, property and equipment, net.......................... 4,275 Other investments, Corporation.............................. 849 Other investments........................................... 31 Long-term receivables, net.................................. 159 Long-term receivables, Corporation.......................... 2,477 Other assets................................................ 10 Goodwill, net............................................... 177 Net assets held for sale.................................... 7 ------ $8,333 ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 15 Accrued expenses.......................................... 145 Notes payable and current maturities of long-term debt.... 288 ------ Total current liabilities......................... 448 Long-term debt.............................................. 316 Minority interest........................................... 426 ------ 1,190 ------ Equity put options and forward equity contracts............. 301 ------ Class B exchangeable preferred shares, at redemption value..................................................... 153 ------ Commitments and contingencies Stockholders' equity: Class A exchangeable preferred shares..................... 5 Trust common shares of beneficial interest; $0.01 par value; authorized 1,200,000,000 shares; outstanding 182,837,403............................................ 2 Additional paid-in capital................................ 6,721 Accumulated deficit....................................... (39) ------ Total stockholders' equity........................ 6,689 ------ $8,333 ======
The accompanying notes to financial statements are an integral part of the above statement. 7 9 STARWOOD HOTELS & RESORTS CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS, EXCEPT PER SHARE DATA)
PERIOD FROM THREE MONTHS ENDED FEBRUARY 23, 1998 SEPTEMBER 30, 1998 TO SEPTEMBER 30, 1998 ------------------ --------------------- Revenues................................................ $ 1 $ 2 Rent and interest, Corporation.......................... 180 435 Costs and expenses: Selling, general and administrative................... 6 12 Depreciation and amortization......................... 34 109 ----- ----- 40 121 ----- ----- 141 316 Interest expense, net of interest income of $4 and $7... (4) (12) ----- ----- 137 304 Income tax expense...................................... -- (1) Minority equity......................................... (9) (18) ----- ----- Net income.............................................. $ 128 $ 285 ===== ===== Basic net income per share.............................. $0.65 $1.44 ===== ===== Diluted net income per share............................ $0.64 $1.43 ===== ===== Weighted average number of shares....................... 188 187 ===== ===== Weighted average number of equivalent shares............ 199 189 ===== =====
The accompanying notes to financial statements are an integral part of the above statements. 8 10 STARWOOD HOTELS & RESORTS CONSOLIDATED STATEMENT OF CASH FLOWS (IN MILLIONS)
PERIOD FROM FEBRUARY 23, 1998 TO SEPTEMBER 30, 1998 --------------------- OPERATING ACTIVITIES Net income.................................................. $ 285 Adjustments to net income: Depreciation and amortization............................. 109 Minority equity in net income............................. 18 Changes in working capital: Accounts receivable....................................... (8) Accounts payable.......................................... 10 Accrued expenses.......................................... (13) Other, net................................................ 2 ----- Cash from operating activities............................ 403 ----- INVESTING ACTIVITIES Additions to plant, property and equipment.................. (139) Proceeds from divestments................................... 250 Acquisitions, net of acquired cash.......................... (13) Notes receivable, Corporation............................... 45 Other, net.................................................. (275) ----- Cash used for investing activities........................ (132) ----- FINANCING ACTIVITIES Long-term debt issued, net.................................. 12 Proceeds from equity offering............................... 171 Dividends paid.............................................. (213) Stock repurchase............................................ (240) Other, net.................................................. 8 ----- Cash used in financing activities......................... (262) ----- Increase in cash and cash equivalents....................... 9 Cash and cash equivalents -- beginning of period............ -- ----- Cash and cash equivalents -- end of period.................. $ 9 ===== Supplemental disclosures of cash flow information: Cash paid during the period for -- Interest.................................................. $ 15 ===== Income taxes.............................................. $ 1 =====
The accompanying notes to financial statements are an integral part of the above statement. 9 11 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1998 (IN MILLIONS, EXCEPT SHARE DATA) ASSETS Current assets: Cash and cash equivalents................................. $ 251 Accounts receivable, net.................................. 627 Inventories............................................... 67 Prepaid expenses and other................................ 153 ------- Total current assets.............................. 1,098 Plant, property and equipment, net.......................... 5,578 Investment in Madison Square Garden......................... 43 Other investments........................................... 286 Long-term receivables, net.................................. 249 Other assets................................................ 371 Goodwill, net............................................... 3,425 Net assets held for sale.................................... 387 Net assets of discontinued operations....................... 34 ------- $11,471 ======= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable.......................................... $ 256 Accrued expenses.......................................... 967 Notes payable and current maturities of long-term debt.... 694 Notes payable and current maturities of long-term debt, Trust.................................................. 251 Other current liabilities................................. 200 ------- Total current liabilities......................... 2,368 Long-term debt.............................................. 7,120 Long-term debt, Trust....................................... 2,477 Deferred income taxes....................................... 585 Other liabilities........................................... 450 Minority interest........................................... 1,006 ------- 14,006 ------- Equity put options and forward equity contracts............. 129 ------- Commitments and contingencies Stockholders' deficit: Corporation common stock; $0.01 par value; authorized 1,050,000,000 shares; outstanding 182,837,403.......... 2 Additional paid-in capital................................ (4,221) Cumulative translation and marketable securities adjustment............................................. (103) Retained earnings......................................... 1,658 ------- Total stockholders' deficit....................... (2,664) ------- $11,471 =======
The accompanying notes to financial statements are an integral part of the above statement. 10 12 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1998 ------------------ ------------------ Revenues................................................. $2,285 $6,294 Costs and expenses: Salaries, benefits and other operating................. 1,657 4,614 Selling, general and administrative.................... 225 664 Rent and interest, Trust............................... 180 435 Restructuring and other special charges................ 310 310 Depreciation and amortization.......................... 109 305 ------ ------ 2,481 6,328 ------ ------ (196) (34) Interest expense, net of interest income of $1 and $15... (152) (387) Gain on sale of Madison Square Garden.................... -- 31 Miscellaneous income (expense)........................... (3) 6 ------ ------ (351) (384) Income tax benefit....................................... 109 80 Minority equity.......................................... 13 16 ------ ------ Loss from continuing operations.......................... (229) (288) Discontinued operations: Net loss from operations, net of taxes and minority interest of $1 and $5............................... -- (9) Gain on sale of Educational Services, Inc. shares, net of taxes and minority interest of $100.............. -- 153 Gain on disposition of World Directories, net of taxes and minority interest of $15 and $543 for the three and nine months ended September 30, 1998, respectively........................................ 24 972 ------ ------ Net income (loss)........................................ $ (205) $ 828 ====== ====== Basic earnings per share: Loss from continuing operations........................ $(1.22) $(1.54) Income from discontinued operations.................... 0.13 5.97 ------ ------ Net income (loss)........................................ $(1.09) $ 4.43 ====== ====== Diluted earnings per share: Loss from continuing operations........................ $(1.22) $(1.54) Income from discontinued operations.................... 0.13 5.97 ------ ------ Net income (loss)........................................ $(1.09) $ 4.43 ====== ====== Weighted average number of shares........................ 188 187 ====== ====== Weighted average number of equivalent shares............. 188 187 ====== ======
The accompanying notes to financial statements are an integral part of the above statements. 11 13 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN MILLIONS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1998 ------------------ ------------------ Net income (loss)........................................ $(205) $828 Other comprehensive income: Foreign currency translation adjustments -- Foreign currency translation arising during the period.............................................. 46 -- Reclassification adjustment of losses included in net income.............................................. -- 33 Unrealized gains on securities -- Unrealized holding losses arising during the period.... -- (1) ----- ---- 46 32 ----- ---- Comprehensive income (loss).............................. $(159) $860 ===== ====
The accompanying notes to financial statements are an integral part of the above statements. 12 14 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN MILLIONS)
NINE MONTHS ENDED SEPTEMBER 30, 1998 ------------------ OPERATING ACTIVITIES Net income.................................................. $ 828 Exclude: Discontinued operations -- Net loss from operations.................................. 9 Gain on sale of World Directories and Educational Services, Inc........................................... (1,125) ------- Loss from continuing operations............................. (288) Adjustments to loss from continuing operations: Depreciation and amortization............................. 305 Amortization of deferred loan costs....................... 15 Non-cash portion of restructuring and other special charges................................................. 150 Provision for doubtful receivables........................ 31 Minority equity in net income............................. (16) Equity income, net of dividends received.................. (17) Gain on divestments -- pretax............................. (58) Changes in working capital: Accounts receivable....................................... (85) Inventories............................................... 2 Accounts payable.......................................... 5 Accrued expenses.......................................... (266) Accrued and deferred taxes................................ (111) Other, net................................................ (42) ------- Cash used for operating activities........................ (375) ------- INVESTING ACTIVITIES Additions to plant, property and equipment.................. (555) Proceeds from divestments................................... 2,561 Acquisitions, net of acquired cash.......................... (47) Employee benefit trust...................................... 146 Other, net.................................................. (11) ------- Cash from investing activities............................ 2,094 ------- FINANCING ACTIVITIES Short-term debt, net........................................ 504 Long-term debt issued, net.................................. 2,442 Long-term debt repaid....................................... (1,481) Notes payable, Trust........................................ (45) Proceeds from equity offering............................... 74 Dividends paid.............................................. (3,036) Stock repurchases........................................... (103) Other, net.................................................. (24) ------- Cash used for financing activities........................ (1,669) ------- Increase in cash and cash equivalents....................... 50 Cash and cash equivalents -- beginning of period............ 201 ------- Cash and cash equivalents -- end of period.................. $ 251 ======= Supplemental disclosures of cash flow information: Cash paid during the period for -- Interest.................................................. $ 337 ======= Income taxes, net of refunds.............................. $ 46 =======
The accompanying notes to financial statements are an integral part of the above statement. 13 15 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION The accompanying balance sheets as of September 30, 1998 and statements of income and comprehensive income for the three months ended September 30, 1998 include the accounts of Starwood Hotels & Resorts and its subsidiaries (the "Trust") and Starwood Hotels & Resorts Worldwide, Inc. and its subsidiaries (the "Corporation" and, together with the Trust, "Starwood Hotels" or the "Company"), inclusive of ITT Corporation and its subsidiaries ("ITT") (see Note 3). Because the Company's acquisition of ITT (the "ITT Merger") is treated as a reverse purchase for financial accounting purposes, the statements of income, comprehensive income and cash flows for the nine months ended September 30, 1998 include the accounts of the Trust and the Corporation for the period from the closing of the ITT Merger on February 23, 1998 through September 30, 1998 and the accounts of ITT for the nine months ending September 30, 1998. Additionally, the historical financial statements for the three and nine months ending September 30, 1997 and as of December 31, 1997 represent the results of ITT. The Trust was formed in 1969 and elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code. In 1980, the Trust formed the Corporation and made a distribution to the Trust's shareholders of one share of common stock, par value $0.01 per share, of the Corporation (a "Corporation Share") for each common share of beneficial interest, par value $0.01 per share, of the Trust (a "Trust Share"). Trust Shares and Corporation Shares are paired on a one-for-one basis and, pursuant to an agreement between the Trust and the Corporation, may be held or transferred only in units ("Paired Shares") consisting of one Trust Share and one Corporation Share. The Company is one of the largest hotel and gaming companies in the world and the Trust is one of the largest REITs in the United States. The Company's principal lines of business are hotels and gaming. The hotels segment is comprised of a worldwide hospitality network of approximately 650 full-service hotels primarily serving three markets: luxury, upscale and mid-price. The Company's hotel operations are represented on every continent and in nearly every major world market. The Company's gaming operations are located in several key domestic jurisdictions. The Company also operates various hotel/casino ventures outside the United States. Starwood Hotels is currently a "paired share REIT." Under provisions of the Internal Revenue Code, a REIT and a non-REIT whose shares are paired are treated as one entity for purposes of determining whether either entity qualifies as a REIT. If these provisions applied to the Company, the Trust would not qualify as a REIT. Starwood Hotels is not subject to these provisions since it is one of the paired share REITs that were "grandfathered" when these provisions were enacted. Recently, Congress enacted tax legislation that has the effect of eliminating this grandfathering for certain interests in real property acquired after March 26, 1998. With respect to certain interests in real property acquired after March 26, 1998, this new legislation treats "grandfathered paired share REITs" as one entity for REIT qualification purposes. In response to this legislation, the Company has proposed a restructuring of the Trust and the Corporation (the "Restructuring"). After completion of the proposed Restructuring, the Company would no longer be a "grandfathered paired share REIT." In the Restructuring, the Trust would become a subsidiary of the Corporation, which would hold all outstanding shares of the new Class A shares of beneficial interest in the Trust. Each outstanding Trust Share would be converted into one share of the new non-voting Class B shares of beneficial interest in the Trust. The Restructuring would be accounted for as a reorganization of two companies under common control. As such, there would be no revaluation of the assets and liabilities of the combining companies. If the Restructuring occurs, the Company is expected to take a one-time charge of approximately $1 billion at the time of the Restructuring, primarily related to a deferred tax liability that will result from the Restructuring. The Corporation, through its subsidiaries, is the general partner of, and holds an aggregate 95.2% partnership interest in, SLC Operating Limited Partnership (the "Operating Partnership") as of Septem- 14 16 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (Continued) ber 30, 1998. The Trust, through its subsidiaries, is the general partner of, and owns an aggregate 95.3% partnership interest in, SLT Realty Limited Partnership (the "Realty Partnership" and, together with the Operating Partnership, the "Partnerships") as of September 30, 1998. The Realty Partnership principally owns, directly or indirectly, fee, ground lease and mortgage loan interests in hotel properties. The Operating Partnership, directly or indirectly, principally leases hotel properties from the Realty Partnership and also owns fee interests in other hotel properties and manages hotels for third parties. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES Comprehensive Income In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income, which establishes standards for the reporting and display of comprehensive income and its components. SFAS No. 130 requires a separate statement to report the components of comprehensive income for each period reported. The Company adopted SFAS No. 130 on January 1, 1998 and, as such, has included the required statement of comprehensive income and the expanded disclosure in the accompanying financial statements for the Company and the Corporation. During the nine months ended September 30, 1997, the Company recorded foreign currency translation adjustments of approximately $126 million. In addition, during the nine months ended September 30, 1998 and 1997, the Company held securities classified as available-for-sale which had unrealized net gains (losses) during the period of approximately $(1) million and $176 million, respectively. ITT sold certain securities during the nine months ended September 30, 1997 recognizing a gain of $114 million. Derivatives The Company enters into interest rate swap agreements to manage interest rate exposure. The differential to be paid or received under these agreements is accrued consistent with the terms of the agreements and market interest rates and is recognized in interest expense over the term of the related debt using the effective interest method (the accrual accounting method). The related amounts payable to or receivable from counterparties are included in other liabilities or assets. The fair value of the swap agreements and changes in the fair value as a result of changes in market interest rates are not recognized in the financial statements. The Company enters into foreign currency forward contracts and foreign currency swaps as a means of hedging exposure to foreign currency. Foreign currency forward contracts and foreign currency swaps are accounted for in accordance with SFAS No. 52, Foreign Currency Translation. Changes in the value of the derivative instruments designated as hedges of foreign currency denominated assets and liabilities are classified in the same manner as the classification of the changes in the underlying assets and liabilities. The Company does not enter into these derivative financial instruments for speculative purposes and closely monitors the financial stability and credit standing of its counterparties. When a derivative is deemed to no longer effectively correlate with its underlying assets or liabilities, it is the Company's policy to mark to market these derivatives. NOTE 3. ACQUISITIONS Hotel Acquisitions In July 1998, the Company acquired a 95% non-controlling interest in the 760-room Westin Maui in Maui, Hawaii for approximately $132 million. In May 1998, the Company acquired the 242-room Danbury Hilton Hotel in Danbury, Connecticut for approximately $20 million. 15 17 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) In January 1998, the Company completed the acquisition of four full-service, luxury properties located in Aspen, Colorado; New York, New York; Washington, D.C.; and Houston, Texas for a total consideration of approximately $348 million, consisting of $164 million in cash and 3.7 million Paired Shares valued for purposes of this transaction at approximately $184 million. Acquisition of ITT On February 23, 1998, pursuant to an Amended and Restated Agreement and Plan of Merger, dated as of November 12, 1997 (the "ITT Merger Agreement"), among the Corporation, Chess Acquisition Corp. ("Merger Sub"), the Trust and ITT, the Company acquired ITT. Pursuant to the terms of the ITT Merger Agreement, Merger Sub, a newly formed Nevada corporation, was merged with and into ITT (the "ITT Merger"), whereupon the separate corporate existence of Merger Sub ceased and ITT continued as the surviving corporation. As a result of the ITT Merger, ITT was owned jointly by the Trust and the Corporation. Immediately after the effective time of the ITT Merger, the Corporation purchased all of the common stock, no par value, of ITT ("ITT Common Stock") owned by the Trust for a combination of cash and notes. After such purchase, ITT became a wholly owned subsidiary of the Corporation. Under the terms of the ITT Merger Agreement, each outstanding share of ITT Common Stock, together with the associated right to purchase shares of Series A Participating Cumulative Preferred Stock of ITT (the "Rights" and, together with the ITT Common Stock, "ITT Shares"), other than those that were converted into cash pursuant to a cash election by the holder (and other than ITT Shares owned directly or indirectly by ITT or Starwood Hotels, which shares were canceled), was converted into 1.543 Paired Shares. Pursuant to cash election procedures, approximately 35 million ITT Shares, representing approximately 30% of the outstanding ITT Shares, were converted into $85 in cash per share. In addition, each ITT Share was converted into additional cash consideration in the amount of $0.37493151, which amount represents the interest that would have accrued (without compounding) on $85 at an annual rate of 7% during the period from and including January 31, 1998 to but excluding the date of the closing of the ITT Merger (February 23, 1998). The aggregate value of the ITT acquisition in cash, Paired Shares and assumed debt was approximately $14.6 billion. On February 23, 1998, the Company obtained two credit facilities ($5.6 billion in total) with Lehman Commercial Paper Inc., Bankers Trust Company and The Chase Manhattan Bank to fund the cash portion of the ITT Merger consideration, to refinance a portion of the Company's existing indebtedness (including indebtedness outstanding under the $2.2 Billion Facility, as defined below) and to provide funds for general corporate purposes. These facilities are comprised of a $3.1 billion senior secured credit facility (the "$3.1 Billion Facility") and a $2.5 billion, five-year secured increasing rate notes facility (the "IRN Facility"). The $3.1 Billion Facility has three tranches: a $1.0 billion, one-year term loan; a $1.0 billion, five-year term loan; and a $1.1 billion, five-year revolving credit facility. The Corporation, the Trust and certain of their respective direct and indirect subsidiaries may be designated as borrowers or co-borrowers under all or a portion of the $3.1 Billion Facility. The interest rate for the $3.1 Billion Facility was one-, two- or three-month LIBOR, at the Company's option, plus a margin which was 187.5 basis points for the six months ended August 24, 1998. The margin is determined pursuant to a pricing "grid" with rates based on the Company's leverage and/or senior unsecured debt rating. Quarterly amortization of the five-year term loan begins in the third year, with total amortization of 10%, 20% and 70% of the principal amount over the third, fourth and fifth year, respectively. Repayment of amounts borrowed under the $3.1 Billion Facility is guaranteed by the Trust, the Corporation and substantially all their respective significant subsidiaries (including the Partnerships, as defined below) other than gaming and foreign subsidiaries and joint venture entities (the "Guarantor Subsidiaries"), to the extent such entities are not borrowers or co-borrowers, and is secured by a pledge of all the capital stock, partnership interests and other equity interests of the Guarantor Subsidiaries. 16 18 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The IRN Facility consists of a single drawdown, senior increasing rate, non-amortizing five-year term loan for $2.5 billion. The Corporation is the borrower under the IRN Facility; the Trust and all Guarantor Subsidiaries are guarantors of the IRN Facility. The IRN Facility is secured equally and ratably by all the collateral securing the $3.1 Billion Facility and is pari passu in right of payment with all other senior indebtedness of the borrower and the Guarantor Subsidiaries, including the $3.1 Billion Facility. Amounts borrowed under the IRN Facility bore interest at one-, two- or three-month LIBOR plus 175 basis points for the three months ending May 24, 1998, with the interest rate increasing by 50 basis points every three months thereafter, up to a maximum rate of one-, two- or three-month LIBOR plus 375 basis points. The Company accounted for the ITT Merger as a reverse purchase in accordance with Accounting Principles Board Opinion No. 16. Purchase accounting for a combination is similar to the accounting treatment used in the acquisition of any asset group. Although the Trust and the Corporation issued Paired Shares to ITT stockholders and survived the ITT Merger, the Trust and the Corporation are considered the acquired companies for accounting purposes since the prior ITT stockholders held a majority of the outstanding Paired Shares immediately after the ITT Merger was consummated. The fair market value of the Paired Shares outstanding and available upon conversion of the Partnership units held by the Starwood Hotels' stockholders prior to the ITT Merger and the Partnerships' unit holders, respectively (using the stock price of $54.31 per Paired Share, based on the average of the high and low prices per Paired Share of Starwood Hotels as reported on the New York Stock Exchange (the "NYSE") on November 12, 1997), is used as the valuation basis for the combination. The fair market value of the Paired Shares outstanding on February 23, 1998 (the ITT Merger closing date) immediately prior to giving effect to the ITT Merger in excess of the net book value of the assets and liabilities of Starwood Hotels has been allocated on a preliminary basis to plant, property and equipment and goodwill. The goodwill is being amortized over a 40-year period. The allocation of the excess of fair market value of the assets and liabilities will be finalized when the Company completes its valuation of the assets acquired and liabilities assumed. The calculation of the excess of the fair market value of the Paired Shares over the book value of the Company's assets and liabilities at February 23, 1998 is as follows (in millions): Total Paired Shares and Partnership units outstanding prior to the ITT Merger......................................... 80 Fair market value of the Company's Paired Shares using the stock price of $54.31 (based on the average of the high and low prices per Paired Share of Starwood Hotels as reported on the NYSE on November 12, 1997)................ $ 4,350 Book value of the Company's combined consolidated equity.... (1,775) Transaction-related fees and expenses....................... 37 Minority interest related to the Partnerships............... (152) ------- Excess of fair market value of Paired Shares over the book value of net assets....................................... $ 2,460 =======
Because the acquisition of ITT is treated as a reverse purchase for financial accounting purposes, the statements of income, comprehensive income and cash flows for the nine months ended September 30, 1998 include the accounts of the Trust and the Corporation for the period from the closing of the ITT Merger on February 23, 1998 through September 30, 1998 and the accounts of ITT for the nine months ending September 30, 1998. The financial statements for the Company as of and for the three months ended September 30, 1998 include the accounts of the Trust, the Corporation and ITT. Historical stockholders' equity of the Company prior to the ITT Merger has been retroactively restated for the equivalent number of shares received in the ITT Merger after giving effect to the difference in par value between Starwood Hotels' and ITT's stock. Unless otherwise indicated, all references herein to the number of Paired Shares and per share amounts have been restated to reflect the impact of the reverse acquisition at the conversion factor of 1.543 Paired Shares for each ITT Share acquired. Certain reclassifications have been made to the Company's 17 19 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) balance sheet in the current year to conform to the presentation of the ITT balance sheet as of December 31, 1997. See Note 14 and the Combined Consolidated Pro Forma Statements of Unaudited Income included therein for the pro forma information giving effect to the ITT Merger. Acquisition of Westin On January 2, 1998, pursuant to a Transaction Agreement dated as of September 8, 1997 (the "Westin Transaction Agreement"), among WHWE L.L.C. ("WHWE"), Woodstar Investor Partnership ("Woodstar"), Nomura Asset Capital Corporation ("Nomura"), Juergen Bartels (Mr. Bartels, together with WHWE, Woodstar and Nomura, the "Members"), Westin Hotels & Resorts Worldwide, Inc. ("Westin Worldwide"), W&S Lauderdale Corp. ("Lauderdale"), W&S Seattle Corp. ("Seattle"), Westin St. John Hotel Company, Inc. ("St. John"), W&S Denver Corp. ("Denver"), W&S Atlanta Corp. ("Atlanta" and, together with Westin Worldwide, Lauderdale, Seattle, St. John and Denver, "Westin"), W&S Hotel L.L.C. ("W&S LLC" and, together with Westin, the "Westin Companies" or "Westin"), the Trust, the Corporation and the Partnerships, Starwood Hotels acquired Westin. Pursuant to the terms of the Transaction Agreement, (i) Westin Worldwide merged into the Trust (the "Westin Merger"). In connection with the Westin Merger, all the issued and outstanding shares of capital stock of Westin Worldwide (other than shares held by Westin Worldwide and its subsidiaries or by the Company) were converted into an aggregate of 6,285,783 Class A Exchangeable Preferred Shares, par value $0.01 per share (the "Class A EPS"), of the Trust and 5,294,783 Class B Exchangeable Preferred Shares, liquidation value $38.50 per share (the "Class B EPS" and, together with the Class A EPS, the "EPS"), of the Trust and cash in the amount of $177.9 million; (ii) The stockholders of Lauderdale, Seattle and Denver contributed all the outstanding shares of such companies to the Realty Partnership. In exchange for such contribution and after giving effect to the deemed exchange of certain units, the Realty Partnership issued to such stockholders an aggregate of 470,309 limited partnership units of the Realty Partnership and the Trust issued to such stockholders an aggregate of 127,534 shares of Class B EPS. In addition, in connection with the foregoing share contribution, the Realty Partnership assumed, repaid or refinanced the indebtedness of Lauderdale, Seattle and Denver and assumed $84.2 million of indebtedness incurred by the Members prior to such contributions; and (iii) The stockholders of Atlanta and St. John contributed all the outstanding shares of such companies to the Operating Partnership. In exchange for such contribution and after giving effect to the deemed exchange of certain units, the Operating Partnership issued to such stockholders an aggregate of 312,741 limited partnership units of the Operating Partnership and the Trust issued to such stockholders an aggregate of 80,415 shares of Class B EPS. In addition, in connection with the foregoing share contributions, the Operating Partnership assumed, repaid or refinanced indebtedness of Atlanta and St. John and assumed $3.4 million of indebtedness incurred by the Members prior to such contributions. The aggregate principal amount of debt assumed or incurred by the Company pursuant to the Westin Transaction Agreement was approximately $1.0 billion. The shares of Class A EPS, the shares of Class B EPS and the limited partnership interests issued in connection with the Westin Merger and the contribution of Seattle, Lauderdale, Denver, St. John and Atlanta to the Partnerships are directly or indirectly exchangeable on a one-for-one basis (subject to certain adjustments) for Paired Shares (subject to the right of the Company to elect to pay cash in lieu of issuing such shares). The limited partnership interests also are exchangeable on a one-for-one basis for shares of Class B EPS. The shares of Class B EPS have a liquidation preference of $38.50 per share and provide the 18 20 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) holders with the right, from and after the fifth anniversary of the closing date of the Westin Merger, to require the Trust to redeem such shares at a price of $38.50. On January 2, 1998, the Company obtained a $2.265 billion credit facility (the "$2.2 Billion Facility") from a group of lenders led by Bankers Trust Company and The Chase Manhattan Bank to fund the cash portion of the purchase of Westin for approximately $178 million and to repay an aggregate of approximately $1.0 billion of outstanding debt of Westin and of the Company under a $1.2 billion facility. The $2.2 Billion Facility was refinanced on February 23, 1998 with proceeds from the $3.1 Billion Facility and the IRN Facility. NOTE 4. DISPOSITIONS AND DISCONTINUED OPERATIONS In June 1998, the Company sold the 151-room Bay Valley Hotel and Resort in Bay City, Michigan for approximately $5 million and its remaining interest in the King 8 Hotel and Casino in Las Vegas, Nevada for approximately $3 million. In June 1998, the Company sold approximately 13 million shares of ITT Educational Services, Inc. ("Educational Services") in a public offering for total gross proceeds of approximately $315 million. The Company continues to explore its options regarding the disposition of its remaining 35% ownership interest in Educational Services. The assets and liabilities of Educational Services are included in net assets of discontinued operations in the Company's financial statements. The Company disposed of the following eight properties in May 1998 for a total of approximately $245 million in cash: the 229-room Embassy Suites Phoenix Airport in Phoenix, Arizona; the 224-room Tempe Embassy Suites in Tempe, Arizona; the 198-room Palm Desert Embassy Suites in Palm Desert, California; the 233-room Embassy Suites Hotel in Atlanta, Georgia; the 297-room St. Louis Embassy Suites in St. Louis, Missouri; the 308-room Doubletree Guest Suites in Dallas-Ft. Worth International Airport, Texas; the 254-room Doubletree Guest Suites Cypress Creek in Ft. Lauderdale, Florida; and the 155-room Doubletree Guest Suites in Lexington, Kentucky. In May 1998, the Company sold a Gulfstream V corporate aircraft for approximately $39 million in cash. In March 1998, ITT and Dow Jones & Company, Inc. sold WBIS+, Channel 31 in New York City, to Paxson Communications Corporation ("Paxson") for a total cash purchase price of approximately $258 million; approximately $128 million was received by ITT. In February 1998, ITT disposed of ITT World Directories ("WD"), the subsidiary through which ITT conducted its telephone directories publishing business, to VNU, a leading international publishing and information company based in the Netherlands, for gross consideration to ITT of $2.1 billion. Company interest expense and debt related to the disposition of WD was allocated to discontinued operations based upon the amount of debt repaid with the proceeds from this disposition. The assets and liabilities of WD are included in net liabilities of discontinued operations in the Company's financial statements. In June 1997, ITT sold a 38.5% ownership interest in Madison Square Garden, L.P. ("MSG") to Cablevision Systems Corporation ("Cablevision") for approximately $493.5 million and recorded a pretax gain of approximately $200 million. ITT also had two "put" options each allowing ITT to require Cablevision or MSG to purchase one-half of ITT's then continuing 7.81% interest in MSG for $75 million. In addition, ITT contributed to MSG an ITT-owned aircraft which MSG had used for the New York Knickerbockers basketball team and the New York Rangers hockey team. In consideration of the aircraft contribution, Cablevision agreed to increase the exercise price of each of ITT's "put" options by $19 million. ITT exercised one "put" option in April 1998 for total consideration of approximately $94 million, and the remaining "put" option is exercisable in June 1999. 19 21 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (Continued) During February and March 1997, ITT sold its interest in the capital stock of Alcatel Alsthom. Total proceeds from these sales were approximately $830 million, resulting in an after-tax gain of $106 million ($183 million pretax). In April 1997, ITT received the remaining balance of $533 million from these sales. NOTE 5. CHANGES IN ACCOUNTING PRINCIPLES Effective January 1, 1997, ITT changed its method of accounting for start-up costs on major hospitality and gaming projects to expense these costs as incurred. Prior to 1997, ITT capitalized these costs and amortized them over a three-year period. The 1997 results were restated to record a pretax charge of $17 million ($11 million after taxes) as the cumulative effect of this accounting change. In connection with the ITT Merger, the Company elected to follow ITT's accounting treatment regarding start-up costs and, therefore, is expensing start-up costs as incurred. NOTE 6. RESTRUCTURING AND OTHER SPECIAL CHARGES During the third quarter of 1998, the Company recorded pretax charges totaling approximately $310 million relating to restructuring and other special charges. The charges represent a portion of the approximate $1.2 billion restructuring and other special charges that the Company announced in August 1998. The third quarter 1998 restructuring and other special charges consist of the following:
NON-CASH CASH EXPENDITURES CHARGES EXPENDITURES ACCRUED TOTAL -------- ------------ ------------ ----- Write-down of assets..................... $115 $-- $ -- $115 ITT Merger-related costs................. 20 20 85 125 Other non-recurring costs................ 15 40 15 70 ---- --- ---- ---- Total.......................... $150 $60 $100 $310 ==== === ==== ====
Write-Down of Assets The restructuring and special charges include the write-down of assets that include investments in a hotel in Kuala Lampur, Malaysia; a mortgage note receivable secured by a hotel in Paris, France; an investment in a shared services center established by ITT in 1997 which was closed by the Company following the ITT Merger; and certain receivable balances in the Company's gaming division primarily related to Asian customers. These assets were primarily ITT assets and were written down primarily as a result of certain worldwide economic conditions indicating a reduced value for these assets. ITT Merger Related Costs The restructuring and special charges include costs related to the ITT Merger consisting primarily of severance payments and relocation costs for ITT employees and certain costs to integrate the companies, including costs to integrate the Company's frequent guest programs and to close down duplicate facilities. Other The restructuring and special charges include other non-recurring costs consisting primarily of the costs associated with the settlement of certain forward interest rate swap transactions (see Note 10) and the vesting, during the quarter, of certain restricted stock granted earlier in the year to the President and Chief Executive Officer of the Corporation. 20 22 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) During the first quarter of 1997, ITT recorded pretax charges totaling $58 million to restructure and rationalize operations at its World Headquarters. Of the total pretax charge, approximately $28 million represented severance and other related employee termination costs associated with the elimination of nearly 115 positions worldwide. The balance of the restructuring charge ($30 million pretax) related primarily to asset write-offs, lease commitments and termination penalties. With the exception of the remaining lease commitments, substantially all of these costs have been paid. NOTE 7. NET ASSETS HELD FOR SALE At September 30, 1998, the Company's hotel portfolio included two hotel properties held for sale: the 155-room Tyee Hotel in Olympia, Washington and the 155-room Four Points Hotel in Wichita, Kansas. These properties were included in net assets held for sale as of September 30, 1998. In April 1997, ITT announced its intention to sell one of its gaming properties, the Desert Inn in Las Vegas, Nevada. For financial reporting purposes, the assets and liabilities attributable to this property have been included in net assets held for sale as of September 30, 1998. There can be no assurance that these sales will occur or, if they occur, as to the timing of such sales. Management will evaluate its alternatives in the event a decision is made to change its current intention to sell these properties. NOTE 8. EARNINGS PER SHARE Earnings per share for the three and nine months ended September 30, 1997, as previously reported by ITT, has been restated to give effect to the reverse purchase accounting for the ITT Merger and to conform to the presentation required by SFAS No. 128, Earnings Per Share. The following is a reconciliation of basic earnings per Paired Share to diluted earnings per Paired Share for income (loss) from continuing operations (in millions, except per share data):
THREE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------------- 1998 1997 ----------------------------- ----------------------------- EARNINGS SHARES PER SHARE EARNINGS SHARES PER SHARE -------- ------ --------- -------- ------ --------- Income (loss) from continuing operations............................ $(101) $43 Dividends on Class A and Class B EPS.... (4) -- ----- --- Basic earnings (loss) per Paired Share................................. (105) 188 $(0.56) 43 126 $0.34 Effect of dilutive securities: Paired Share options.................. -- 2 --- --- Diluted earnings (loss) per Paired Share................................. $(105) 188 $(0.56) $43 128 $0.34 ===== === ====== === === =====
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------------- 1998 1997 ----------------------------- ----------------------------- EARNINGS SHARES PER SHARE EARNINGS SHARES PER SHARE -------- ------ --------- -------- ------ --------- Income (loss) from continuing operations............................ $ (3) $321 Dividends on Class A and Class B EPS.... (15) -- ---- ---- Basic earnings (loss) per Paired Share................................. (18) 187 $(0.10) 321 126 $2.55 Effect of dilutive securities: Paired Share options.................. -- 2 --- --- Diluted earnings (loss) per Paired Share................................. $(18) 187 $(0.10) $321 128 $2.51 ==== === ====== ==== === =====
21 23 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (Continued) Class A and Class B EPS, outstanding options to purchase Paired Shares, equity put options and forward equity contract security settlements were not included in the computation of diluted earnings per Paired Share for the three and nine months ended September 30, 1998 as the effects were anti-dilutive. NOTE 9. STOCKHOLDERS' EQUITY During the nine months ended September 30, 1998, the Trust consented to the conversion of 1,360,403 shares of Class B EPS by certain stockholders into an equal number of shares of Class A EPS; stockholders thereafter converted 2,889,106 shares of Class A EPS into an equal number of Paired Shares. Pursuant to the Company's share repurchase program, the Company repurchased approximately 7.143 million Paired Shares in the open market at an average purchase price of $34.59 during the three months ended September 30, 1998. During the nine months ended September 30, 1998, the Company had repurchased approximately 9.124 million Paired Shares in the open market at an average purchase price of $37.67 per Paired Share. As a part of its share repurchase program, the Company sold equity put options during the third quarter of 1998 that entitle the holder, at the expiration date, to sell Paired Shares to the Company at contractually specified prices. The Company issued put options for the purchase of one million Paired Shares for $1.8 million in premiums which was included in additional paid-in capital. As of September 30, 1998, none of the equity put options had been exercised and equity put options with an aggregate exercise price of approximately $32 million for one million Paired Shares remained outstanding at strike prices ranging from $31.11 to $32.85 with expiration dates ranging from December 1998 through March 1999. In the event the options are exercised, the Company is required to deliver the full stated amount of cash to the put holder for the full stated number of Paired Shares. The Company may elect, under certain circumstances, to pay the put holder in cash or shares equal to fair market value of the difference between the strike price and the market price of the Paired Shares. NOTE 10. DERIVATIVES The Company enters into interest rate swap agreements to manage interest rate fluctuations on its variable rate debt. The Company currently has five outstanding forward interest rate swap agreements under which the Company pays a fixed rate and receives variable rates of interest. The aggregate notional amount of these forward interest rate swaps was approximately $1.030 billion and the estimated unrealized loss on these interest rate swaps was approximately $50 million at September 30, 1998. Four of these five forward interest rate swap agreements, representing $1 billion of the total notional amount, are required by the terms of the Company's existing credit facilities. The unrealized loss represents the amount the Company would pay to terminate the swap agreements based on current interest rates. The Company enters into forward foreign exchange contracts to hedge the foreign currency exposure associated with the Company's foreign currency denominated assets and liabilities. The Company currently has two forward foreign exchange contracts outstanding with a dollar equivalent of the contractual amounts of these hedges at September 30, 1998 of approximately $54.9 million. These contracts mature on January 8, 1999. A long-term debt offering that the Company was contemplating was delayed due to market conditions and the Restructuring. As a result, certain of the Company's interest rate swaps with a notional amount of $500 million no longer correlated with this anticipated indebtedness. In accordance with the Company's accounting policies, these interest rate swaps were marked to market by the Company and, as such, the Company recognized a loss of $40 million, which is included in the restructuring and other special charges in the third quarter of 1998 (see Note 6). These contracts were terminated by the Company. 22 24 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (Continued) NOTE 11. COMMITMENTS AND CONTINGENCIES Pursuant to a Purchase Agreement dated October 10, 1997, the Company sold to UBS Limited ("UBS Ltd.") 2.185 million Paired Shares ("UBS Shares") at a cash price of $57.25 per share, and paid to Warburg Dillon Read LLC (formerly UBS Securities LLC), an affiliate of UBS Ltd., a placement fee equal to 2.5% of the gross proceeds to the Company from such sale of shares. Concurrently therewith, the Company entered into a Forward Stock Contract dated October 13, 1997, with Union Bank of Switzerland, London Branch ("UBS/LB") (the "UBS Price Adjustment Agreement"). The UBS Price Adjustment Agreement provided for a settlement payment to be made, in the form of Paired Shares or cash, by the Company to UBS/LB, or by UBS/LB to the Company, based on the market price of the Paired Shares over a specified unwind period, as compared to a "Forward Price" (as defined, but essentially equal to $57.25 per Paired Share, plus an implicit interest factor less dividends paid on the UBS Shares, in each case during the term of the UBS Price Adjustment Agreement). If prior to final settlement the market price of the Paired Shares fell below the Forward Price, the Company was obligated to deliver, at quarterly intervals, additional Paired Shares to UBS/ LB. In the event the market price of the Paired Shares exceeded the Forward Price on a quarterly settlement date, UBS/LB was obligated to deliver to the Company a portion of the UBS Shares to account for the differential. The Company had the right at any time prior to October 10, 1998 to elect to deliver or receive Paired Shares in settlement of the UBS Price Adjustment Agreement. The Company had the further right, but not the obligation, to settle the Company's obligations under the contract by repurchasing for cash at the Forward Price a number of Paired Shares equal to the UBS Shares. The Company had the obligation to settle the UBS Price Adjustment Agreement on October 10, 1998 unless UBS/LB agreed to extend such agreement's terms. The Company settled the UBS Price Adjustment Agreement in September 1998 by repurchasing the UBS Shares for approximately $130.3 million in cash. As a result of the settlement of the UBS Price Adjustment Agreement, the Company has no further obligations under this agreement and Paired Shares outstanding were reduced by 2.185 million. On February 24, 1998, the Trust and the Corporation sold an aggregate of 4.641 million Paired Shares to Merrill Lynch International, NMS Services, Inc., Lehman Brothers Inc. and certain affiliates (collectively, the "February Purchasers" and together with UBS Ltd., the "Purchasers") for a cash purchase price per Paired Share of $52.798, which price reflected a 2% discount from the last reported sale price of the Paired Shares on the date of the purchase. Concurrently with these sales, the Trust and the Corporation entered into three separate agreements (the "February Price Adjustment Agreements") with the February Purchasers and/or certain of their affiliates pursuant to which each of the February Purchasers or their respective affiliates agreed to sell, as directed by the Trust and the Corporation and on or before February 24, 1999, in an underwritten fixed price offering or another method specified in the February Price Adjustment Agreements, a sufficient number of the purchased Paired Shares to achieve net sales proceeds equal to the aggregate market value of the Paired Shares purchased by such February Purchasers in February 1998, plus a forward accretion component, minus an adjustment for dividends paid on the purchased Paired Shares. In addition, each February Purchaser had the right to cause a sale of all or a portion of the purchased Paired Shares in the event the market prices of the Paired Shares declined below certain levels. The precise numbers of Paired Shares that were required to be sold pursuant to the February Price Adjustment Agreements would have depended primarily on the market prices of the Paired Shares at the time of settlement. If the number of Paired Shares required to be sold was greater than the number of Paired Shares purchased by the February Purchasers as a result of a decrease in the market prices of the Paired Shares, the Trust and the Corporation were required to issue additional Paired Shares to the February Purchasers at a cash price of $0.01 per share. If the number of Paired Shares required to be sold was less than the number of Paired Shares purchased by the February Purchasers on February 24, 23 25 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (Continued) 1998 as a result of an increase in the market prices of the Paired Shares, the February Purchasers were required to deliver to the Trust and the Corporation a specified number of Paired Shares. The effect of the February Price Adjustment Agreements was to cause the February Purchasers to receive and retain an amount equal to the purchase price paid by the February Purchasers for the Paired Shares plus an annual rate of return on that purchase price equal to the three-month LIBOR for a specified period plus 1.75%, subject to adjustment under certain circumstances. In the event that the cash purchase price of the aggregate Paired Shares purchased by the February Purchasers less $5 million was in excess of the aggregate closing price of those Paired Shares on certain dates during the term of the February Price Adjustment Agreements, the Company was obligated to deliver additional Paired Shares to the February Purchasers as security for the Company's settlement obligations. As of September 30, 1998, the Company had delivered approximately 2.738 million Paired Shares in accordance with this security requirement. In October 1998, the Company settled the February Price Adjustment Agreements by repurchasing all of the Paired Shares issued to the February Purchasers for an aggregate of approximately $255 million in cash. As a result of this settlement, the Company has no further obligations under these agreements and Paired Shares outstanding were reduced by approximately 7.379 million (4.641 million original shares issued and 2.738 million shares previously issued as security). NOTE 12. GAMING OPERATIONS Casino revenues represent the net win from gaming wins and losses. Revenues exclude the retail value of rooms, food, beverage, entertainment and other promotional allowances provided on a complimentary basis to customers. The estimated retail value of such promotional allowances was $52 million and $40 million for the three months ended September 30, 1998 and 1997, respectively, and $148 million and $115 million for the nine months ended September 30, 1998 and 1997, respectively. The estimated cost of such promotional allowances was $37 million and $31 million for the three months ended September 30, 1998 and 1997, respectively, and $104 million and $90 million for the nine months ended September 30, 1998 and 1997, respectively, and has been included in costs and expenses. Revenues and costs and expenses of the gaming operations, excluding the King 8 Hotel & Casino, which was sold in June 1998, are comprised of the following (in millions):
THREE MONTHS ENDED SEPTEMBER 30, ---------------------------------------------- 1998 1997 --------------------- --------------------- COSTS AND COSTS AND REVENUES EXPENSES REVENUES EXPENSES -------- --------- -------- --------- Gaming...................................... $ 285 $159 $242 $149 Rooms....................................... 32 10 17 7 Food and beverage........................... 27 26 19 18 Other operations............................ 47 26 30 15 Selling, general and administrative......... -- 60 -- 44 Preopening costs............................ -- 9 -- 5 Restructuring and other special charges..... -- 55 -- -- Depreciation and amortization............... -- 39 -- 18 Provision for doubtful accounts............. -- 5 -- 8 ------ ---- ---- ---- Total............................. $ 391 $389 $308 $264 ====== ==== ==== ====
24 26 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (Continued)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------------------- 1998 1997 --------------------- --------------------- COSTS AND COSTS AND REVENUES EXPENSES REVENUES EXPENSES -------- --------- -------- --------- Gaming...................................... $ 753 $437 $715 $445 Rooms....................................... 94 31 50 19 Food and beverage........................... 84 76 55 52 Other operations............................ 108 57 83 43 Selling, general and administrative......... -- 165 -- 135 Preopening costs............................ -- 35 -- 8 Restructuring and other special charges..... -- 55 -- -- Depreciation and amortization............... -- 106 -- 59 Provision for doubtful accounts............. -- 26 -- 22 ------ ---- ---- ---- Total............................. $1,039 $988 $903 $783 ====== ==== ==== ====
NOTE 13. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS SFAS No. 133 In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the fair value of the derivative be recognized currently in earnings unless specific hedge accounting criteria are met. If specific hedge accounting criteria are met, changes in the fair value of derivatives will either be offset against the change in the fair value of the hedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The Company expects to adopt SFAS No. 133 effective January 1, 2000. Management has not yet quantified the impact of adopting SFAS No. 133 on the Company's financial statements. EITF 98-9 In May 1998, the Emerging Issues Task Force ("EITF") of the FASB reached a consensus on EITF 98-9, Accounting for Contingent Rent in Interim Financial Periods. EITF 98-9 provides that a lessor shall defer recognition of contingent rental income in interim periods until specified targets that trigger the contingent income are met. EITF 98-9 provides that a lessee shall accrue contingent rental expense when it is probable that the targets will be achieved. Management has reviewed the terms of its leases and has determined that the provisions of EITF 98-9 will have an immaterial impact on the Company's rental revenue and expense recognition on an interim and annual basis. The Company has adopted the provisions of EITF 98-9 effective May 1998 and elected to apply the provisions of the new pronouncement on a prospective basis. EITF 97-2 In November 1997, the EITF reached a consensus on EITF 97-2, Application of SFAS No. 94 and APB Opinion No. 16 to Physician Practice Management Entities and Certain Other Entities with Contractual Management Arrangements. EITF 97-2 addresses the circumstances in which a management entity may include the revenues and expenses of a managed entity in its financial statements. As a result of EITF 97-2, 25 27 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS -- (Continued) the Company intends to change its accounting policy for its managed hotels beginning in the fourth quarter of 1998. Application of EITF 97-2 for the nine months ended September 30, 1998 and 1997 would have reduced each of revenues and operating expenses by approximately $2.8 billion and $2.2 billion, respectively. There would be no impact on operating income, net income, working capital, earnings per Paired Share or stockholders' equity as a result of this change in accounting policy. SFAS No. 131 In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. This statement is effective for financial statements for fiscal years beginning after December 15, 1997. The expanded disclosures required by this statement will be included in the Company's 1998 annual financial statements. NOTE 14. PRO FORMA RESULTS Due to the impact of the ITT Merger and the acquisition of Westin during the nine months ended September 30, 1998, the unaudited condensed combined consolidated pro forma statements of income of Starwood Hotels & Resorts and Starwood Hotels & Resorts Worldwide, Inc. for the three and nine months ended September 30, 1998 are included herein and the following pro forma data is presented to supplement the historical statements of income. This information reflects the ITT Merger, the acquisition of Westin and certain asset sales (see the unaudited condensed combined consolidated pro forma statements of income and the notes thereto for the three and nine months ended September 30, 1998 beginning on page 27) as if they occurred on January 1, 1997 and does not purport to present what actual results would have been had such transactions, in fact, occurred at January 1, 1997, or to project results for any future period (in millions, except per share data):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ 1998 1997 1998 1997 ------- ------- ------- ------- Revenues........................................ $2,259 $2,048 $6,646 $5,953 Income (loss) from continuing operations........ $ (75) $ 93 $ 43 $ 344 Net income (loss)............................... $ (51) $ 108 $1,159 $ 347 Basic income (loss) from continuing operations per Paired Share.............................. $(0.38) $ 0.52 $ 0.15 $ 1.97 Diluted income (loss) from continuing operations per Paired Share.............................. $(0.38) $ 0.49 $ 0.14 $ 1.83
NOTE 15. SUBSEQUENT EVENT Subsequent to September 30, 1998, the Company repurchased in the open market approximately 985,000 of its Paired Shares at an average purchase price of $27.77 and, as of the date of this filing, the Company had repurchased a total of 10.109 million Paired Shares during 1998 in the open market at an average purchase price of $36.70. 26 28 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. UNAUDITED CONDENSED COMBINED CONSOLIDATED PRO FORMA STATEMENT OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 The following unaudited condensed combined consolidated pro forma statement of income for the three months ended September 30, 1998 gives effect as of January 1, 1998 to the ITT Merger, the acquisition of Westin and certain asset sales. The pro forma information is based upon historical information as described in Note 1 of the Notes to Financial Statements and does not purport to present what actual results would have been had such transactions, in fact, occurred at January 1, 1998, or to project results for any future period. Historical results are for the three months ended September 30, 1998.
PRO FORMA ADJUSTMENTS ----------------------- DESERT PRO HISTORICAL INN(B) OTHERS FORMA ---------- ------ ------ ----- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues......................................... $2,286 $(27) $ -- $2,259 Costs and expenses: Salaries, benefits and other operating......... 1,657 (28) -- 1,629 Selling, general and administrative............ 231 -- (22)(i) 209 Restructuring and other special charges........ 310 -- -- 310 Depreciation and amortization.................. 143 (5) -- 138 ------ ---- ----- ------ 2,341 (33) (22) 2,286 ------ ---- ----- ------ (55) 6 22 (27) Interest expense, net............................ (156) -- 13(d) (138) 5(f) Miscellaneous expense, net....................... (3) -- -- (3) ------ ---- ----- ------ (214) 6 40 (168) Income tax benefit (expense)..................... 109 (2) (18) 89 Minority equity.................................. 4 -- -- 4 ------ ---- ----- ------ Income (loss) from continuing operations......... $ (101) $ 4 $ 22 $ (75) ====== ==== ===== ====== Basic earnings per Paired Share: Loss from continuing operations................ $(0.56) $(0.38) ====== ====== Diluted earnings per Paired Share: Loss from continuing operations................ $(0.56) $(0.38) ====== ====== Weighted average number of Paired Shares......... 188 188 ====== ====== Weighted average number of equivalent Paired Shares......................................... 188 188 ====== ======
The accompanying notes to financial statements are an integral part of the above pro forma statement. 27 29 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. UNAUDITED CONDENSED COMBINED CONSOLIDATED PRO FORMA STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 The following unaudited condensed combined consolidated pro forma statement of income for the nine months ended September 30, 1998 gives effect as of January 1, 1998 to the ITT Merger, the acquisition of Westin and certain asset sales. The pro forma information is based upon historical information as described in Note 1 of the Notes to Financial Statements and does not purport to present what actual results would have been had such transactions, in fact, occurred at January 1, 1998, or to project results for any future period. Historical results are for the nine months ended September 30, 1998.
PRO FORMA ADJUSTMENTS ----------------------------- STARWOOD DESERT HISTORICAL HOTELS(A) INN(B) OTHERS PRO FORMA ---------- --------- ------ ------ --------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues................................. $6,296 $437 $ (87) $ -- $6,646 Costs and expenses: Salaries, benefits and other operating........................... 4,614 325 (92) -- 4,847 Selling, general and administrative.... 676 42 -- (31)(h)(i) 687 Restructuring and other special charges............................. 310 -- -- -- 310 Depreciation and amortization.......... 414 43 (12) 13(g) 458 ------ ---- ----- ---- ------ 6,014 410 (104) (18) 6,302 ------ ---- ----- ---- ------ 282 27 17 18 344 Interest expense, net.................... (399) (25) -- (39)(c) (394) 57(d) 3(e) 9(f) Gain on investment in Madison Square Garden................................. 31 -- -- -- 31 Miscellaneous income, net................ 6 4 2 -- 12 ------ ---- ----- ---- ------ (80) 6 19 48 (7) Income tax benefit (expense)............. 79 (2) (6) (20) 51 Minority equity.......................... (2) 1 -- -- (1) ------ ---- ----- ---- ------ Income (loss) from continuing operations............................. $ (3) $ 5 $ 13 $ 28 $ 43 ====== ==== ===== ==== ====== Basic earnings per Paired Share: Income (loss) from continuing operations.......................... $(0.10) $ 0.15 ====== ====== Diluted earnings per Paired Share: Income (loss) from continuing operations.......................... $(0.10) $ 0.15 ====== ====== Weighted average number of Paired Shares................................. 187 187 ====== ====== Weighted average number of equivalent Paired Shares.......................... 187 189 ====== ======
The accompanying notes to financial statements are an integral part of the above pro forma statement. 28 30 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME (a) Represents the historical results of Starwood Hotels & Resorts and Starwood Hotels & Resorts Worldwide, Inc., including Westin, for the period from January 1, 1998 through the closing of the ITT Merger on February 23, 1998. (b) Represents the elimination of Desert Inn from continuing operations. The Company has announced its intention to sell the Desert Inn and, as a result, has excluded its results from continuing operations. (c) Represents interest expense as if the ITT Merger had occurred on January 1, 1998, using an average rate of 7.5%, on the additional debt incurred to finance (i) the $2.991 billion cash portion of the purchase price of the ITT Shares acquired from the ITT stockholders; (ii) the $312 million in cash used to retire ITT stock options; and (iii) the $102 million of fees and expenses incurred in connection with the ITT Merger including amounts paid as commitment fees for advisory services and finders fees. (d) Represents reduction of interest expense, using an average rate of 7.5%, for the paydown of the term loans with proceeds from actual or planned asset dispositions as if the dispositions had occurred on January 1, 1998. The actual dispositions include the disposition of WD for gross proceeds of $2.1 billion to VNU in February 1998; the sale of ITT's interest in WBIS+, Channel 31 in New York City, to Paxson for gross proceeds of $128 million in March 1998; the exercise of one of the two "put" options in April 1998 pursuant to which Cablevision purchased one-half of ITT's 7.81% interest in MSG for gross proceeds of $94 million; the sale of an aircraft for gross proceeds of $39 million in April 1998; and the sale of approximately 13 million shares of Educational Services for gross proceeds of $315 million in June 1998. The planned asset dispositions include the exercise of the remaining "put" option with Cablevision or MSG, the sale of the Company's remaining 35% interest in Educational Services and the sale of the Desert Inn. The pro forma net proceeds of the planned dispositions, after certain costs and income taxes, would reduce debt by approximately $735 million. (e) Represents the reduction of interest expense, using an average rate of 7.5%, for the paydown of term loans with the proceeds of $245 million, net of costs of $6 million, from the sale of 4.6 million Paired Shares on February 24, 1998 as if such offering had taken place on January 1, 1998 (see Note 11 to the unaudited combined consolidated financial statements on page 23). (f) Represents a reduction of the amortization recognized on the deferred loan fees which were incurred in connection with the one-year $1.0 billion term loan facility (see Note 3) as if the asset dispositions had occurred on January 1, 1998. This reduction is net of the increased amortization on deferred loan fees recognized for the period of January 1, 1998 through the closing of the ITT Merger on February 23, 1998 for the costs incurred in connection with the additional debt (see Note (c) above). (g) Represents the depreciation and amortization expense related to the excess value recorded as a result of the purchase consideration exceeding the fair market value of the combined net assets of Starwood Hotels and Westin as if the transactions had taken place on January 1, 1998. (h) Represents effects of termination of certain executives under contractual severance agreements, net of additional costs for new executives under employment contracts, removal of duplicate third-party consulting fees and termination of certain advertising contracts and rental agreements, less related termination fees. (i) Represents the effects of the combination of certain identified benefit plans as a result of the ITT Merger as if the new combined plans had been in place as of January 1, 1998. 29 31 STARWOOD HOTELS & RESORTS AND STARWOOD HOTELS & RESORTS WORLDWIDE, INC. UNAUDITED FUNDS FROM OPERATIONS Management believes that funds from operations ("FFO") (as defined by the National Association of Real Estate Investment Trusts)(1) is one measure of financial performance of an equity REIT such as the Trust. Because ITT was never an equity REIT, it did not calculate FFO. Accordingly, set forth below is a comparison of pro forma FFO for the three- and nine-month periods ended September 30, 1998 (see the unaudited condensed combined consolidated pro forma statements of income and the notes thereto beginning on page 28 for an explanation of the pro forma adjustments) and the combined historical FFO of Starwood Hotels for the same periods in 1997. Combined pro forma FFO for the three months ended September 30, 1998 grew by 502% to $295 million, compared to combined historical FFO of $49 million as reported by Starwood Hotels for the corresponding period in 1997. Combined pro forma FFO for the nine months ended September 30, 1998 grew by 422% to $700 million compared to combined historical FFO of $134 million as reported by Starwood Hotels for the corresponding period of 1997. The following table shows the calculation of pro forma combined FFO for the three and nine months ended September 30, 1998 and historical combined FFO as reported by Starwood Hotels for the three and nine months ended September 30, 1997 (in millions):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- ----------------------- 1998 1997 1998 1997 --------- ---------- --------- ---------- PRO FORMA HISTORICAL PRO FORMA HISTORICAL --------- ---------- --------- ---------- Income (loss) from continuing operations before minority interest............... $(79) $ 3 $ 44 $ 39 Minority interest in consolidated joint ventures............................... (3) (4) (7) (6) Depreciation and amortization............ 138 50 458 101 Depreciation and amortization for unconsolidated joint ventures.......... 2 -- -- -- Deferred taxes........................... (78) -- (77) -- Gain on sale of real estate and investments............................ (1) -- (50) -- Preopening costs......................... 9 -- 35 -- Restructuring and other special charges................................ 310 -- 310 -- Other non-recurring items, net........... (3) -- (13) -- ---- --- ---- ---- Funds from Operations.................... $295 $49 $700 $134 ==== === ==== ====
- --------------- (1) Management and industry analysts generally consider FFO to be one measure of the financial performance of an equity REIT that provides a relevant basis for comparison among REITs, and FFO is presented to assist investors in analyzing the performance of the Company. FFO is defined as income (computed in accordance with generally accepted accounting principles), excluding gains (losses) from debt restructuring and sales of property, real estate related depreciation and amortization (excluding amortization of financing costs) and other non-recurring items. FFO does not represent cash generated from operating activities in accordance with 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 the Company's financial performance or as an alternative to cash flows from operating activities as a measure of liquidity. 30 32 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This report contains certain statements that may be deemed "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements contained herein include, but are not limited to, statements relating to the Company's objectives, strategies and plans, and all statements (other than statements of historical fact) that address actions, events or circumstances that the Company or its management expects, believes or intends will occur in the future. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated at the time the forward-looking statements are made, including, without limitation, risks and uncertainties associated with the following: the Restructuring; the Trust's continued ability to qualify for taxation as a REIT; the Company's integration of the assets and operations of ITT and Westin; completion of future acquisitions and dispositions; the availability of capital for acquisitions and for renovations; execution of hotel and casino renovation and expansion programs; the ability to maintain existing management, franchise or representation agreements and to obtain new agreements on current terms; competition within the lodging industry and the gaming industry; the cyclicality of the real estate business, the hotel business and the gaming business; foreign exchange fluctuations; general real estate and national and international economic conditions; political, financial and economic conditions and uncertainties in countries in which the Company owns property or operates; the ability of the Company, owners of properties it manages or franchises and others with which it does business to address the Year 2000 issue, and the costs associated therewith; the adoption by several European countries of the euro as their national currency; and the other risks and uncertainties set forth in the annual, quarterly and current reports and proxy statements of the Trust and the Corporation. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 To facilitate a meaningful comparison between periods, this Management's Discussion and Analysis focuses on pro forma information for the periods covered, which management believes provides the most meaningful comparison among periods presented. The pro forma information reflects the ITT Merger, the Westin acquisition and certain asset dispositions as if they had occurred on January 1, 1997. In addition, the following pro forma data for the periods ended September 30, 1997 reflects the 44 hotel properties acquired by Starwood Hotels in 1997 and two hotel properties acquired by Westin in 1997 (the "1997 Acquisitions") and the sale, by ITT, of five hotel properties during 1997 (the "1997 Dispositions"), as if all such transactions had occurred on January 1, 1997. Period-to-period comparisons of the Company's historical information are, in management's view, less relevant to an understanding of the Company due to the significance of the ITT Merger and the acquisition of Westin. The following combined, consolidated, comparative operating data for the Company is presented on a historical reporting basis for the three and nine months ended September 30, 1998 and 1997 excluding preopening costs, non-recurring items and the operations of the Desert Inn in Las Vegas, which was held for sale at September 30, 1998. The pro forma data includes the historical results of Starwood Hotels and Westin prior to the ITT Merger and certain pro forma adjustments as more fully described in the notes to the unaudited combined consolidated pro forma statements of income (see page 30). The pro forma data is not necessarily indicative of the results that would have been achieved had such transactions actually occurred on January 1, 1997, nor are they necessarily indicative of the Company's future results. 31 33
THREE MONTHS ENDED SEPTEMBER 30, -------------------------------------------------- HISTORICAL PRO FORMA HISTORICAL PRO FORMA 1998 1998 1997 1997 ---------- --------- ---------- --------- (IN MILLIONS) REVENUES Hotel Owned.......................................... $ 757 $ 757 $337 $ 706 Managed........................................ 1,042 1,042 736 1,021 Other.......................................... 48 48 36 38 Gaming........................................... 365 365 283 283 Other............................................ 20 20 -- 14 COSTS AND EXPENSES Salaries, benefits and other operating: Hotel Owned.......................................... $ 425 $ 425 $188 $ 401 Managed........................................ 988 988 697 979 Other.......................................... (6) (6) (7) (7) Gaming........................................... 204 204 173 173 Other............................................ -- -- -- 4 Selling, general and administrative: Hotel Owned.......................................... $ 101 $ 101 $ 54 $ 97 Managed........................................ -- -- -- -- Other.......................................... 39 39 40 40 Gaming........................................... 56 56 39 39 Other............................................ 20 (2) 11 23 EBITDA(1) Hotel Owned.......................................... $ 231 $ 231 $ 95 $ 208 Managed........................................ 54 54 39 42 Other.......................................... 6 6 3 5 Gaming........................................... 105 105 71 71 Other............................................ 9 31 (11) (13)
- --------------- (1) EBITDA is defined as income before minority interest, interest expense, taxes and depreciation and amortization. Non-recurring items and gains and losses from sales of property are also excluded from EBITDA as these items do not impact operating results on a recurring basis. Management considers EBITDA to be one measure of the cash flows from operations of the Company before debt service that provides a relevant basis for comparison among real estate companies, and EBITDA is presented to assist investors in analyzing the performance of the Company. This information should not be considered as an alternative to any measure of performance as promulgated under generally accepted accounting principles, nor should it be considered as an indicator of the overall financial performance of the Company. The Company's calculation of EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited. 32 34
NINE MONTHS ENDED SEPTEMBER 30, -------------------------------------------------- HISTORICAL PRO FORMA HISTORICAL PRO FORMA 1998 1998 1997 1997 ---------- --------- ---------- --------- (IN MILLIONS) REVENUES Hotel Owned.......................................... $2,056 $2,270 $ 987 $2,082 Managed........................................ 2,950 3,137 2,153 2,990 Other.......................................... 123 125 100 106 Gaming........................................... 957 952 839 839 Other............................................ 38 48 -- 40 COSTS AND EXPENSES Salaries, benefits and other operating: Hotel Owned.......................................... $1,124 $1,253 $ 543 $1,185 Managed........................................ 2,807 2,988 2,043 2,868 Other.......................................... (41) (41) (22) (22) Gaming........................................... 555 549 509 509 Other............................................ (8) (8) -- 10 Selling, general and administrative: Hotel Owned.......................................... $ 282 $ 312 $ 163 $ 296 Managed........................................ -- -- -- -- Other.......................................... 145 145 132 132 Gaming........................................... 152 152 121 121 Other............................................ 75 54 51 86 EBITDA Hotel Owned.......................................... $ 650 $ 705 $ 281 $ 601 Managed........................................ 143 149 110 122 Other.......................................... 19 21 (10) (4) Gaming........................................... 250 251 209 209 Other............................................ (29) 2 (51) (56)
33 35 RESULTS OF OPERATIONS CONTINUING OPERATIONS Revenues Pro Forma: Revenues for properties owned, leased or managed by the Company increased 4.2% and 6.6% to $1.8 billion and $5.4 billion for the three and nine months ended September 30, 1998, respectively, when compared to the corresponding periods of 1997. The increase in revenues was primarily due to an increase in revenues for owned, leased and consolidated joint venture hotels of 7.2% and 9.0% to $757 million and $2.3 billion in the three and nine months ended September 30, 1998, respectively, when compared to the 1997 periods. The increase in hotel revenues at the Company's 172 owned, leased and consolidated joint venture hotels resulted from an increase in revenue per available room ("REVPAR") of 5.6% and 7.1% to $99 and $99 for the three and nine months ended September 30, 1998, respectively, when compared to the same periods of 1997; an increase in average daily rate ("ADR") of 7.6% and 8.1% to $139 and $141 for the three and nine months ended September 30, 1998, respectively, when compared to the corresponding 1997 periods; and a decrease of 1.3 percentage points in occupancy rates to 71% for the three months ended September 30, 1998 and a decrease of less than one percentage point to 70% for the nine months ended September 30, 1998 when compared to the same periods of 1997. REVPAR at the Company's international owned, leased and consolidated joint venture hotels increased 7.6% and 9.2% for the three and nine months ended September 30, 1998, respectively, when compared to the same periods of 1997. REVPAR at owned, leased and consolidated joint venture properties in North America increased 4.6% and 6.1% for the three and nine months ended September 30, 1998, respectively, when compared to the same periods of 1997. Hotel revenues for properties managed by the Company for third-party owners increased 2.1% and 4.9% to $1.0 billion and $3.1 billion for the three and nine months ended September 30, 1998, respectively, when compared to the same periods of 1997. Management fees and equity earnings from these hotels increased 28.6% and 22.1% to $54 million and $149 million for the three and nine months ended September 30, 1998, respectively, when compared to the same periods of 1997. Gaming revenues, excluding the results of the Desert Inn in Las Vegas, Nevada (which is held for disposition), increased 29.0% and 13.5% to $365 million and $952 million for the three and nine months ended September 30, 1998, respectively, when compared to the same periods of 1997. The increase in revenues from the additional 1,130 rooms and 110,000 square feet of convention space at Caesars Palace in Las Vegas, Nevada was partially offset by the adverse impact on high-end baccarat play of the declines in the Asian financial markets. Historical: On an historical basis, revenues for properties owned, leased or managed by the Company increased 67.7% and 59.4% to $1.8 billion and $5.0 billion for the three and nine months ended September 30, 1998, respectively, when compared to the corresponding periods of 1997. Since the ITT Merger is accounted for as a reverse purchase and the reflected amounts accordingly are those of ITT, the increase in hotel revenues was due primarily to the inclusion beginning February 23, 1998 of the results of approximately 160 hotels owned, leased or managed by Starwood Hotels, including those acquired as a result of the Westin acquisition. For discussion of gaming revenues, see the pro forma discussion above. Costs and Expenses Pro Forma: Pro forma salaries, benefits and other operating costs increased 3.9% and 4.2% in the three and nine months ended September 30, 1998, respectively, to $1.6 billion and $4.7 billion when compared to the same periods of 1997. The increase in costs is due primarily to the reopening of hotel properties in 1998 which were 34 36 closed for renovations in 1997, the inclusion of new managed hotel properties and the inclusion of the operating costs associated with the tower at Caesars Palace, which was opened at the end of 1997. Pro forma selling, general and administrative expenses decreased 2.5% and increased 4.4% in the three and nine months ended September 30, 1998, respectively, to $194 million and $663 million when compared to the same periods of 1997. The decrease in selling, general and administrative expenses for the quarter was primarily related to the $22 million pro forma adjustment to reflect the identified savings from the combination of certain benefit plans (see note (i) to the notes to the unaudited condensed combined pro forma statement of income on page 29). Historical: Historical salaries, benefits and other operating costs increased 53.3% and 44.4% to $1.6 billion and $4.4 billion for the three and nine months ended September 30, 1998, respectively, when compared to the same periods in 1997. Historical selling, general and administrative expenses increased 50.0% and 40.0% to $216 million and $654 million for the three and nine months ended September 30, 1998, respectively, when compared to the same periods in 1997. The increase in salaries, benefits and other operating costs and the increase in selling, general and administrative expenses for the three and nine months ended September 30, 1998, when compared to the same periods of 1997, was due primarily to the reverse purchase accounting treatment and the inclusion beginning February 23, 1998 of the results of approximately 160 hotels owned, leased or managed by Starwood Hotels. EBITDA Pro Forma: On a pro forma basis, the Company's EBITDA, excluding the Desert Inn in Las Vegas, Nevada (which is held for disposition), hotels sold during 1998 and 1997 and discontinued operations, increased 36.4% and 29.4% to $427 million and $1.1 billion in the three and nine months ended September 30, 1998, respectively, when compared to the same periods of 1997. The increase was primarily due to the improved results at the Company's owned, leased and consolidated joint venture hotels. These hotels benefited from an increase in EBITDA of $23 million and $104 million to $231 million and $705 million in the three and nine months ended September 30, 1998, respectively, when compared to the same periods of 1997. The EBITDA improvement at these hotels of 11.1% and 17.3% in the three and nine months ended September 30, 1998, respectively, was due primarily to an increase in ADR discussed above. EBITDA margins for these hotels increased 1.6 and 2.4 percentage points to 30.8% and 31.2% in the three and nine months ended September 30, 1998, respectively, when compared to the same periods of 1997. The Company believes that the improvement to EBITDA margin is attributable in part to the continued implementation of cost containment steps and its ability to realize purchasing synergies as a result of the ITT Merger. Excluding the Desert Inn in Las Vegas, Nevada (which is held for disposition) and preopening costs, gaming EBITDA for the three and nine months ended September 30, 1998 was $105 million and $251 million, respectively, compared to $71 million and $209 million in the same periods of 1997. The increase in gaming EBITDA resulted from positive results at Caesars Palace and Caesars Atlantic City. EBITDA at Caesars Palace was $43 million and $99 million in the three and nine months ended September 30, 1998, respectively, compared to $21 million and $80 million in the same periods of 1997, as the addition of 1,130 rooms and 110,000 square feet of meeting space had a positive effect on all areas of the casino and hotel operations. EBITDA at Caesars Atlantic City was $40 million and $104 million in the three and nine months ended September 30, 1998, respectively, compared to $31 million and $84 million in the same periods of 1997, as the addition of 620 new rooms and 30,000 square feet of casino space had a positive effect on all areas of the casino and hotel operations. Historical: On an historical basis, the Company's EBITDA increased 105.6% and 91.7% to $405 million and $1.0 billion in the three and nine months ended September 30, 1998, respectively, when compared to the same 35 37 periods of 1997, due primarily to the reverse purchase accounting treatment and the inclusion beginning February 23, 1998 of the results of the hotels owned and managed by Starwood Hotels. For the discussion of gaming EBITDA, see the pro forma discussion above. Depreciation and Amortization On an historical basis, depreciation and amortization expense increased to $143 million and $414 million in the three and nine months ended September 30, 1998, respectively, when compared to $63 million and $198 million in the same periods of 1997. The increase was primarily due to depreciation expense on approximately 160 hotels owned, leased or managed by Starwood Hotels beginning February 23, 1998, the amortization of goodwill related to the ITT Merger and the commencement of depreciation on certain newly completed hotel and gaming projects. Net Interest Expense Net interest expense for the three and nine months ended September 30, 1998 increased to $156 million and $399 million, respectively, when compared to $27 million and $70 million in the same periods of 1997. The increase relates primarily to the debt incurred to finance the ITT Merger. See "Liquidity and Capital Resources." RESTRUCTURING AND OTHER SPECIAL CHARGES During the third quarter of 1998, the Company recorded pretax charges of approximately $310 million relating to restructuring and other special charges. The charges consist of costs relating to the write-down of assets, the ITT Merger and other non-recurring costs (see Note 6 to unaudited combined consolidated financial statements on page 20). DISPOSITIONS The Desert Inn in Las Vegas, Nevada, the gaming property held for disposition, experienced a $683,000 and $4 million EBITDA loss in the three and nine months ended September 30, 1998, respectively, compared to a $5 million EBITDA loss and a $23 million EBITDA loss in the same periods of 1997. The improved performance was due to a normalized hold percentage in baccarat and a significantly higher ADR due to improvements made to the property in 1997. These improvements were offset by the Asian economic crisis, which negatively impacted results at the Desert Inn by significantly reducing the amount of high-end baccarat volume. DISCONTINUED OPERATIONS The net loss from discontinued operations for the three and nine months ended September 30, 1998 was $-- and $9 million, respectively, compared to net income of $15 million and $14 million in the same periods of 1997. The decrease in net income results from the sale of the WD subsidiary in February 1998. Gains from the disposition of WD and the sale of shares of Educational Services for the three and nine months ended September 30, 1998 were $24 million and $1,125 million, respectively, net of $15 million and $643 million of taxes and minority interest, respectively. MADISON SQUARE GARDEN In April 1997, ITT entered into a Partnership Interest Transfer Agreement with Cablevision. Pursuant to this agreement, Cablevision paid ITT $500 million in cash on June 17, 1997 for a 38.5% ownership interest in MSG and ITT received two "put" options to require Cablevision or MSG to purchase half of ITT's continuing interest in MSG for $75 million on June 17, 1998 and the other half of this continuing interest for an additional $75 million on June 17, 1999 (or, if the first option were not exercised, the entire continuing interest for $150 million). In addition, ITT agreed to contribute to MSG an ITT-owned aircraft which MSG had used for the New York Knickerbockers and the New York Rangers. In consideration of the aircraft contribution, an 36 38 additional $19 million was added to the exercise price of each of ITT's "put" options. In April 1998, the Company exercised its first "put" option on one-half of its interest in MSG and received a payment of $94 million in June 1998. EXTERNAL GROWTH During the first quarter of 1998, in addition to the ITT Merger and the Westin acquisition, the Company acquired four full-service, luxury hotel properties located in Aspen, Colorado; New York City, New York; Washington, D.C.; and Houston, Texas for a total purchase price of approximately $348 million consisting of $164 million in cash and 3.7 million Paired Shares (which shares were valued for purposes of the acquisition at approximately $184 million). Also in May 1998, the Company acquired the 242-room Danbury Hilton in Danbury, Connecticut for approximately $20 million in cash. In August 1998, the Company acquired a 95% non-controlling interest in the 760-room Westin Maui in Maui, Hawaii for approximately $132 million. INTERNAL GROWTH The following tables summarize average occupancy, ADR and REVPAR on a year-to-year basis for the Company's comparable, owned hotel properties for the three and nine months ended September 30, 1998. The results for the three months represent results for 157 owned hotels (excluding two hotels held for sale at September 30, 1998, seven hotels under significant renovation during the third quarter of 1998 and six hotels under renovation during the third quarter of 1997). The results for the nine months represent results for 153 owned hotels (excluding two hotels held for sale at September 30, 1998, 11 hotels under significant renovation during the nine months ended September 30, 1998 and six hotels under significant renovation during the nine months ended September 30, 1997). OWNED, LEASED AND CONSOLIDATED JOINT VENTURE HOTELS
THREE MONTHS ENDED SEPTEMBER 30, ------------------ PERCENTAGE 1998 1997 VARIANCE ------- ------- ---------- WORLDWIDE ALL HOTELS Number of hotels............................................ 157 157 Number of rooms............................................. 51,103 51,103 REVPAR...................................................... $101.78 $ 95.50 6.6% ADR......................................................... $139.87 $130.36 7.3% Occupancy................................................... 72.8% 73.3% (0.5)% SHERATON Number of hotels............................................ 87 87 Number of rooms............................................. 29,444 29,444 REVPAR...................................................... $111.07 $103.36 7.5% ADR......................................................... $153.22 $142.72 7.4% Occupancy................................................... 72.5% 72.4% 0.1% WESTIN Number of hotels............................................ 26 26 Number of rooms............................................. 10,543 10,543 REVPAR...................................................... $ 90.74 $ 85.65 5.9% ADR......................................................... $124.41 $116.20 7.1% Occupancy................................................... 72.9% 73.7% (0.8)%
37 39
THREE MONTHS ENDED SEPTEMBER 30, ------------------ PERCENTAGE 1998 1997 VARIANCE ------- ------- ---------- OTHER(1) Number of hotels............................................ 44 44 Number of rooms............................................. 11,116 11,116 REVPAR...................................................... $ 87.19 $ 83.87 4.0% ADR......................................................... $118.86 $111.73 6.4% Occupancy................................................... 73.4% 75.1% (1.7)% NORTH AMERICA ALL HOTELS Number of hotels............................................ 110 110 Number of rooms............................................. 37,996 37,996 REVPAR...................................................... $ 95.98 $ 90.68 5.8% ADR......................................................... $130.78 $121.96 7.2% Occupancy................................................... 73.4% 74.4% (1.0)% SHERATON Number of hotels............................................ 44 44 Number of rooms............................................. 17,377 17,377 REVPAR...................................................... $104.06 $ 97.85 6.3% ADR......................................................... $142.12 $132.62 7.2% Occupancy................................................... 73.2% 73.8% (0.6)% WESTIN Number of hotels............................................ 22 22 Number of rooms............................................. 9,503 9,503 REVPAR...................................................... $ 91.11 $ 85.32 6.8% ADR......................................................... $123.52 $114.40 8.0% Occupancy................................................... 73.8% 74.6% (0.8)% OTHER Number of hotels............................................ 44 44 Number of rooms............................................. 11,116 11,116 REVPAR...................................................... $ 87.19 $ 83.87 4.0% ADR......................................................... $118.86 $111.73 6.4% Occupancy................................................... 73.4% 75.1% (1.7)% INTERNATIONAL ALL HOTELS Number of hotels............................................ 47 47 Number of rooms............................................. 13,107 13,107 REVPAR...................................................... $118.50 $109.46 8.3% ADR......................................................... $166.97 $156.20 6.9% Occupancy................................................... 71.0% 70.1% 0.9% SHERATON Number of hotels............................................ 43 43 Number of rooms............................................. 12,067 12,067 REVPAR...................................................... $121.30 $111.40 8.9% ADR......................................................... $169.81 $158.18 7.4% Occupancy................................................... 71.4% 70.4% 1.0% WESTIN Number of hotels............................................ 4 4 Number of rooms............................................. 1,040 1,040 REVPAR...................................................... $ 87.59 $ 88.45 (1.0)% ADR......................................................... $132.95 $133.39 (0.3)% Occupancy................................................... 65.9% 66.3% (0.4)%
- --------------- (1) Represents owned, leased or consolidated joint venture hotels that are not flagged under one of the Company's proprietary brands.
38 40
NINE MONTHS ENDED SEPTEMBER 30, ------------------ PERCENTAGE 1998 1997 VARIANCE ------- ------- ---------- WORLDWIDE ALL HOTELS Number of hotels............................................ 153 153 Number of rooms............................................. 49,253 49,253 REVPAR...................................................... $100.80 $ 93.29 8.1% ADR......................................................... $141.27 $131.40 7.5% Occupancy................................................... 71.4% 71.0% 0.4% SHERATON Number of hotels............................................ 85 85 Number of rooms............................................. 28,113 28,113 REVPAR...................................................... $108.56 $101.06 7.4% ADR......................................................... $153.49 $142.67 7.6% Occupancy................................................... 70.7% 70.8% (0.1)% WESTIN Number of hotels............................................ 25 25 Number of rooms............................................. 10,173 10,173 REVPAR...................................................... $ 97.50 $ 89.16 9.4% ADR......................................................... $131.73 $122.75 7.3% Occupancy................................................... 74.0% 72.6% 1.4% OTHER Number of hotels............................................ 43 43 Number of rooms............................................. 10,967 10,967 REVPAR...................................................... $ 83.64 $ 77.35 8.1% ADR......................................................... $118.67 $110.68 7.2% Occupancy................................................... 70.5% 69.9% 0.6% NORTH AMERICA ALL HOTELS Number of hotels............................................ 106 106 Number of rooms............................................. 36,146 36,146 REVPAR...................................................... $ 96.86 $ 89.62 8.1% ADR......................................................... $135.32 $125.12 8.2% Occupancy................................................... 71.6% 71.6% -- SHERATON Number of hotels............................................ 42 42 Number of rooms............................................. 16,046 16,046 REVPAR...................................................... $106.07 $ 99.14 7.0% ADR......................................................... $149.75 $137.62 8.8% Occupancy................................................... 70.8% 72.0% (1.2)% WESTIN Number of hotels............................................ 21 21 Number of rooms............................................. 9,133 9,133 REVPAR...................................................... $ 96.11 $ 87.48 9.9% ADR......................................................... $129.49 $119.86 $8.0% Occupancy................................................... 74.2% 73.0% 1.2% OTHER Number of hotels............................................ 43 43 Number of rooms............................................. 10,967 10,967 REVPAR...................................................... $ 83.64 $ 77.35 8.1% ADR......................................................... $118.67 $110.68 7.2% Occupancy................................................... 70.5% 69.9% 0.6%
39 41
NINE MONTHS ENDED SEPTEMBER 30, ------------------ PERCENTAGE 1998 1997 VARIANCE ------- ------- ---------- INTERNATIONAL ALL HOTELS Number of hotels............................................ 47 47 Number of rooms............................................. 13,107 13,107 REVPAR...................................................... $111.63 $103.63 7.7% ADR......................................................... $157.81 $149.70 5.4% Occupancy................................................... 70.7% 69.2% 1.5% SHERATON Number of hotels............................................ 43 43 Number of rooms............................................. 12,067 12,067 REVPAR...................................................... $111.93 $103.71 7.9% ADR......................................................... $158.57 $149.93 5.8% Occupancy................................................... 70.6% 69.2% 1.4% WESTIN Number of hotels............................................ 4 4 Number of rooms............................................. 1,040 1,040 REVPAR...................................................... $108.47 $102.83 5.5% ADR......................................................... $149.92 $147.37 1.7% Occupancy................................................... 72.4% 69.8% 2.6%
SEASONALITY AND DIVERSIFICATION The hotel and gaming industries are seasonal in nature; however, the periods during which the Company's properties experience higher hotel revenues or gaming activities vary from property to property and depend principally upon location. Although the Company's revenues historically have been lower in the first quarter than in the second, third or fourth quarters, the acquisitions of Westin and ITT are affecting, and future acquisitions may further affect, seasonal fluctuations in revenues and cash flows. LIQUIDITY AND CAPITAL RESOURCES CASH FLOW PROVIDED BY OPERATING ACTIVITIES Cash flow from operating activities is the principal source of cash to be used to fund the Company's operating expenses, interest expense, recurring capital expenditures and distribution payments by the Trust. The Company anticipates that cash flow provided by operating activities will be sufficient to service short- and long-term indebtedness, fund maintenance requirements and capital expenditures and meet operating cash requirements, including all distributions to shareholders by the Trust. During the first quarter of 1998, the Trust paid a distribution of $0.48 per share for the fourth quarter of 1997. During each of the second, third and fourth quarters of 1998, the Trust paid a distribution of $0.52 per share for the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998. In connection with the Restructuring, the Company has announced that, commencing with the quarter ending December 31, 1998, it expects to reduce its dividend to be paid by the Trust to $0.15 per Paired Share. The Corporation does not expect to pay a dividend in the foreseeable future. CASH FLOW FROM INVESTING AND FINANCING ACTIVITIES The Company intends to finance the acquisition of additional hotel properties, hotel renovations and capital improvements and provide for general corporate purposes through its credit facilities described below, through dispositions of certain non-core assets, through additional lines of credit and, when market conditions warrant, through the issuance of additional equity or debt securities. 40 42 Loans and Credit Facilities At December 31, 1997, ITT had total debt outstanding of approximately $2.0 billion comprised of bank loans and other short-term facilities of $258 million and long-term facilities of approximately $3.0 billion, less net debt allocated to discontinued operations of approximately $1.3 billion. The weighted average interest rate for bank loans and other short-term borrowings was 6.71% at December 31, 1997. The weighted average interest rate on the long-term facilities was 6.98% at December 31, 1997. At December 31, 1997, Starwood Hotels had total debt outstanding of approximately $1.6 billion comprised of revolving lines of credit and other short-term notes and mortgages payable of approximately $1.5 billion and long-term notes and mortgages payable of $97 million. The weighted average interest rate for the revolving lines of credit and other short-term notes and mortgages payable was 7.37% at December 31, 1997. The weighted average interest rate for the long-term notes and mortgages payable was 7.46% at December 31, 1997. The weighted average interest rates are comprised of interest rates on both U.S. dollar and non-U.S. dollar denominated indebtedness. On January 2, 1998, Starwood Hotels obtained the $2.2 Billion Facility from a group of lenders led by Bankers Trust Company and The Chase Manhattan Bank to fund the cash portion of the purchase of Westin for approximately $178 million and to repay an aggregate of approximately $1.0 billion of outstanding debt of Westin and of the Company under the $1.2 Billion Facility. On February 23, 1998, Starwood Hotels obtained two additional credit facilities ($5.6 billion in total) with Lehman Brothers, Bankers Trust Company and The Chase Manhattan Bank to fund the cash portion of the ITT Merger, to refinance a portion of Starwood Hotels' existing indebtedness (including indebtedness outstanding under the $2.2 Billion Facility) and to provide funds for general corporate purposes. These facilities are comprised of the $3.1 Billion Facility and the IRN Facility. The $3.1 Billion Facility has three tranches: a $1.0 billion, one-year term loan; a $1.0 billion, five-year term loan; and a $1.1 billion, five-year revolving credit facility. The Corporation, the Trust and certain of their respective direct and indirect subsidiaries may be designated as borrowers or co-borrowers under all or a portion of the $3.1 Billion Facility. The interest rate for the $3.1 Billion Facility was one-, two- or three-month LIBOR, at the Company's option, plus 187.5 basis points for the six months ending August 24, 1998, and since that date has been determined pursuant to a pricing "grid" with rates based on Starwood Hotels' leverage and/or senior unsecured debt rating. Quarterly amortization of the five-year term loan begins in the third year, with total amortization of 10%, 20% and 70% of the principal amount over the third, fourth and fifth years, respectively. Repayment of amounts borrowed under the $3.1 Billion Facility is guaranteed by the Trust and the Corporation and substantially all of their respective significant subsidiaries (including the Partnerships) other than gaming and foreign subsidiaries and joint venture entities, to the extent such entities are not borrowers or co-borrowers, and is secured by a pledge of all the capital stock, partnership interests and other equity interests of the guarantor subsidiaries. The IRN Facility consists of a single drawdown, senior increasing rate, non-amortizing five-year term loan for $2.5 billion. The Corporation is the borrower under the IRN Facility; the Trust and all subsidiaries of the Corporation and the Trust that are borrowers or guarantors of the $3.1 Billion Facility are guarantors of the IRN Facility. The IRN Facility is secured equally and ratably by all the collateral securing the $3.1 Billion Facility and is pari passu in right of payment with all other senior indebtedness of the borrower and the guarantors, including the $3.1 Billion Credit Facility. Amounts borrowed under the IRN Facility bear interest at one-, two- or three-month LIBOR plus 175 basis points for the three months ending May 24, 1998, with the interest rate increasing by 50 basis points every three months thereafter, up to a maximum rate of one-, two- or three-month LIBOR plus 375 basis points. During the quarter ended September 30, 1998, the Company entered into a new $1 billion, five-year term borrowing facility ("$1 Billion IRN Facility") with Lehman Brothers to facilitate share repurchases and enhance its financial flexibility. The new facility bears interest at one-, two- or three-month LIBOR plus 275 basis points. 41 43 Following is a summary of the Company's debt portfolio as of September 30, 1998. Floating Rate Credit Facilities:
AMOUNT OUTSTANDING AT SEPTEMBER 30, 1998 INTEREST RATE AT AVERAGE FACILITY (IN MILLIONS) INTEREST TERMS SEPTEMBER 30, 1998 MATURITY - -------- --------------------- -------------- ------------------ ---------- $1.1 billion bank revolver... $ 878 LIBOR+1.25% 6.56% 4.3 years Asset sale bridge............ 542 LIBOR+1.25% 6.56% 0.3 years Five-year term loan.......... 1,000 LIBOR+1.25% 6.56% 4.3 years ------ ---- ---------- Total/average...... $2,420 6.56% 3.4 years ====== ==== ==========
Floating Rate Debt:
AMOUNT OUTSTANDING AT SEPTEMBER 30, 1998 INTEREST RATE AT AVERAGE FACILITY/LENDER (IN MILLIONS) INTEREST TERMS SEPTEMBER 30, 1998 MATURITY - --------------- --------------------- -------------- ------------------ ---------- IRN Facility................. $2,500 LIBOR+2.75% 8.06% 4.3 years $1 billion IRN Facility...... 250 LIBOR+2.75% 8.06% 4.3 years Mortgage and other........... 804 Various 6.78% 2.8 years Starwood interest rate swaps...................... (1,000) N/A 6.56% -- ------ ---- ---------- Total/average...... $2,554 7.43% 3.8 years ====== ==== ==========
Fixed Rate Debt:
AMOUNT OUTSTANDING AT SEPTEMBER 30, 1998 INTEREST RATE AT AVERAGE FACILITY/LENDER (IN MILLIONS) INTEREST TERMS SEPTEMBER 30, 1998 MATURITY - --------------- --------------------- -------------- ------------------ ---------- ITT public debt.............. $2,000 N/A 6.79% 8.6 years Caesars public debt.......... 150 N/A 8.88% 3.8 years Mortgage and other........... 294 N/A 8.24% 17.8 years Starwood interest rate swaps...................... 1,000 N/A 7.26% -- ------ ---- ---------- Total/average...... $3,444 7.14% 9.4 years ====== ==== ========== Total Debt and Average Terms:..................... $8,418 7.31% 5.4 years ====== ==== ==========
Stock Sales and Repurchases At December 31, 1997, ITT had 180 million shares outstanding. On February 23, 1998, Starwood Hotels completed the acquisition of ITT. Each outstanding ITT Share, other than those that were converted into cash pursuant to a cash election by the holder (and other than ITT Shares owned directly or indirectly by ITT or Starwood Hotels, which shares were canceled), was converted into 1.543 Paired Shares. Pursuant to cash election procedures, approximately 35 million (pre-reverse acquisition) ITT Shares of ITT's common stock, representing approximately 30% of the outstanding ITT Shares prior to the ITT Merger, were converted into $85 in cash per share. In addition, each ITT Share of ITT's common stock was converted into additional cash consideration in the amount of $0.37493151, which amount represents the interest that would have accrued (without compounding) on $85 at an annual rate of 7% during the period from and including January 31, 1998 to but excluding the date of the closing (February 23, 1998). For additional information with respect to the Company's accounting for the ITT Merger, see Note 3 of the Notes to Financial Statements. Pursuant to a Purchase Agreement dated as of October 10, 1997, the Company sold to UBS Ltd. 2.185 million UBS Shares at a cash price of $57.25 per share, and paid to Warburg Dillon Read LLC, an affiliate of 42 44 UBS Ltd., a placement fee equal to 2.5% of the gross proceeds to the Company from such sale of shares. Concurrently therewith, the Company entered into the UBS Price Adjustment Agreement with UBS/LB. The UBS Price Adjustment Agreement provided for a settlement payment to be made, in the form of Paired Shares or cash, by the Company to UBS/LB, or by UBS/LB to the Company, based on the market price of the Paired Shares over a specified unwind period, as compared to a "Forward Price" (as defined, but essentially equal to $57.25 per Paired Share, plus an implicit interest factor less dividends paid on the UBS Shares, in each case during the term of the UBS Price Adjustment Agreement). If prior to final settlement the market price of the Paired Shares fell below the Forward Price, the Company was obligated to deliver, at quarterly intervals, additional Paired Shares to UBS/LB. In the event the market price of the Paired Shares exceeded the Forward Price on a quarterly settlement date, UBS/LB was obligated to deliver to the Company a portion of the UBS Shares to provide for the differential. The Company had the right at any time prior to October 10, 1998 to elect to deliver or receive Paired Shares in settlement of the UBS Price Adjustment Agreement. The Company had the further right, but not the obligation, to settle the Company's obligations under the contract by repurchasing for cash at the Forward Price a number of Paired Shares equal to the UBS Shares. The Company had the obligation to settle the UBS Price Adjustment Agreement on October 10, 1998 unless UBS/LB agreed to extend such agreement's terms. The Company settled this agreement in September 1998 by repurchasing the UBS Shares for approximately $130.3 million in cash. As a result of the settlement of the UBS Price Adjustment Agreement, Paired Shares outstanding were reduced by 2.185 million. On February 24, 1998, the Trust and the Corporation sold an aggregate of 4.641 million Paired Shares to Merrill Lynch International, NMS Services, Inc., Lehman Brothers Inc. and certain of their affiliates for a cash purchase price per Paired Share of $52.798, which price reflected a 2% discount from the last reported sale price of the Paired Shares on the date of the purchase. Concurrently with these sales, the Trust and the Corporation entered into the February Price Adjustment Agreements with the February Purchasers and/or certain of their affiliates pursuant to which each of the February Purchasers or their respective affiliates agreed to sell, as directed by the Trust and the Corporation and on or before February 24, 1999, in an underwritten fixed price offering or another method specified in the February Price Adjustment Agreements, a sufficient number of the purchased Paired Shares to achieve net sales proceeds equal to the aggregate market value of the Paired Shares purchased by such February Purchasers in February 1998, plus a forward accretion component, minus an adjustment for dividends paid on the purchased Paired Shares. In addition, each February Purchaser had the right to cause a sale of all or a portion of the purchased Paired Shares in the event the market prices of the Paired Shares declined below certain levels. The precise numbers of Paired Shares that were required to be sold pursuant to the February Price Adjustment Agreements would have depended primarily on the market prices of the Paired Shares at the time of settlement. If the number of Paired Shares required to be sold was greater than the number of Paired Shares purchased by the February Purchasers as a result of a decrease in the market prices of the Paired Shares, the Trust and the Corporation were required to issue additional Paired Shares to the February Purchasers at a cash price of $0.01 per share. If the number of Paired Shares required to be sold was less than the number of Paired Shares purchased by the February Purchasers on February 24, 1998 as a result of an increase in the market prices of the Paired Shares, the February Purchasers were required to deliver to the Trust and the Corporation a specified number of Paired Shares. The effect of the February Price Adjustment Agreements was to cause the February Purchasers to receive and retain an amount equal to the purchase price paid by the February Purchasers for the Paired Shares plus an annual rate of return on that purchase price equal to the three-month LIBOR for a specified period plus 1.75%, subject to adjustment under certain circumstances. In the event that the cash purchase price of the aggregate Paired Shares purchased by the February Purchasers less $5 million was in excess of the aggregate closing price of those Paired Shares on certain dates during the term of the February Price Adjustment Agreements, the Company was obligated to deliver additional Paired Shares to the February Purchasers as security for the Company's settlement obligations. As of September 30, 1998, the Company had delivered approximately 2.738 million Paired Shares in accordance with this security requirement. 43 45 In October 1998, the Company settled the February Price Adjustment Agreements by repurchasing all of the Paired Shares issued to the February Purchasers for an aggregate of approximately $255 million in cash. As a result of this settlement, the Company has no further obligations under these agreements and Paired Shares outstanding were reduced by approximately 7.379 million (4.641 million original shares issued and 2.738 million shares previously issued as security). Pursuant to the Company's share repurchase program, the Company repurchased approximately 7.143 million Paired Shares in the open market at an average purchase price of $34.59 during the three months ended September 30, 1998. During the nine months ended September 30, 1998, the Company had repurchased approximately 9.124 million Paired Shares in the open market at an average purchase price of $37.67 per Paired Share. OTHER MATTERS IMPACT OF RECENTLY ENACTED TAX LEGISLATION Section 269B(a)(3) of the Code treats, under certain circumstances, a REIT and a paired non-REIT whose shares were not paired on or before June 30, 1983 as one entity for purposes of determining whether either company qualifies as a REIT. Section 269(a)(3) has not applied to the Company because the Trust Shares and the Corporation Shares were paired prior to that date. The Internal Revenue Service Restructuring and Reform Act of 1998 (H.R. 2676) which was enacted on July 22, 1998 severely limits the ability of paired share REITs, such as the Company, to acquire interests in real property and continue to meet the tests under the code for qualification as a REIT. Under H.R. 2676, for purposes of the gross income tests for qualification as a REIT, the Corporation and the Trust generally would be treated as a single entity with respect to interests in real property acquired directly or indirectly after March 26, 1998 by the Trust or the Corporation, or a subsidiary or partnership in which a 10% or greater interest is owned by the Trust or the Corporation (collectively, the "REIT Group"). H.R. 2676 also provides that an interest in real property held by the REIT Group that is not subject to the anti-pairing rules of Section 269B(a)(3) of the Code would become subject to such rules in the event an improvement to such interest in real property is placed in service after December 31, 1999 that changes the use of the property and the cost of which is greater than 200 percent of (x) the undepreciated cost of the property (prior to the improvement) or (y) in the case of property acquired where there is a substituted basis, the fair market value of the property on the day it was acquired by the REIT Group. There is an exception for improvements placed in service before January 1, 2004 pursuant to a binding contract in effect as of December 31, 1999 and at all times thereafter. If the Restructuring occurs, the restrictions of H.R. 2676 will no longer apply to Starwood Hotels, and thus will not prevent the Company from acquiring additional interests in real property. Prior to the completion of the Restructuring, the Company will monitor the acquisition of interests in real property by the REIT Group to ensure that such acquisitions do not prevent the Trust from qualifying for taxation as a REIT. RISKS RELATING TO YEAR 2000 Many computer systems were originally designed to recognize calendar years by the last two digits in the date code field. Beginning in the year 2000, these date code fields will need to accept four-digit entries to distinguish twenty-first century dates from twentieth century dates. As a result, in less than two years, the computerized systems, which include information and non-information technology systems, and applications used by the Company will need to be reviewed, evaluated and modified or replaced, if necessary, to ensure all such financial, information and operational systems are Year 2000 compliant. State of Readiness The Company is addressing the Year 2000 compliance issue by separately focusing on its central facilities, which include all of its non-operating facilities, and on its gaming and hotel properties. 44 46 The Company has identified the critical central facility business applications that will be affected by the Year 2000, conducted the discovery and assessment stages of the reservations and communication system applications and assembled a team to implement modifications or upgrades, as necessary, and to test results. The majority of the central facility applications passed the final testing, which was performed by internal personnel and independent third parties in the second quarter of 1998. The Company is in the process of communicating with others with whom it does significant business to determine their readiness of Year 2000 compliance and during the third quarter of 1998 successfully completed a validation process with a third-party reservation information service provider with which the Company has a material relationship. The Company is in the phase of assessing its hardware components at its central facilities, all of which are expected to be modified or upgraded, as necessary, to ensure Year 2000 compliance by the second quarter of 1999. The Company has entered into a consulting agreement with an independent third party to perform an inventory and assessment of all of its computerized systems and applications for its gaming operations. This inventory and assessment will determine the resources needed, necessary modifications or upgrades, vendor Year 2000 compliance, remediation plan and the time frame for the gaming operations to become Year 2000 compliant, and is expected to be completed in 1998. The Company has completed the initial assessment of the applications and hardware at its owned, leased, managed and joint venture hotel properties. In the third quarter of 1998, validation tools and resources were deployed to the hotel properties. Once the test statistics for the hotel property applications and hardware are collected, the information will be sent to an independent third party for Year 2000 compliance verification. Based on the results of the compliance verification, the company expects to address remediation efforts by the third quarter of 1999. Year 2000 Project Costs The Company estimates that total costs for the Year 2000 compliance review, evaluation, assessment and remediation efforts for the central facilities and owned hotel and gaming properties should not exceed $20 million, although there can be no assurance that actual costs will not exceed this amount. Of this amount, $1.5 million had been expended as of September 30, 1998, and an additional $3.5 million is expected to be spent in the remainder of 1998. Starwood Year 2000 Risks Since all major computerized central facilities reservation systems and applications have been tested and reservations for the year 2000 have been accepted, the Company believes that it has addressed all material risks related to its reservation function. The remaining risks relate to the non-critical business applications, support hardware for the central facilities and embedded systems at the properties owned or managed by the Company. A failure of certain of these systems to become Year 2000 compliant could disrupt the timeliness or the accuracy of management information provided by the central facilities. There can be no assurance that the efforts related to the gaming and hotel properties will be sufficient to make these properties' computerized systems and applications Year 2000 compliant in a timely manner or that the allocated resources will be sufficient. A failure to become Year 2000 compliant could affect the integrity of the gaming and hotel property guest check-in, billing and accounting functions. Certain physical hotel property machinery and equipment could also fail resulting in safety risks and customer dissatisfaction. Additionally, failure of the gaming properties' systems to become Year 2000 compliant could result in the inefficient processing of operational gaming information and the malfunction of computerized gaming machines. The Company has asked substantially all of its significant vendors and service providers to provide reasonable assurances as to those parties' Year 2000 state of readiness. Risk assessments and contingency plans, where required, will be finalized in the first six months of 1999. To the extent that vendors and service providers do not provide satisfactory evidence that their products and services are Year 2000 compliant, the Company will seek to obtain the necessary products and services from alternative sources. There can be no assurance, however, that Year 2000 remediation by vendors and service providers will be completed timely or 45 47 that qualified replacement vendors and service providers will be available, and any failure of such third parties' systems could have a material adverse impact on the Company's computer systems and operations. Contingency Plan The Company is in the process of developing its contingency plan for the central facilities and the gaming and hotel properties to provide for the most reasonably likely worst case scenarios regarding Year 2000 compliance. This contingency plan is expected to be completed in 1999. EUROPEAN UNION CURRENCY CONVERSIONS On January 1, 1999, 11 of the 15 member countries of the European Union (the "Participating Countries") are scheduled to establish fixed conversion rates between their existing sovereign currencies and the euro. Following the introduction of the euro, the legacy currencies of the Participating Countries will remain legal tender during a transition period ending on January 1, 2002. During the transition period, both the legacy currency and the euro will be legal tender in the respective Participating Countries. During the transition period, currency conversions will be computed by a triangulation with reference to conversion rates between the respective currencies and the euro. The Company currently operates in ten of the 11 Participating Countries. The effect on the Company of the adoption of the euro by the Participating Countries in which it operates is currently uncertain. However, it is possible that the euro adoption will result in increased competition in the European market. In addition, a number of the Company's information systems are not currently euro compliant. The Company is currently evaluating and updating its information systems to make them euro compliant; however, there is no assurance that the Company or third-party vendors of applications utilized by the Company will successfully bring all of its systems into compliance by the beginning of the transition period. Failure of the Company to do so could result in disruptions in the processing of transactions in euros or computed by reference to the euro. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved in various claims and lawsuits arising in the ordinary course of business, none of which, in the opinion of management, is expected to have a material adverse effect on the Company's consolidated financial position or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS In the third quarter of 1998, the Company sold put options for an aggregate of one million Paired Shares to BT Alex.Brown Incorporated for an aggregate cash price of $1.8 million. Each such option entitles the holder to sell to the Company, at the option's expiration date, a specified number of Paired Shares at a specified strike price. The expiration dates of these options ranged from December 1998 through March 1999; the strike prices ranged from $31.11 to $32.85. No underwriter was involved in these transactions. The offer and sale of these options was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof. During the nine months ended September 30, 1998, the Trust consented to the conversion of 1,360,403 shares of Class B EPS by certain stockholders into an equal number of shares of Class A EPS; stockholders thereafter converted 2,889,106 shares of Class A EPS into an equal number of Paired Shares. In the third quarter of 1998, the Company converted approximately 412,000 units of the Partnerships held by third parties into Paired Shares on a one-for-one basis. 46 48 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS
EXHIBIT NO. DESCRIPTION - ------- ----------- 2.1 Agreement and Plan of Restructuring dated as of September 16, 1998, among the Corporation, ST Acquisition Trust and the Trust. 3.1 Declaration of Trust of the Trust, amended and restated as of June 6, 1988, as amended through February 23, 1998 (incorporated by reference to Exhibit 3.1 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1997 (the "1997 Form 10-K")). 3.2 Articles of Incorporation of the Corporation, amended and restated as of February 1, 1995, as amended through March 19, 1998 (incorporated by reference to Exhibit 3.2 to the 1997 Form 10-K). 3.3 Amended and Restated Trustees' Regulations of the Trust, as amended through June 25, 1998 (incorporated by reference to Exhibit 3.3 to the Trust's and the Corporation's Joint Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (the "June 1998 Form 10-Q")). 3.4 Amended and Restated Bylaws of the Corporation, as amended through June 25, 1998 (incorporated by reference to Exhibit 3.4 to the June 1998 Form 10-Q). 4.1 Pairing Agreement, dated June 25, 1986, between the Trust and the Corporation (incorporated by reference to Exhibit 4.1 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1994). 4.2 Amendment No. 1 to the Pairing Agreement, dated as of February 1, 1995, between the Trust and the Corporation (incorporated by reference to Exhibit 4.2 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1995). 4.3 Amendment No. 2 to the Pairing Agreement, dated as of January 2, 1998, between the Trust and the Corporation (incorporated by reference to Exhibit 4.3 to the 1997 Form 10-K). 10.1 Indemnification Agreement dated as of August 24, 1998, between the Corporation and Thomas C. Janson, Jr., as amended by Amendment Nos. 1 and 2 thereto. 10.2 Fifth Amendment to Credit Agreement dated as of August 26, 1998, among the Trust, Realty Partnership, the Corporation, ITT, the lenders named therein, Bankers Trust Company and the Chase Manhattan Bank, as Administrative Agents, and Lehman Brothers and Bank of Montreal, as Syndication Agents. 10.3 Amended and Restated Senior Secured Note Agreement dated August 27, 1998, among the Corporation, the Trust, the guarantors listed therein, the lenders listed therein and Lehman Commercial Paper Inc., as Arranger and Administrative Agent, BT Alex.Brown Incorporated and Chase Securities Inc., as Syndication Agents. 10.4 Aircraft Dry Lease Agreement entered into as of February 6, 1998, between Star Flight, L.L.C. and ITT Flight Operation, Inc., as amended by First Amendment thereto, dated as of August 25, 1998. 27.1 Financial Data Schedule, Starwood Hotels & Resorts Worldwide, Inc. 27.2 Financial Data Schedule, Starwood Hotels & Resorts.
(b) REPORTS ON FORM 8-K During the third quarter of 1998, the Trust and the Corporation filed a Joint Current Report on Form 8-K dated August 26, 1998, reporting under Item 5 the approval by the Board of Trustees of the Trust and the Board of Directors of the Corporation of a proposal to restructure the Trust and the Corporation. 47 49 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STARWOOD HOTELS & RESORTS STARWOOD HOTELS & RESORTS WORLDWIDE, INC. /s/ BARRY STERNLICHT /s/ RONALD C. BROWN - -------------------------------------------- -------------------------------------------- Barry Sternlicht Ronald C. Brown Chairman and Chief Executive Officer Executive Vice President and Chief Financial Officer
Date: November 6, 1998 48 50 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ------- ----------- 2.1 Agreement and Plan of Restructuring dated as of September 16, 1998, among the Corporation, ST Acquisition Trust and the Trust. 3.1 Declaration of Trust of the Trust, amended and restated as of June 6, 1988, as amended through February 23, 1998 (incorporated by reference to Exhibit 3.1 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1997 (the "1997 Form 10-K")). 3.2 Articles of Incorporation of the Corporation, amended and restated as of February 1, 1995, as amended through March 19, 1998 (incorporated by reference to Exhibit 3.2 to the 1997 Form 10-K). 3.3 Amended and Restated Trustees' Regulations of the Trust, as amended through June 25, 1998 (incorporated by reference to Exhibit 3.3 to the Trust's and the Corporation's Joint Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (the "June 1998 Form 10-Q")). 3.4 Amended and Restated Bylaws of the Corporation, as amended through June 25, 1998 (incorporated by reference to Exhibit 3.4 to the June 1998 Form 10-Q). 4.1 Pairing Agreement, dated June 25, 1986, between the Trust and the Corporation (incorporated by reference to Exhibit 4.1 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1994). 4.2 Amendment No. 1 to the Pairing Agreement, dated as of February 1, 1995, between the Trust and the Corporation (incorporated by reference to Exhibit 4.2 to the Trust's and the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1995). 4.3 Amendment No. 2 to the Pairing Agreement, dated as of January 2, 1998, between the Trust and the Corporation (incorporated by reference to Exhibit 4.3 to the 1997 Form 10-K). 10.1 Indemnification Agreement dated as of August 24, 1998, between the Corporation and Thomas C. Janson, Jr., as amended by Amendment Nos. 1 and 2 thereto. 10.2 Fifth Amendment to Credit Agreement dated as of August 26, 1998, among the Trust, Realty Partnership, the Corporation, ITT, the lenders named therein, Bankers Trust Company and the Chase Manhattan Bank, as Administrative Agents, and Lehman Brothers and Bank of Montreal, as Syndication Agents. 10.3 Amended and Restated Senior Secured Note Agreement dated August 27, 1998, among the Corporation, the Trust, the guarantors listed therein, the lenders listed therein and Lehman Commercial Paper Inc., as Arranger and Administrative Agent, BT Alex.Brown Incorporated and Chase Securities Inc., as Syndication Agents. 10.4 Aircraft Dry Lease Agreement entered into as of February 6, 1998, between Star Flight, L.L.C. and ITT Flight Operation, Inc., as amended by First Amendment thereto, dated as of August 25, 1998. 27.1 Financial Data Schedule, Starwood Hotels & Resorts Worldwide, Inc. 27.2 Financial Data Schedule, Starwood Hotels & Resorts.
49 EX-2.1 2 EX-2.1 1 EXHIBIT 2.1 EXECUTION COPY AGREEMENT AND PLAN OF RESTRUCTURING AMONG STARWOOD HOTELS & RESORTS WORLDWIDE, INC., ST ACQUISITION TRUST AND STARWOOD HOTELS & RESORTS DATED AS OF SEPTEMBER 16, 1998 2 AGREEMENT AND PLAN OF RESTRUCTURING TABLE OF CONTENTS SECTION PAGE ARTICLE I.....................................................................2 THE MERGER...........................................................2 Section 1.1 The Merger.........................................2 Section 1.2 Effective Time.....................................2 Section 1.3 Effects of the Merger..............................2 Section 1.4 Charter and Bylaws; Trustees and Officers..........2 Section 1.5 Conversion of Securities...........................3 Section 1.6 Parent to Make Certificates Available; Transfer Taxes.....................................3 Section 1.7 Dividends..........................................4 Section 1.8 Return of Exchange Fund............................5 Section 1.9 No Further Ownership Rights in Trust Shares........5 Section 1.10 Closing of Company Transfer Books..................5 Section 1.11 Lost Certificates..................................5 Section 1.12 Further Assurances.................................6 Section 1.13 Closing............................................6 ARTICLE II....................................................................6 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.....................6 Section 2.1 Organization, Standing and Power...................6 Section 2.2 Capital Structure..................................7 Section 2.3 Authority..........................................8 Section 2.4 Consents and Approvals; No Violation...............9 Section 2.5 SEC Documents and Other Reports...................10 Section 2.6 Registration Statement and Joint Proxy Statement.........................................11 Section 2.7 Absence of Certain Changes or Events..............11 Section 2.8 Permits and Compliance............................12 Section 2.9 Tax Matters.......................................12 Section 2.10 Actions and Proceedings...........................13 Section 2.11 Compliance with Worker Safety and Environmental Laws................................14 Section 2.12 Intellectual Property.............................14 Section 2.13 Required Vote of Parent Stockholders..............15 Section 2.14 State Takeover Statutes...........................15 ARTICLE III..................................................................15 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................15 Section 3.1 Organization, Standing and Power..................15 Section 3.2 Capital Structure.................................16 Section 3.3 Authority.........................................16 Section 3.4 Consents and Approvals; No Violation..............17 Section 3.5 SEC Documents and Other Reports...................18 -i- 3 AGREEMENT OF PLAN AND MERGER TABLE OF CONTENTS SECTION PAGE Section 3.6 Registration Statement and Joint Proxy Statement........................................18 Section 3.7 Absence of Certain Changes or Events.............19 Section 3.8 Permits and Compliance...........................19 Section 3.9 Tax Matters......................................20 Section 3.10 Actions and Proceedings..........................21 Section 3.11 Compliance with Worker Safety and Environmental Laws...............................21 Section 3.12 Intellectual Property............................21 Section 3.13 Required Vote of Company Shareholders............22 Section 3.14 State Takeover Statutes..........................22 ARTICLE IV..................................................................22 COVENANTS RELATING TO CONDUCT OF BUSINESS..........................22 Section 4.1 Conduct of Business by the Company Pending the Merger.......................................22 Section 4.2 Conduct of Business by Parent Pending the Merger...........................................22 ARTICLE V...................................................................23 ADDITIONAL AGREEMENTS..............................................23 Section 5.1 Stockholder Meetings.............................23 Section 5.2 Preparation of the Registration Statement and the Joint Proxy Statement....................23 Section 5.3 Actions Prior to Closing.........................24 Section 5.4 Compliance with the Securities Act...............24 Section 5.5 Stock Exchange Listings..........................24 Section 5.6 Stock Options....................................24 Section 5.7 Reasonable Best Efforts..........................25 Section 5.8 Public Announcements.............................25 Section 5.9 Real Estate Transfer and Gains Tax...............25 Section 5.10 State Takeover Laws..............................26 Section 5.11 Indemnification..................................26 Section 5.12 Notification of Certain Matters..................26 Section 5.13 Employee Benefit Plans and Agreements............26 ARTICLE VI..................................................................27 CONDITIONS PRECEDENT TO THE MERGER.................................27 Section 6.1 Conditions to Each Party's Obligation to Effect the Merger................................27 Section 6.2 Conditions to Obligation of the Company to Effect the Merger................................28 Section 6.3 Conditions to Obligations of Parent and Sub to Effect the Merger.............................28 -ii- 4 AGREEMENT OF PLAN AND MERGER TABLE OF CONTENTS SECTION PAGE ARTICLE VII................................................................29 TERMINATION, AMENDMENT AND WAIVER.................................29 Section 7.1 Termination.....................................29 Section 7.2 Effect of Termination...........................30 Section 7.3 Amendment.......................................30 Section 7.4 Waiver..........................................30 ARTICLE VIII...............................................................30 GENERAL PROVISIONS................................................30 Section 8.1 Non-Survival of Representations and Warranties......................................30 Section 8.2 Notices.........................................31 Section 8.3 Interpretation..................................31 Section 8.4 Counterparts....................................32 Section 8.5 Entire Agreement; No Third-Party Beneficiaries...................................32 Section 8.6 Governing Law...................................32 Section 8.7 Assignment......................................32 Section 8.8 Severability....................................32 Section 8.9 Enforcement of this Agreement...................32 Section 8.10 Trust...........................................33 -iii- 5 AGREEMENT AND PLAN OF RESTRUCTURING AGREEMENT AND PLAN OF RESTRUCTURING dated as of September 16, 1998 (this "Agreement"), among Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation ("Parent"), ST Acquisition Trust, a Maryland real estate investment trust and a wholly owned subsidiary of Parent ("Sub"), and Starwood Hotels & Resorts, a Maryland real estate investment trust (the "Company") (Sub and the Company being hereinafter collectively referred to as the "Constituent Trusts"). W I T N E S S E T H: WHEREAS the Board of Directors of Parent and the respective Boards of Trustees of Sub and of the Company have approved and declared advisable the merger of Sub and the Company (the "Merger"), upon the terms and subject to the conditions set forth herein, whereby each issued and outstanding common share of beneficial interest, par value $0.01 per share, of the Company ("Trust Shares") not owned directly or indirectly by Parent or the Company will be converted into Class B shares of beneficial interest, par value $.01 per share, in the Surviving Trust (as hereinafter defined), having substantially the terms specified in the Declaration of Trust of the Trust as it is proposed to be amended and restated at the Effective Time (as hereinafter defined) pursuant to Section 1.4 hereof or as otherwise agreed to by the parties ("Class B Shares"); WHEREAS the Board of Directors of Parent and the Board of Trustees of the Company have determined that the Merger is in furtherance of and consistent with their respective long-term business strategies and is in the best interest of their respective stockholders or shareholders, as the case may be; and WHEREAS for federal income tax purposes, it is intended that the Merger shall qualify in part as a recapitalization within the meaning of Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended (the "Code"), and in part as a contribution by the holders of Trust Shares to the capital of Parent in a transaction qualifying under Section 351(a) of the Code. NOW, THEREFORE, in consideration of the premises, representations, warranties and agreements herein contained, the parties agree as follows: 6 ARTICLE I THE MERGER Section 1.1 The Merger. Upon the terms and subject to the conditions hereof, and in accordance with the Maryland General Corporation Law, as amended (the "MGCL"), Sub shall be merged with and into the Company at the Effective Time (as hereinafter defined). Following the Merger, the separate trust existence of Sub shall cease and the Company shall continue as the surviving trust (the "Surviving Trust") and shall succeed to and assume all the rights and obligations of Sub in accordance with the MGCL. Section 1.2 Effective Time. The Merger shall become effective when Articles of Merger (the "Articles of Merger"), executed in accordance with the relevant provisions of the MGCL, are filed with and accepted for record by the State Department of Assessments and Taxation of Maryland; provided, however, that, upon mutual consent of the Constituent Trusts, the Articles of Merger may provide for a later date of effectiveness of the Merger not more than 30 days after the date the Articles of Merger are filed and accepted for record. When used in this Agreement, the term "Effective Time" shall mean the date and time at which the Articles of Merger are accepted for record or such later time provided for by the Articles of Merger. The filing of the Articles of Merger shall be made on the date of the Closing (as defined in Section 1.13). Section 1.3 Effects of the Merger. The Merger shall have the effects set forth in Section 8-501.1(n) of the MGCL and this Agreement. Section 1.4 Charter and Bylaws; Trustees and Officers. (a) At the Effective Time, the Declaration of Trust of the Company shall be amended and restated in its entirety to read as set forth on Exhibit 1.4 hereto or as otherwise agreed to by the parties hereto, and such Declaration of Trust, as so amended and restated, shall be the Declaration of Trust of the Surviving Trust until thereafter changed or amended as provided therein or by applicable law. At the Effective Time, the Trustees' Regulations of the Company, as in effect immediately prior to the Effective Time, shall be the Trustees' Regulations of the Surviving Trust until thereafter changed or amended as provided therein or by the Declaration of Trust of the Surviving Trust. (b) The trustees of the Company at the Effective Time of the Merger shall be the trustees of the Surviving Trust until the next annual meeting of shareholders and until their respective successors are duly elected and qualified, as the case may be, subject to their earlier resignation or removal. The officers of the Company at the Effective Time of the Merger shall -2- 7 be the officers of the Surviving Trust until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. Section 1.5 Conversion of Securities. As of the Effective Time, by virtue of the Merger and without any action on the part of Sub, the Company or the holders of any securities of the Constituent Trusts: (a) Each issued and outstanding common share of beneficial interest, par value $.01 per share, of Sub shall be converted into one validly issued, fully paid and nonassessable Class A share of beneficial interest, par value $.01 per share, of the Surviving Trust ("Class A Shares"). (b) All Trust Shares that have been acquired by the Company or by any wholly owned Subsidiary (as defined in Section 2.1) of the Company and any Trust Shares owned by Parent or any wholly owned Subsidiary of Parent shall no longer be outstanding and shall automatically be cancelled and restored to the status of authorized and unissued shares of beneficial interest and no shares of beneficial interest of the Company or other consideration shall be delivered in exchange therefor. (c) Each Trust Share issued and outstanding immediately prior to the Effective Time (other than shares to be cancelled in accordance with Section 1.5(b)) shall be converted into one validly issued, fully paid and nonassessable Class B Share. (d) Each Trust Share (other than shares to be cancelled in accordance with Section 1.5(b)), when converted as provided in Section 1.5(c), shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a Certificate (as defined in Section 1.6(b)) theretofore evidencing any such shares shall cease to have any rights with respect thereto, except the right to receive, upon the surrender of such Certificate in accordance with Section 1.6, certificates evidencing the Class B Shares (as well as the shares of common stock, par value $0.01 per share ("Parent Common Stock"), of Parent associated therewith pursuant to the Pairing Agreement (as hereinafter defined) and Article VI, Section 6.14 of the Company's Declaration of Trust) into which such shares are converted pursuant to Section 1.5(c). Section 1.6 Parent to Make Certificates Available; Transfer Taxes. (a) Parent shall authorize such person or persons as shall be acceptable to Parent and the Company to act as Exchange Agent hereunder (the "Exchange Agent"). As soon as practicable after the Effective Time, the Surviving Trust and Parent shall deposit with the Exchange Agent, in trust for the holders of Trust Shares converted in the Merger and the shares of Parent Common Stock evidenced by the Certificates (as hereinafter -3- 8 defined), certificates evidencing the Class B Shares issuable pursuant to Section 1.5(c) and the shares of Parent Common Stock evidenced by Certificates to be surrendered pursuant to this Article I (such Class B Shares being hereinafter referred to as the "Exchange Fund"). As soon as practicable after the Effective Time, the Exchange Agent shall deliver the Class B Shares contemplated to be issued pursuant to Section 1.5(c) out of the Exchange Fund as contemplated hereby. As soon as practicable after the Effective Time, the Exchange Agent shall mail to each record holder of a certificate or certificates which immediately prior to the Effective Time evidenced outstanding Trust Shares converted in the Merger and shares of Parent Common Stock (the "Certificates") (A) a letter of transmittal in form reasonably acceptable to the Company and Parent (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon actual delivery of the Certificates to the Exchange Agent) and (B) instructions for use in effecting the surrender of the Certificates. (b) Upon surrender for cancellation to the Exchange Agent of a Certificate, together with such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor a certificate evidencing that number of whole Class B Shares into which the Trust Shares evidenced by the surrendered Certificate shall have been converted at the Effective Time pursuant to this Article I and that number of shares of Parent Common Stock evidenced by the surrendered Certificate, and any Certificate so surrendered shall forthwith be cancelled. Each Class B Share into which a Trust Share shall be converted shall be deemed to have been issued at the Effective Time. If any certificate evidencing Class B Shares and shares of Parent Common Stock or cash or other property is to be issued or delivered in a name other than that in which the Certificate surrendered in exchange therefor is registered, it shall be a condition of such exchange that the Certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange shall pay to the Exchange Agent any transfer or other taxes required by reason of the issuance of certificates for such Class B Shares and shares of Parent Common Stock in a name other than that of the registered holder of the Certificate surrendered, or shall establish to the satisfaction of the Exchange Agent that such tax has been paid or is not applicable. Section 1.7 Dividends. Subject to the effect of applicable law, all dividends or other distributions that are declared on or after the Effective Time on Class B Shares, or are payable to the holders of record thereof on or after the Effective Time, will be paid, at the appropriate payment date or as promptly as practicable thereafter, (i) in the case of Class B Shares for which certificates have already been issued, to the holders of record of such Class B Shares as of the record date(s) -4- 9 established for such dividends or distributions, or (ii) in the case of Class B Shares for which certificates have not been issued, to the holder of record of the Certificate(s) evidencing the Trust Shares converted into such Class B Shares in the Merger. In no event shall the person entitled to receive such dividends or other distributions be entitled to receive interest on such dividends or other distributions. Section 1.8 Return of Exchange Fund. Any portion of the Exchange Fund that remains undistributed to the former shareholders of the Company for six months after the Effective Time shall be delivered to Parent and any such former shareholders who have not theretofore complied with this Article I shall thereafter look only to Parent for payment of their claim for Class B Shares. Neither Parent nor the Surviving Trust shall be liable to any former holder of Trust Shares for any such Class B Shares that are delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. Section 1.9 No Further Ownership Rights in Trust Shares. All Class B Shares issued upon the surrender for exchange of Certificates in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to the Trust Shares evidenced by such Certificates, subject, however, to the Surviving Trust's obligation to pay any dividends or make any other distributions with a record date prior to the Effective Time which may have been declared or made by the Company on such Trust Shares and which remain unpaid at the Effective Time. Section 1.10 Closing of Company Transfer Books. At the Effective Time, the transfer books for the Trust Shares shall be closed and no transfer of Trust Shares shall thereafter be made on the records of the Company. If, after the Effective Time, Certificates are presented to the Surviving Trust, the Exchange Agent or Parent, such Certificates shall be cancelled and exchanged as provided in this Article I. Section 1.11 Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Trust, Parent or the Exchange Agent, the posting by such person of a bond, in such reasonable amount as the Surviving Trust, Parent or the Exchange Agent may direct as indemnity against any claim that may be made against them with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the Class B Shares issuable pursuant to Section 1.5(c) and any dividends or other distributions to which the holders thereof are entitled pursuant to Section 1.7. -5- 10 Section 1.12 Further Assurances. If at any time after the Effective Time the Surviving Trust shall consider or be advised that any deeds, bills of sale, assignments or assurances or any other acts or things are necessary, desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in the Surviving Trust its right, title or interest in, to or under any of the rights, privileges, powers, franchises, properties or assets of either of the Constituent Trusts or (b) otherwise to carry out the purposes of this Agreement, the Surviving Trust and its proper officers and directors or their designees shall be authorized to execute and deliver, in the name and on behalf of either of the Constituent Trusts, all such deeds, bills of sale, assignments and assurances and to do, in the name and on behalf of either Constituent Trust, all such other acts and things as may be necessary, desirable or proper to vest, perfect or confirm the Surviving Trust's right, title or interest in, to or under any of the rights, privileges, powers, franchises, properties or assets of such Constituent Trust and otherwise to carry out the purposes of this Agreement. Section 1.13 Closing. The closing of the Merger (the "Closing") and all actions contemplated by this Agreement to occur at the Closing shall take place at the offices of Sidley & Austin, 875 Third Avenue, New York, New York, at 10:00 a.m., local time, on the later of (i) January 5, 1999 or (ii) the second business day following the day on which the last of the conditions set forth in Article VI shall have been fulfilled or waived or at such other time and place as Parent and the Company shall agree. ARTICLE II REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB Parent and Sub represent and warrant to the Company as follows: Section 2.1 Organization, Standing and Power. Each of Parent and Sub is a corporation or a real estate investment trust, as the case may be, duly organized, validly existing and in good standing under the laws of Maryland and has the requisite power and authority to carry on its business as now being conducted. All of Sub's outstanding shares of beneficial interest are owned directly by Parent. Each Subsidiary (as hereinafter defined) of Parent is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has the requisite corporate (in the case of a Subsidiary that is a corporation) or other power and authority to carry on its business as now being conducted, except where the failure to be so organized, existing or in good standing or to have such power or authority, individually or in -6- 11 the aggregate, has not had, and would not reasonably be expected to have, a Material Adverse Effect (as hereinafter defined) on Parent. Parent and each of its Subsidiaries are duly qualified to do business, and are in good standing, in each jurisdiction where the character of their properties owned or held under lease or the nature of their activities makes such qualification necessary, except where the failure to be so qualified, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Material Adverse Effect on Parent. For purposes of this Agreement, any reference to any state of facts, event, change or effect having a "Material Adverse Effect" on or with respect to Parent or the Company, as the case may be, means such state of facts, event, change or effect which has had or would reasonably be expected to have, a materially adverse effect on the business, properties, results of operations or financial condition of Parent and its Subsidiaries, taken as a whole, or the Company and its Subsidiaries, taken as a whole, as the case may be. For purposes of this Agreement, "Subsidiary" means any corporation, partnership, limited liability company, joint venture or other legal entity of which Parent or the Company, as the case may be (either alone or through or together with any other Subsidiary), (i) owns, directly or indirectly, more than 50% of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation, partnership, limited liability company, joint venture or other legal entity, (ii) is the general partner, trustee or other entity performing similar functions or (iii) owns, directly or indirectly, stock or other equity interests representing more than 50% of the economic interests of such corporation, partnership, limited liability company, joint venture or other legal entity. Section 2.2 Capital Structure. At the date hereof, the authorized stock of Parent consists of (i) 1,000,000,000 shares of Parent Common Stock, (ii) 200,000,000 shares of preferred stock, par value $0.01 per share (the "Parent Preferred Stock"), (iii) 50,000,000 shares of excess common stock, par value $0.01 per share ("Parent Excess Common Stock"), and (iv) 100,000,000 shares of excess preferred stock, par value $0.01 per share ("Parent Excess Preferred Stock"). At the close of business on August 15, 1998, 188,569,988 shares of Parent Common Stock were issued and outstanding and no shares of Parent Preferred Stock, Parent Excess Common Stock or Parent Excess Preferred Stock were outstanding. All the outstanding shares of Parent Common Stock are validly issued, fully paid and nonassessable and free of preemptive rights. As of the date of this Agreement, except as otherwise previously disclosed by Parent to the Company, and except for (a) stock options issued pursuant to the Incentive and Non-Qualified Shares Option Plan -7- 12 (1986) of the Company, the Corporation Stock Non-Qualified Stock Option Plan (1986) of the Company, the Stock Option Plan (1986) of Parent, the Trust Shares Option Plan (1986) of Parent, the 1995 Long-Term Incentive Plan of the Company and the 1995 Long-Term Incentive Plan of Parent (collectively, the "Starwood Stock Plans") covering not in excess of 19,529,390 shares of Parent Common Stock (collectively, the "Parent Stock Options"), (b) 11,899,314 shares of Parent Common Stock issuable upon the exchange of units ("SLT Units") in SLT Realty Limited Partnership (the "Realty Partnership") and units ("SLC Units") in SLC Operating Limited Partnership (the "Operating Partnership") and (c) 5,519,380 shares of Parent Common Stock issuable pursuant to the Forward Purchase Contract dated as of October 13, 1997 (the "Forward Purchase Contract") with an affiliate of Union Bank of Switzerland or certain similar forward purchase contracts, there are no options, warrants, calls, rights or agreements to which Parent is a party or by which it is bound obligating Parent to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of stock of Parent or obligating Parent to grant, extend or enter into any such option, warrant, call, right or agreement. At the date hereof, the total number of shares of beneficial interest which Sub has authority to issue is 1,000, consisting of 1,000 Common Shares, $0.01 par value per share ("Sub Shares"). At the close of business on September 15, 1998, 100 Sub Shares were issued and outstanding. All the outstanding Sub Shares are validly issued, fully paid and nonassessable and free of preemptive rights. As of the date of this Agreement, there are no options, warrants, calls, rights or agreements to which Sub is a party or by which it is bound obligating Sub to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of beneficial interest in Sub or obligating Sub to grant, extend or enter into any such option, warrant, call, right or agreement. All the Class B Shares issuable in exchange for Trust Shares at the Effective Time in accordance with this Agreement will be, when so issued, duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights. Section 2.3 Authority. The Board of Directors of Parent and the Board of Trustees of Sub have duly approved and adopted this Agreement. The Board of Directors of Parent has declared advisable the amendment and restatement of the Pairing Agreement, dated as of June 25, 1980, as amended (the "Pairing Agreement"), between Parent and the Company to read in its entirety as set forth on Exhibit 2.3 hereto or as otherwise agreed to by the parties (the "Pairing Agreement Amendment and Restatement"). The Board of Directors of Parent has resolved to recommend the approval of the Pairing Agreement Amendment and Restatement by its stockholders. Each of Parent and Sub has all requisite power and authority to enter into this Agreement, and, subject to approval by the stockholders of Parent of the Pairing Agreement Amendment and Restatement, to consummate the -8- 13 transactions contemplated hereby. The execution and delivery of this Agreement by Parent and Sub and the consummation by Parent and Sub of the transactions contemplated hereby have been duly authorized by all necessary action on the part of Parent and Sub, subject to approval by the stockholders of Parent of the Pairing Agreement Amendment and Restatement. This Agreement has been duly executed and delivered by Parent and Sub and (assuming the valid authorization, execution and delivery of this Agreement by the Company and the validity and binding effect hereof on the Company) constitutes the valid and binding obligation of Parent and Sub enforceable against each of them in accordance with its terms. The Pairing Agreement Amendment and Restatement has been duly authorized by Parent's Board of Directors. Section 2.4 Consents and Approvals; No Violation. Assuming that all consents, approvals, authorizations and other actions described in this Section 2.4 have been obtained and all filings and obligations described in this Section 2.4 have been made, and except as otherwise previously disclosed by Parent to the Company, the execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby and compliance with the provisions hereof will not, result in any violation of, or default or loss of a material benefit (with or without notice or lapse of time, or both) under, or give to others a right of termination, cancellation or acceleration of any obligation under, or result in the creation of any security interests, liens, claims, pledges, mortgages, options, rights of first refusal, agreements, charges or other encumbrances of any nature whatsoever (each, a "Lien") upon any of the properties, assets or operations of Parent or any of its Subsidiaries under, any provision of (i) the charter or the Amended and Restated Bylaws of Parent, (ii) any provision of the comparable charter or organizational documents of any of Parent's Subsidiaries, (iii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to Parent or any of its Subsidiaries or (iv) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent or any of its Subsidiaries or any of their respective properties, assets or operations other than, in the case of clauses (ii), (iii) or (iv), any such violations, defaults, losses, rights or Liens that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Parent, materially impair the ability of Parent or Sub to perform their respective obligations hereunder or prevent the consummation of any of the transactions contemplated hereby. No filing or registration with, or authorization, consent or approval of, any domestic (federal or state), foreign or supranational court, commission, governmental body, regulatory agency, authority or tribunal (a "Governmental Entity") is required by or with respect to Parent or any of its Subsidiaries in connection with the execution and delivery of this Agreement by Parent or Sub or is necessary for -9- 14 the consummation of the Merger and the other transactions contemplated by this Agreement, except (i) in connection, or in compliance, with the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Securities Act of 1933, as amended (together with the rules and regulations promulgated thereunder, the "Securities Act"), and the Securities Exchange Act of 1934, as amended (together with the rules and regulations promulgated thereunder, the "Exchange Act"), (ii) the filing and acceptance for record of the Articles of Merger with and by the State Department of Assessments and Taxation of Maryland and appropriate documents with the relevant authorities of other states in which Parent, the Company or any of their respective Subsidiaries is qualified to do business, (iii) such filings and consents as may be required under any environmental, health or public or worker safety law or regulation pertaining to any notification, disclosure or required approval triggered by the Merger or by the transactions contemplated by this Agreement, (iv) such filings as may be required in connection with the taxes described in Section 5.9, (v) applicable requirements, if any, of state securities or "blue sky" laws ("Blue Sky Laws") and The New York Stock Exchange, Inc. (the "NYSE"), (vi) as may be required under foreign laws, (vii) filings with and approvals by any regulatory authority with jurisdiction over Parent's and/or its Subsidiaries' gaming operations required under any Federal, state, local or foreign statute, ordinance, rule, regulation, permit, consent, approval, license, judgment, order, decree, injunction or other authorization governing or relating to the current or contemplated casino and gaming activities and operations of the Company, including the New Jersey Casino Control Act and the rules and regulations promulgated thereunder, the Nevada Gaming Control Act and the rules and regulations promulgated thereunder, the Mississippi Gaming Control Act and the rules and regulations promulgated thereunder, the Clark County governmental authorities and the rules and regulations promulgated thereby, the Indiana Gaming Control Act and the rules and regulations promulgated thereunder, the Nova Scotia Gaming Control Act and the rules and regulations promulgated thereunder, and the Ontario-Gaming Control Act and the rules and regulations promulgated thereunder (collectively, the "Gaming Laws"), (viii) such other consents, approvals, orders, authorizations, registrations, declarations and filings as Parent has previously disclosed to the Company and (ix) such other consents, orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Parent, materially impair the ability of Parent or Sub to perform its respective obligations hereunder or prevent the consummation of any of the transactions contemplated hereby. Section 2.5 SEC Documents and Other Reports. Parent has filed all required documents with the SEC since January 1, -10- 15 1998 (the "Parent SEC Documents"). As of their respective dates, the Parent SEC Documents complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and, at the respective times they were filed, none of the Parent SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Section 2.6 Registration Statement and Joint Proxy Statement. None of the information to be supplied by Parent or Sub for inclusion or incorporation by reference in the Registration Statement or the joint proxy statement/prospectus included therein (together with any amendments or supplements thereto, the "Joint Proxy Statement") relating to the Stockholder Meetings (as defined in Section 5.1) will (i) in the case of the Registration Statement, at the time it becomes effective and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading or (ii) in the case of the Joint Proxy Statement, at the time of the mailing of the Joint Proxy Statement and at the time of each of the Stockholder Meetings, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. If at any time prior to the Effective Time any event with respect to Parent, its officers and directors or any of its Subsidiaries shall occur that is required to be described in the Joint Proxy Statement or the Registration Statement, such event shall be so described, and an appropriate amendment or supplement shall be promptly filed with the SEC and, as required by law, disseminated to the stockholders of Parent and shareholders of the Company. The Joint Proxy Statement will comply (with respect to Parent) as to form in all material respects with the provisions of the Exchange Act. Section 2.7 Absence of Certain Changes or Events. Except as disclosed in Parent SEC Documents filed prior to the date of this Agreement, since December 31, 1997, (A) Parent and its Subsidiaries have not sustained any loss or interference with their business or properties from fire, flood, windstorm, accident or other calamity (whether or not covered by insurance) that, individually or in the aggregate, has had, or would reasonably be expected to have, a Material Adverse Effect on Parent and (B) there have not been any events, changes or developments that, individually or in the aggregate, have had, or would reasonably be expected to have, a Material Adverse Effect on Parent. -11- 16 Section 2.8 Permits and Compliance. Each of Parent and its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any Governmental Entity necessary for Parent or any of its Subsidiaries to own, lease and operate its properties or to carry on its business as it is now being conducted (the "Parent Permits"), except where the failure to have any of the Parent Permits, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Material Adverse Effect on Parent, and, as of the date of this Agreement, no suspension or cancellation of any of the Parent Permits is pending or, to the Knowledge of Parent (as hereinafter defined), threatened, except where the suspension or cancellation of any of the Parent Permits, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Material Adverse Effect on Parent. Neither Parent nor any of its Subsidiaries is in violation of (A) its charter, by-laws or other organizational documents, (B) any applicable law, ordinance, administrative or governmental rule or regulation or (C) any order, decree or judgment of any Governmental Entity having jurisdiction over Parent or any of its Subsidiaries, except, in the case of clauses (A), (B) and (C), for any violations that, individually or in the aggregate, have not had, and would not reasonably be expected to have, a Material Adverse Effect on Parent. Except as disclosed in the Parent SEC Documents filed prior to the date of this Agreement, as of the date hereof, there is no contract or agreement that is material to the business, properties, results of operations or financial condition of Parent and its Subsidiaries, taken as a whole. No event of default or event that, but for the giving of notice or the lapse of time or both, would constitute an event of default exists under any indenture, mortgage, loan agreement, note or other agreement or instrument for borrowed money, any guarantee of any agreement or instrument for borrowed money or any lease, contractual license or other agreement or instrument to which Parent or any of its Subsidiaries is a party or by which Parent or any such Subsidiary is bound or to which any of the properties, assets or operations of Parent or any such Subsidiary is subject, other than any defaults that, individually or in the aggregate, have not had, and would not reasonably be expected to have, a Material Adverse Effect on Parent. For purposes of this Agreement, the term "Knowledge" when used with respect to Parent means the actual knowledge of the senior executive officers of Parent. Section 2.9 Tax Matters. Except as otherwise previously disclosed by Parent to the Company, (i) Parent and each of its Subsidiaries have filed all material federal, state, local, foreign and provincial Tax Returns required to have been filed on or prior to the date hereof, or appropriate extensions therefor have been properly obtained, and such Tax Returns are correct and complete, except to the extent that any failure to so -12- 17 file or any failure to be correct and complete, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Material Adverse Effect on Parent; (ii) all Taxes shown to be due on such Tax Returns have been timely paid or extensions for payment have been properly obtained, or such Taxes (as defined below) are being timely and properly contested; (iii) Parent and each of its Subsidiaries have complied in all material respects with all rules and regulations relating to the withholding of Taxes except to the extent that any failure to comply with such rules and regulations, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Material Adverse Effect on Parent; (iv) neither Parent nor any of its Subsidiaries has waived any statute of limitations in respect of its federal, state, local, foreign or provincial income or franchise Taxes, except to the extent that any such waiver, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Material Adverse Effect on Parent; (v) all federal income Tax Returns referred to in clause (i) for all years through 1994 have been examined by and settled with the Internal Revenue Service or the period for assessment of the Taxes in respect of which such Tax Returns were required to be filed has expired; (vi) no material issues that have been raised in writing by the relevant taxing authority in connection with the examination of the Tax Returns referred to in clause (i) are currently pending; and (vii) all material deficiencies asserted or material assessments made as a result of any examination of such Tax Returns referred to in clause (i) by any taxing authority have been paid in full or are being timely and properly contested. For purposes of this Agreement: (i) "Taxes" means any federal, state, local, foreign or provincial income, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add on minimum, ad valorem, value-added, transfer or excise tax, or other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty imposed by any Governmental Entity, and (ii) "Tax Return" means any return, report or similar statement (including the attached schedules) required to be filed with respect to any Tax, including, without limitation, any information return, claim for refund, amended return or declaration of estimated Tax. Section 2.10 Actions and Proceedings. Except as set forth in the Parent SEC Documents filed prior to the date of this Agreement, there are no outstanding orders, judgments, injunctions, awards or decrees of any Governmental Entity against or involving Parent or any of its Subsidiaries, or against or involving any of the directors, officers or employees of Parent or any of its Subsidiaries, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a Material Adverse Effect on Parent. As of the date of this Agreement, there are no actions, suits or claims or legal, -13- 18 administrative or arbitrative proceedings or investigations pending or, to the Knowledge of Parent, threatened against or involving Parent or any of its Subsidiaries or any of their directors, officers or employees, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a Material Adverse Effect on Parent. As of the date hereof, there are no actions, suits, labor disputes or other litigation, legal or administrative proceedings or governmental investigations pending or, to the Knowledge of Parent, threatened against or affecting Parent or any of its Subsidiaries or any of their officers, directors or employees, as such, or any of their properties, assets or business relating to the transactions contemplated by this Agreement. Section 2.11 Compliance with Worker Safety and Environmental Laws. The properties, assets and operations of Parent and its Subsidiaries are in compliance with all applicable federal, state, local and foreign laws, rules and regulations, orders, decrees, judgments, permits and licenses relating to public and worker health and safety (collectively, "Worker Safety Laws") and the protection and clean-up of the environment and activities or conditions related thereto, including, without limitation, those relating to the generation, handling, disposal, transportation or release of hazardous materials (collectively, "Environmental Laws"), except for any violations that, individually or in the aggregate, have not had, or would not reasonably be expected to have, a Material Adverse Effect on Parent. With respect to such properties, assets and operations, including any previously owned, leased or operated properties, assets or operations, there are no events, conditions, circumstances, activities, practices, incidents, actions or plans of Parent or any of its Subsidiaries that may interfere with or prevent compliance or continued compliance with applicable Worker Safety Laws and Environmental Laws, other than any such interference or prevention that, individually or in the aggregate, has not had, or would not reasonably be expected to have, a Material Adverse Effect on Parent. Section 2.12 Intellectual Property. Parent and its Subsidiaries own or have the right to use all patents, trademarks, trade names, service marks, trade secrets, copyrights and other proprietary intellectual property rights (collectively, "Intellectual Property Rights") as are necessary in connection with the business of Parent and its Subsidiaries, taken as a whole, except where the failure to have such Intellectual Property Rights has not had, and would not reasonably be expected to have, a Material Adverse Effect on Parent. Neither Parent nor any of its Subsidiaries has infringed any Intellectual Property Rights of any third party other than any infringements that, individually or in the aggregate, have not had, and would not -14- 19 reasonably be expected to have, a Material Adverse Effect on Parent. Section 2.13 Required Vote of Parent Stockholders. The affirmative vote of a majority of the outstanding shares of Parent Common Stock is required to approve the Pairing Agreement Amendment and Restatement. No other vote of the stockholders of Parent is required by law, the NYSE, the charter or the Amended and Restated By-Laws of Parent or otherwise in order for Parent to consummate the Merger and the transactions contemplated hereby. Section 2.14 State Takeover Statutes. The Board of Directors of Parent has, to the extent such statutes are applicable, taken all action (including appropriate approvals of the Board of Directors of Parent) necessary to exempt Parent, its Subsidiaries and affiliates, the Merger, this Agreement and the transactions contemplated hereby from Sections 3-601 through 3- 603 and Sections 3-701 through 3-709 of the MGCL or to satisfy the requirements thereof. To the Knowledge of Parent, no other state takeover statutes are applicable to the Merger, this Agreement and the transactions contemplated hereby. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent and Sub as follows: Section 3.1 Organization, Standing and Power. The Company is a real estate investment trust duly organized, validly existing and in good standing under the laws of the State of Maryland and has the requisite trust power and authority to carry on its business as now being conducted. Each Subsidiary of the Company is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has the requisite corporate (in the case of a Subsidiary that is a corporation) or other power and authority to carry on its business as now being conducted, except where the failure to be so organized, existing or in good standing or to have such power or authority, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Material Adverse Effect on the Company. The Company and each of its Subsidiaries are duly qualified to do business, and are in good standing, in each jurisdiction where the character of their properties owned or held under lease or the nature of their activities makes such qualification necessary, except where the failure to be so qualified, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Material Adverse Effect on the Company. -15- 20 Section 3.2 Capital Structure. As of the date hereof, the authorized beneficial interest of the Company consists of (i) 1,000,000,000 Trust Shares, (ii) 200,000,000 Excess Trust Shares, par value $0.01 per share ("Excess Trust Shares"), (iii) 100,000,000 Trust Preferred Shares, par value $0.01 per share ("Trust Preferred Shares"), and (iv) 50,000,000 Excess Preferred Shares, par value $0.01 per share ("Excess Trust Preferred Shares"). Pursuant to Exhibit A to Articles of Merger dated January 2, 1998, 30,000,000 shares of beneficial interest were classified and designated as Class A Exchangeable Preferred Shares, par value $0.01 per share ("Class A EPS"), and 15,000,000 shares of beneficial interest were classified and designated as Class B Exchangeable Preferred Shares, par value $0.01 per share ("Class B EPS"). At the close of business on August 15, 1998, (i) 188,569,988 Trust Shares were issued and outstanding, (ii) 4,901,261 shares of Class A EPS were issued and outstanding and (iii) 4,405,126 shares of Class B EPS were issued and outstanding and (iv) no excess Trust Shares or Excess Trust Preferred Shares were outstanding. All the outstanding Trust Shares, Class A EPS and Class B EPS are validly issued, fully paid and non-assessable and free of preemptive rights. As of the date of this Agreement, except as otherwise previously disclosed by the Company to Parent, and except for (a) this Agreement, (b) stock options issued pursuant to the Starwood Stock Plans covering not in excess of 19,529,390 Trust Shares (collectively, the "Company Stock Options"), (c) 16,800,575 Trust Shares issuable upon the exchange of SLT Units, SLC Units and Class A EPS, (d) 4,405,126 Class A EPS issuable upon the conversion of Class B EPS, (e) 783,050 Class B EPS issuable upon the exchange of SLT Units and SLC Units and (f) 5,519,380 Trust Shares issuable pursuant to the Forward Purchase Contract or certain similar forward purchase contracts, there are no options, warrants, calls, rights or agreements to which the Company is a party or by which it is bound obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of beneficial interest of the Company or obligating the Company to grant, extend or enter into any such option, warrant, call, right or agreement. Section 3.3 Authority. The Board of Trustees of the Company has duly approved and adopted this Agreement and has declared advisable this Agreement, the Merger and the Pairing Agreement Amendment and Restatement. The Board of Trustees of the Company has resolved to recommend the approval of this Agreement and the Pairing Agreement Amendment and Restatement by its shareholders. The Company has all requisite trust power and authority and, subject to approval by the shareholders of the Company of this Agreement and the Pairing Agreement Amendment and Restatement, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary trust action on -16- 21 the part of the Company, subject to approval by the shareholders of the Company of this Agreement and the Pairing Agreement Amendment and Restatement. This Agreement has been duly executed and delivered by the Company and (assuming the valid authorization, execution and delivery of this Agreement by Parent and Sub and the validity and binding effect hereof on Parent and Sub) constitutes the valid and binding obligation of the Company enforceable against it in accordance with its terms. This Agreement and the Pairing Agreement Amendment and Restatement have been duly authorized by the Company's Board of Trustees. Section 3.4 Consents and Approvals; No Violation. Assuming that all consents, approvals, authorizations and other actions described in this Section 3.4 have been obtained and all filings and obligations described in this Section 3.4 have been made, and except as otherwise disclosed by the Company to Parent, the execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby and compliance with the provisions hereof will not, result in any violation of, or default or loss of a material benefit (with or without notice or lapse of time, or both) under, or give to others a right of termination, cancellation or acceleration of any obligation under, or result in the creation of any Lien upon any of the properties, assets or operations of the Company or any of its Subsidiaries under, any provision of (i) the Declaration of Trust or the Amended and Restated Trustees' Regulations of the Company, (ii) any provision of the comparable charter or organizational documents of any of the Company's Subsidiaries, (iii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to the Company or any of its Subsidiaries or (iv) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any of its Subsidiaries or any of their respective properties, assets or operations other than, in the case of clauses (ii), (iii) or (iv), any such violations, defaults, losses, rights or Liens that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company, materially impair the ability of the Company to perform its obligations hereunder or prevent the consummation of any of the transactions contemplated hereby. No filing or registration with, or authorization, consent or approval of, any Governmental Entity is required by or with respect to the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement by the Company or is necessary for the consummation of the Merger and the other transactions contemplated by this Agreement, except (i) in connection, or in compliance, with the provisions of the HSR Act, the Securities Act and the Exchange Act, (ii) the filing and acceptance for record of the Articles of Merger with and by the State Department of Assessments and Taxation of Maryland and appropriate documents with the relevant authorities of other states in which Parent, -17- 22 the Company or any of their respective Subsidiaries is qualified to do business, (iii) such filings and consents as may be required under any environmental, health or public or worker safety law or regulation pertaining to any notification, disclosure or required approval triggered by the Merger or the transactions contemplated by this Agreement, (iv) such filings as may be required in connection with the taxes described in Section 5.9, (v) applicable requirements, if any, of Blue Sky Laws and the NYSE, (vi) as may be required under foreign laws, (vii) filings with and approvals by any regulatory authority with jurisdiction over Parent's and/or its Subsidiaries' gaming operations required under any Gaming Law, (viii) such other consents, approvals, orders, authorizations, registrations, declarations and filings as the Company has previously disclosed to Parent and (ix) such other consents, orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company, materially impair the ability of the Company to perform its obligations hereunder or prevent the consummation of any of the transactions contemplated hereby. Section 3.5 SEC Documents and Other Reports. The Company has filed all required documents with the SEC since January 1, 1998 (the "Company SEC Documents"). As of their respective dates, the Company SEC Documents complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and, at the respective times they were filed, none of the Company SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Section 3.6 Registration Statement and Joint Proxy Statement. None of the information to be supplied by the Company for inclusion or incorporation by reference in the Registration Statement or the Joint Proxy Statement will (i) in the case of the Registration Statement, at the time it becomes effective and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading or (ii) in the case of the Joint Proxy Statement, at the time of the mailing of the Joint Proxy Statement and at the time of each of the Stockholder Meetings, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. If at any time prior to the Effective Time any event with respect to the Company, its officers and directors or any of its Subsidiaries shall occur -18- 23 that is required to be described in the Joint Proxy Statement or the Registration Statement, such event shall be so described, and an appropriate amendment or supplement shall be promptly filed with the SEC and, as required by law, disseminated to the stockholders of Parent and shareholders of the Company. The Registration Statement will comply (with respect to the Company) as to form in all material respects with the provisions of the Securities Act, and the Joint Proxy Statement will comply (with respect to the Company) as to form in all material respects with the provisions of the Exchange Act. Section 3.7 Absence of Certain Changes or Events. Except as disclosed in the Company SEC Documents filed prior to the date of this Agreement, since December 31, 1997, (A) the Company and its Subsidiaries have not sustained any loss or interference with their business or properties from fire, flood, windstorm, accident or other calamity (whether or not covered by insurance) that, individually or in the aggregate, has had, or would reasonably be expected to have, a Material Adverse Effect on the Company and (B) there have not been any events, changes or developments that, individually or in the aggregate, have had, or would reasonably be expected to have, a Material Adverse Effect on the Company. Section 3.8 Permits and Compliance. Each of the Company and its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any Governmental Entity necessary for the Company or any of its Subsidiaries to own, lease and operate its properties or to carry on its business as it is now being conducted (the "Company Permits"), except where the failure to have any of the Company Permits, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Material Adverse Effect on the Company, and, as of the date of this Agreement, no suspension or cancellation of any of the Company Permits is pending or, to the Knowledge of the Company (as hereinafter defined), threatened, except where the suspension or cancellation of any of the Company Permits, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Material Adverse Effect on the Company. Neither the Company nor any of its Subsidiaries is in violation of (A) its charter, by-laws or other organizational documents, (B) any applicable law, ordinance, administrative or governmental rule or regulation or (C) any order, decree or judgment of any Governmental Entity having jurisdiction over the Company or any of its Subsidiaries, except, in the case of clauses (A), (B) and (C), for any violations that, individually or in the aggregate, have not had, and would not reasonably be expected to have, a Material Adverse Effect on the Company. Except as disclosed in the Company SEC Documents filed prior to the date of this Agreement, as of the date hereof, there is no contract or agreement that is material -19- 24 to the business, properties, results of operations or financial condition of the Company and its Subsidiaries, taken as a whole. No event of default or event that, but for the giving of notice or the lapse of time or both, would constitute an event of default exists under any indenture, mortgage, loan agreement, note or other agreement or instrument for borrowed money, any guarantee of any agreement or instrument for borrowed money or any lease, contractual license or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any such Subsidiary is bound or to which any of the properties, assets or operations of the Company or any such Subsidiary is subject, other than any defaults that, individually or in the aggregate, have not had, and would not reasonably be expected to have, a Material Adverse Effect on the Company. For purposes of this Agreement, the term "Knowledge" when used with respect to the Company means the actual knowledge of the senior executive officers of the Company. Section 3.9 Tax Matters. Except as otherwise previously disclosed by the Company to Parent, (i) the Company and each of its Subsidiaries have filed all material federal, state, local, foreign and provincial Tax Returns required to have been filed on or prior to the date hereof, or appropriate extensions therefor have been properly obtained, and such Tax Returns are correct and complete, except to the extent that any failure to so file or any failure to be correct and complete, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Material Adverse Effect on the Company; (ii) all Taxes shown to be due on such Tax Returns have been timely paid or extensions for payment have been properly obtained, or such Taxes are being timely and properly contested; (iii) the Company and each of its Subsidiaries have complied in all material respects with all rules and regulations relating to the withholding of Taxes except to the extent that any failure to comply with such rules and regulations, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Material Adverse Effect on the Company; (iv) neither the Company nor any of its Subsidiaries has waived any statute of limitations in respect of its federal, state, local, foreign or provincial income or franchise Taxes, except to the extent that any such waiver, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Material Adverse Effect on the Company; (v) all federal income Tax Returns referred to in clause (i) for all years through 1994 have been examined by and settled with the Internal Revenue Service or the period for assessment of the Taxes in respect of which such Tax Returns were required to be filed has expired; (vi) no material issues that have been raised in writing by the relevant taxing authority in connection with the examination of the Tax Returns referred to in clause (i) are currently pending; and (vii) all material deficiencies asserted or material assessments made as a result of any examination of such Tax Returns referred to in -20- 25 Clause (i) by any taxing authority have been paid in full or are being timely and properly contested. Section 3.10 Actions and Proceedings. Except as set forth in the Company SEC Documents filed prior to the date of this Agreement, there are no outstanding orders, judgments, injunctions, awards or decrees of any Governmental Entity against or involving the Company or any of its Subsidiaries, or against or involving any of the directors, officers or employees of the Company or any of its Subsidiaries, as such, or any of its or their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a Material Adverse Effect on the Company. As of the date of this Agreement, there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations pending or, to the Knowledge of the Company, threatened against or involving the Company or any of its Subsidiaries or any of their directors, officers or employees, as such, or any of their properties, assets or business that, individually or in the aggregate, have had, or would reasonably be expected to have, a Material Adverse Effect on the Company. As of the date hereof, there are no actions, suits, labor disputes or other litigation, legal or administrative proceedings or governmental investigations pending or, to the Knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries or any of their officers, directors or employees, as such, or any of their properties, assets or business relating to the transactions contemplated by this Agreement. Section 3.11 Compliance with Worker Safety and Environmental Laws. The properties, assets and operations of the Company and its Subsidiaries are in compliance with all applicable Worker Safety Laws and Environmental Laws, except for any violations that, individually or in the aggregate, have not had, and would not reasonably be expected to have, a Material Adverse Effect on the Company. With respect to such properties, assets and operations, including any previously owned, leased or operated properties, assets or operations, there are no events, conditions, circumstances, activities, practices, incidents, actions or plans of the Company or any of its Subsidiaries that may interfere with or prevent compliance or continued compliance with applicable Worker Safety Laws and Environmental Laws, other than any such interference or prevention that, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Material Adverse Effect on the Company. Section 3.12 Intellectual Property. The Company and its Subsidiaries own or have the right to use all Intellectual Property Rights as are necessary in connection with the business of the Company and its Subsidiaries, taken as a whole, except where the failure to have such Intellectual Property Rights has not had, and would not reasonably be expected to have, a Material -21- 26 Adverse Effect on the Company. Neither the Company nor any of its Subsidiaries has infringed any Intellectual Property Rights of any third party other than any infringements that, individually or in the aggregate, have not had, and would not reasonably be expected to have, a Material Adverse Effect on the Company. Section 3.13 Required Vote of Company Shareholders. The affirmative vote of the holders of a majority of the outstanding Trust Shares, Class A EPS and Class B EPS (voting together as a single class) is required to adopt this Agreement and the Pairing Agreement Amendment and Restatement. No other vote of the shareholders of the Company is required by law, the NYSE, the Declaration of Trust or the Amended and Restated Trustees' Regulations of the Company or otherwise in order for the Company to consummate the Merger and the transactions contemplated hereby. Section 3.14 State Takeover Statutes. The Board of Trustees of the Company has, to the extent such statutes are applicable, taken all action (including appropriate approvals of the Board of Trustees of the Company) necessary to exempt the Company, its Subsidiaries and affiliates, the Merger, this Agreement and the transactions contemplated hereby from Sections 3-601 through 3-603 and Sections 3-701 through 3-709 of the MGCL or to satisfy the requirements thereof. To the Knowledge of the Company, no other state takeover statutes are applicable to the Merger, this Agreement and the transactions contemplated hereby. ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS Section 4.1 Conduct of Business by the Company Pending the Merger. Except with the prior consent of Parent, during the period from the date of this Agreement to the Effective Time, the Company shall, and shall cause each of its Subsidiaries to, in all material respects carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and, to the extent consistent therewith, use reasonable efforts to keep available the services of its current officers and employees and preserve its relationships with customers, suppliers, licensors and lessors and others having business dealings with it to the end that its goodwill and ongoing business shall be unimpaired at the Effective Time. Section 4.2 Conduct of Business by Parent Pending the Merger. Except with the prior consent of the Company, during the period from the date of this Agreement to the Effective Time, Parent shall, and shall cause each of its Subsidiaries to, in all -22- 27 material respects carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and, to the extent consistent therewith, use reasonable efforts to keep available the services of its current officers and employees and preserve its relationships with customers, suppliers, licensors and lessors and others having business dealings with it to the end that its goodwill and ongoing business shall be unimpaired at the Effective Time. ARTICLE V ADDITIONAL AGREEMENTS Section 5.1 Stockholder Meetings. Parent and the Company each shall, as soon as practicable following the date of this Agreement, duly call, give notice of, convene and hold a meeting of its stockholders or shareholders (respectively, the "Parent Stockholder Meeting" and the "Company Shareholder Meeting" and, collectively, the "Stockholder Meetings") for the purpose of considering the approval of this Agreement and the Merger (in the case of the Company) and the Pairing Agreement Amendment and Restatement (in the case of Parent and the Company). The Company and Parent will, through their respective Board of Trustees or Board of Directors, recommend to their respective shareholders or stockholders, as the case may be, approval of such matters and shall not withdraw such recommendation except as, and to the extent, required by their fiduciary obligations. The Company and Parent shall coordinate and cooperate with respect to the timing of such meetings and shall use their reasonable best efforts to hold such meetings on the same day. Section 5.2 Preparation of the Registration Statement and the Joint Proxy Statement. The Company and Parent shall promptly prepare and file with the SEC the Joint Proxy Statement and the Company shall prepare and file with the SEC the Registration Statement, in which the Joint Proxy Statement will be included as a prospectus. Each of Parent and the Company shall use reasonable efforts to have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing. As promptly as practicable after the Registration Statement shall have become effective, each of Parent and the Company shall mail the Joint Proxy Statement to its respective stockholders or shareholders. The Company shall also take any action reasonably required to be taken under any applicable state securities laws in connection with the issuance of Class B Shares in the Merger and upon the exercise of the Substitute Options (as defined in Section 5.6), and the Company shall furnish all information concerning the Company and the holders of Trust Shares as may be reasonably requested in connection with any such action. -23- 28 Section 5.3 Actions Prior to Closing. Prior to or after the Closing, Parent and Company shall use their reasonable best efforts to transfer a sufficient number of the leases relating to real property leased from the Company, the Realty Partnership or any of their respective Subsidiaries to Parent so as to avoid the termination of the Trust's status as a "real estate investment trust" under the Code, to amend and restate the limited partnership agreements of the Realty Partnership and the Operating Partnership in connection with the transactions contemplated hereby, and to recapitalize certain corporate Subsidiaries of which Parent holds 95% of the voting securities and the Company owns the remaining 5% of the voting securities; however, such actions shall not be a condition to the Closing. Section 5.4 Compliance with the Securities Act. Prior to the Effective Time, the Company shall cause to be prepared and delivered to Parent a list (reasonably satisfactory to counsel for Parent) identifying all persons who, at the time of the Company Shareholder Meeting, in the Company's reasonable judgment may be deemed to be "affiliates" of the Company as that term is used in paragraphs (c) and (d) of Rule 145 under the Securities Act. The Company shall use its reasonable best efforts to enter into a written agreement in substantially the form of Exhibit 5.4 hereto prior to the Effective Time with each of such persons identified in the foregoing list. Section 5.5 Stock Exchange Listings. The Company and Parent shall use their reasonable best efforts to list on the NYSE, upon official notice of issuance, the Class B Shares to be issued in connection with the Merger, such Class B Shares to trade together as a unit with shares of Parent Common Stock. Section 5.6 Stock Options. As of the Effective Time, each stock option (a "Starwood Stock Option") that is outstanding immediately prior to the Effective Time pursuant to the Starwood Stock Plans shall become and represent an option to purchase (a "Substitute Option") the number of Class B Shares equal to the number of Trust Shares subject to such Starwood Stock Option immediately prior to the Effective Time and the number of shares of Parent Common Stock equal to the number of shares of Parent Common Stock subject to such Starwood Stock Option immediately prior to the Effective Time. After the Effective Time, except as provided above in this Section 5.6, each Substitute Option shall be exercisable upon the same terms and conditions as were applicable under the related Starwood Stock Option immediately prior to or at the Effective Time. Parent and the Company shall use all reasonable efforts to obtain any necessary consents of holders of Starwood Stock Options and take such other actions as may be necessary to effect this Section 5.6. -24- 29 Section 5.7 Reasonable Best Efforts. Upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, as soon as practicable, the Merger and the other transactions contemplated by this Agreement, including, but not limited to: (i) the obtaining of all necessary actions or non-actions, waivers, consents and approvals from all Governmental Entities and the making of all necessary registrations and filings (including filings with Governmental Entities) and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any Governmental Entity (including those in connection with the HSR Act, state takeover statutes and Gaming Laws), (ii) the obtaining of all necessary consents, approvals or waivers from third parties, (iii) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity with respect to the Merger or this Agreement vacated or reversed, and (iv) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by this Agreement. Section 5.8 Public Announcements. Parent and the Company will not issue any press release with respect to the transactions contemplated by this Agreement or otherwise issue any written public statements with respect to such transactions without prior consultation with the other party, except as may be required by applicable law or by obligations pursuant to any listing agreement with any national securities exchange. Section 5.9 Real Estate Transfer and Gains Tax. Parent and the Company agree that either the Company or the Surviving Trust will pay any Federal, state, local, foreign or provincial tax which is attributable to the transfer of the beneficial ownership of the Company's or its Subsidiaries' real property, if any (collectively, the "Gains Taxes"), and any penalties or interest with respect to the Gains Taxes, payable in connection with the consummation of the Merger. The Company and Parent agree to cooperate with the other in the filing of any returns with respect to the Gains Taxes, including supplying in a timely manner a complete list of all real property interests held by the Company and its Subsidiaries and any information with respect to such property that is reasonably necessary to complete such returns. The portion of the consideration allocable to the real property of the Company and its Subsidiaries shall be determined by Parent in its reasonable discretion. -25- 30 Section 5.10 State Takeover Laws. If any "fair price," "business combination" or "control share acquisition" statute or other similar statute or regulation shall become applicable to the transactions contemplated hereby, Parent and the Company and their respective Board of Directors and Board of Trustees shall use all reasonable efforts to grant such approvals and take such actions as are necessary so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and shall otherwise act to minimize the effects of any such statute or regulation on the transactions contemplated hereby. Section 5.11 Indemnification. For six years from and after the Effective Time, Parent agrees to cause the Surviving Trust to, and shall guarantee the obligation of the Surviving Trust to, indemnify and hold harmless all past and present officers and trustees of the Company and of its Subsidiaries to the same extent such persons are indemnified as of the date of this Agreement by the Company pursuant to the Company's Declaration of Trust, Amended and Restated Trustees' Regulations or agreements in existence on the date hereof for acts or omissions occurring at or prior to the Effective Time. Section 5.12 Notification of Certain Matters. Parent shall use its reasonable best efforts to give prompt notice to the Company, and the Company shall use its reasonable best efforts to give prompt notice to Parent, of: (i) the occurrence, or non-occurrence, of any event the occurrence, or non-occurrence, of which it is aware and which would be reasonably likely to cause (x) any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect or (y) any covenant, condition or agreement contained in this Agreement not to be complied with or satisfied in all material respects, (ii) any failure of Parent or the Company, as the case may be, to comply in a timely manner with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder or (iii) any event, change or development that has had, or would reasonably be expected to have, a Material Adverse Effect on Parent or the Company, as the case may be; provided, however, that the delivery of any notice pursuant to this Section 5.12 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. Section 5.13 Employee Benefit Plans and Agreements. Parent agrees that it will cause the Surviving Trust to maintain for a period of twelve months immediately following the Effective Time, employee benefit plans, programs, agreements, policies and arrangements for employees of the Company and its Subsidiaries which in the aggregate are no less favorable than the employee benefit plans, programs, agreements, policies and arrangements of the Company and its Subsidiaries in effect on the Effective Time, -26- 31 and that it will cause the Surviving Trust to honor all employment agreements entered into by the Company prior to the date hereof; provided, however, that nothing in this Agreement shall be interpreted as limiting the power of Parent or the Surviving Trust to amend or terminate any employee benefit plan, program, agreement, policy or arrangement or as requiring Parent or the Surviving Trust to offer to continue (other than as required by its terms) any written employment contract. ARTICLE VI CONDITIONS PRECEDENT TO THE MERGER Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the following conditions: (a) Stockholder Approval. This Agreement, the Merger and the Pairing Agreement Amendment and Restatement shall have been duly approved by the requisite vote of shareholders of the Company in accordance with applicable law and the Declaration of Trust and Amended and Restated Trustees' Regulations of the Company and the Pairing Agreement (in the case of the Pairing Agreement Amendment and Restatement), and the Pairing Agreement Amendment and Restatement shall have been approved by the requisite vote of the stockholders of Parent in accordance with the terms of the Pairing Agreement, applicable law and the charter and Amended and Restated By-Laws of Parent. (b) Stock Exchange Listings. The Class B Shares issuable in the Merger shall have been authorized for listing on the NYSE, subject to official notice of issuance. (c) HSR and Other Approvals. (i) The waiting period (and any extension thereof) applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated. (ii) All consents, approvals, orders or authorizations of or registrations, declarations or filings with any Governmental Entity, which the failure to obtain, make or occur would reasonably be expected to have a Material Adverse Effect on Parent or the Company (assuming the Merger had taken place), shall have been obtained, shall have been made or shall have occurred, and shall be in full force and effect. (d) Registration Statement. The Registration Statement shall have become effective in accordance with the provisions of the Securities Act. No stop order suspending the effectiveness of the Registration Statement shall have been issued by the SEC and no proceedings for that purpose shall have -27- 32 been initiated or, to the Knowledge of Parent or the Company, threatened by the SEC. All necessary state securities or blue sky authorizations shall have been received. (e) No Order. No court or other Governmental Entity having jurisdiction over the Company or Parent, or any of their respective Subsidiaries, shall (after the date of this Agreement) have enacted, issued, promulgated, enforced or entered any law, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is then in effect and has the effect of making the Merger or any of the transactions contemplated hereby illegal. Section 6.2 Conditions to Obligation of the Company to Effect the Merger. The obligation of the Company to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the additional condition that each of Parent and Sub shall have performed in all material respects each of its agreements contained in this Agreement required to be performed at or prior to the Effective Time, each of the representations and warranties of Parent and Sub contained in this Agreement that is qualified by materiality shall be true and correct at and as of the Effective Time as if made at and as of such time (other than representations and warranties which address matters only as of a certain date, which shall be true and correct as of such certain date) and each of the representations and warranties that is not so qualified shall be true and correct in all material respects at and as of the Effective Time as if made at and as of such time (other than representations and warranties which address matters only as of a certain date, which shall be true and correct in all material respects as of such certain date), in each case except as contemplated or permitted by this Agreement, and the Company shall have received certificates signed on behalf of each of Parent and Sub by its Chief Executive Officer and its Chief Financial Officer to such effect. Section 6.3 Conditions to Obligations of Parent and Sub to Effect the Merger. The obligations of Parent and Sub to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the additional condition that the Company shall have performed in all material respects each of its agreements contained in this Agreement required to be performed at or prior to the Effective Time, each of the representations and warranties of the Company contained in this Agreement that is qualified by materiality shall be true and correct at and as of the Effective Time as if made at and as of such time (other than representations and warranties which address matters only as of a certain date which shall be true and correct as of such certain date) and each of the representations and warranties that is not so qualified shall be true and correct in all material respects at and as of the Effective Time as if made at and as of such time (other than representations and warranties which address matters -28- 33 only as of a certain date which shall be true and correct in all material respects as of such certain date), in each case except as contemplated or permitted by this Agreement, and Parent shall have received a certificate signed on behalf of the Company by its Chief Executive Officer and its Chief Financial Officer to such effect. ARTICLE VII TERMINATION, AMENDMENT AND WAIVER Section 7.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after any approval of the matters presented in connection with the Merger by the shareholders of the Company or the stockholders of Parent: (a) by mutual written consent of Parent and the Company; (b) by either Parent or the Company if there has been a material breach of the representations, warranties, covenants and agreements on the part of the other set forth in this Agreement, which breach has not been cured within 20 business days following receipt by the breaching party of notice of such breach from the non-breaching party; (c) by Parent or the Company if: (i) the Merger has not been effected on or prior to the close of business on June 30, 1999; provided, however, that the right to terminate this Agreement pursuant to this Section 7.1(c)(i) shall not be available to any party whose failure to fulfill any of its obligations contained in this Agreement has been the cause of, or resulted in, the failure of the Merger to have occurred on or prior to the aforesaid date; or (ii) any court or other Governmental Entity having jurisdiction over a party hereto or any of their respective Subsidiaries shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, executive order, decree, injunction or other order or taken any other action permanently enjoining, restraining or otherwise prohibiting or making illegal the transactions contemplated by this Agreement and such law, rule, regulation, executive order, decree, injunction or other order or other action shall have become final and nonappealable; (d) by Parent or the Company if the shareholders of the Company do not approve this Agreement, the Merger or the Pairing Agreement Amendment and Restatement at the Company Shareholder Meeting or at any adjournment or postponement thereof; or -29- 34 (e) by Parent or the Company if the stockholders of Parent do not approve the Pairing Agreement Amendment and Restatement at the Parent Stockholder Meeting or at any adjournment or postponement thereof. Section 7.2 Effect of Termination. In the event of termination of this Agreement by either Parent or the Company, as provided in Section 7.1, this Agreement shall forthwith become void and there shall be no liability hereunder on the part of the Company, Parent, Sub or their respective officers, directors or trustees; provided, however, that nothing contained in this Section 7.2 shall relieve any party hereto from any liability for any willful breach of a representation or warranty contained in this Agreement or the breach of any covenant contained in this Agreement. Section 7.3 Amendment. This Agreement may be amended by the parties hereto, by or pursuant to action taken by their Board of Directors or Board of Trustees, as the case may be, at any time before or after approval of the matters presented in connection with the Merger by the stockholders of Parent and the shareholders of the Company, but, after any such approval, no amendment shall be made which by law requires further approval by such stockholders or shareholders without such further approval. This Agreement may not be amended except by an instrument in writing duly executed by each of the parties hereto. Section 7.4 Waiver. At any time prior to the Effective Time, the parties hereto may (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions contained herein which may legally be waived. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing duly executed by such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. ARTICLE VIII GENERAL PROVISIONS Section 8.1 Non-Survival of Representations and Warranties. The representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall terminate at the Effective Time. -30- 35 Section 8.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given when delivered personally, one day after being delivered to an overnight courier or when telecopied (with a confirmatory copy sent by overnight courier) or delivered by hand to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Parent or Sub, to Starwood Hotels & Resorts Worldwide, Inc. 777 Westchester Avenue White Plains, New York 10604 Attention: Richard D. Nanula Facsimile No.: (914) 640-8310 with a copy to: Sidley & Austin 555 W. Fifth St. 40th Floor Los Angles, California 90013 Attention: Sherwin L. Samuels, Esq. Facsimile No.: (213) 896-6600 (b) if to the Company, to Starwood Hotels & Resorts 777 Westchester Avenue White Plains, New York 10604 Attention: Barry S. Sternlicht Facsimile No.: (914) 640-8310 with a copy to: Sidley & Austin 555 W. Fifth St. 40th Floor Los Angeles, California 90013 Attention: Sherwin L. Samuels, Esq. Facsimile No.: (213) 896-6600 Section 8.3 Interpretation. When a reference is made in this Agreement to a Section or Article, such reference shall be to a Section or Article of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." -31- 36 Section 8.4 Counterparts. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. Section 8.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. Except for the provisions of Sections 5.6 and 5.11, and injunctive relief in respect of Section 5.9, this Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. Section 8.6 Governing Law. Except to the extent that the laws of the State of Maryland are mandatorily applicable to the Merger, this Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Section 8.7 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties except that Sub may assign, in its sole discretion, any or all of its rights, interests and obligations under this Agreement to Parent or to any direct or indirect wholly owned Subsidiary of Parent. This Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. Section 8.8 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other terms, conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement may be consummated as originally contemplated to the fullest extent possible. Section 8.9 Enforcement of this Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific wording or were -32- 37 otherwise breached. It is accordingly agreed that the parties hereto shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, such remedy being in addition to any other remedy to which any party is entitled at law or in equity. Section 8.10 Trust. The name "Starwood Hotels & Resorts" is the designation of the Company and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969 as amended and restated, and all persons dealing with the Company must look solely to the Company's property for the enforcement of any claims against the Company, as the Trustees, officers, agents and security holders of the Company assume no personal obligations of the Company, and their respective properties shall not be subject to claims of any person relating to such obligation. -33- 38 IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized all as of the date first written above. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. By: /s/ Richard D. Nanula ------------------------ Name: Richard D. Nanula Title: President and Chief Executive Officer ST ACQUISITION TRUST By: /s/ Barry S. Sternlicht ------------------------ Name: Barry S. Sternlicht Title: President STARWOOD HOTELS & RESORTS By: /s/ Barry S. Sternlicht ------------------------ Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer -34- EX-10.1 3 EX-10.1 1 EXHIBIT 10.1 INDEMNIFICATION AGREEMENT This Indemnification Agreement (this "Agreement") is made as of the 24th day of August, 1998 between Starwood Hotels & Resorts Worldwide, Inc. a Maryland corporation (the "Corporation") and Thomas C. Janson, Jr. ("Indemnitee"), with reference to the following facts and objectives: A. Indemnitee is a Director or officer of the Corporation or one or more of its subsidiaries or has been elected or appointed a Director or officer of the Corporation or one or more of its subsidiaries to take effect on a later date. B. Article Tenth of the Amended and Restated Articles of Incorporation of the Corporation (the "Corporation Articles") provides for the indemnification of directors ("Directors"), officers, employees and other agents of the Corporation to the fullest extent required or permitted under the Maryland General Corporation Law (the "MGCL"). C. Each of Section 2-418 of the MGCL and Article Tenth of the Corporation Articles specifically provides that the indemnification provided for therein is not exclusive, and thereby contemplates that agreements or other financial arrangements may be entered into between the Corporation, on the one hand, and the Corporation's Directors and officers, on the other hand, with respect to the indemnification of and advancement of expenses to such persons. D. In recognition of Indemnitee's need for substantial protection against personal liability in order to maintain Indemnitee's continued service to the Corporation in an effective manner and Indemnitee's reliance on the Corporation Articles, and in part to provide Indemnitee with specific contractual assurance that the protection promised by the Corporation Articles will be available to Indemnitee (regardless of, among other things, any limitation or other amendment or revocation of Article Tenth of the Corporation Articles or any change in the composition of the Corporation's Board of Directors (the "Board of Directors")), the Corporation desires to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the full extent (whether partial or complete) permitted by law, as set forth in this Agreement, and, to the extent directors' and officers' insurance is maintained by the Corporation, for the continued coverage of Indemnitee under such policy or policies. NOW, THEREFORE, in consideration of the premises and of Indemnitee's continuing to serve the Corporation directly or, at its request, another enterprise, the Corporation and Indemnitee hereby agree as follows: 1. D&O Liability Insurance. (a) Subject only to the provisions of Section 1(b) hereof, so long as Indemnitee shall continue to serve as a Director and/or officer of the Corporation (or shall continue at the request of the Corporation to serve as a director, trustee, officer, partner, employee or agent of another business trust, corporation, partnership, joint venture or other enterprise or an employee benefit plan), and thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether 2 civil, criminal, administrative or investigative, by reason of the fact that Indemnitee was a Director and/or officer of the Corporation or served in any of said other capacities, the Corporation shall purchase and maintain in effect, including through the obtaining or exercise of appropriate "tail" coverage, one or more valid, binding and enforceable insurance policies issued by a reputable insurer or insurers protecting Directors and Corporation officers (subject to customary limitations and exceptions) against losses, costs and expenses arising out of any such claim, action, suit or proceeding ("D&O Insurance"), which D&O Insurance shall provide coverage in all respects at least comparable to that presently provided, and shall cause Indemnitee to be covered by such policy or policies. The Corporation shall not be required to maintain in effect the policy or policies of D&O Insurance contemplated by the first paragraph of this Section 1(a) at any time at which (i) said insurance is not generally available, or (ii) in the reasonable business judgment of the persons then constituting the Board of Directors, either (I) the premium cost for such insurance is substantially disproportionate to the amount of coverage afforded, or (II) the coverage provided by such insurance is so limited and/or subject to such exclusions that there is insufficient benefit to the Corporation from such insurance; provided, however, that to the extent that the Corporation maintains any D&O Insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Director or Corporation officer under such policy or policies, and, further, that in the event the Corporation does not purchase and maintain in effect the policy or policies of D&O Insurance contemplated by this Section 1(a), the Corporation shall indemnify Indemnitee to the full extent of the coverage that would otherwise have been provided for the benefit of Indemnitee pursuant to such D&O Insurance. (b) The Corporation's obligation under this Section 1 shall terminate as of the fifth anniversary of the date on which Indemnitee ceases to render any service or to act in any capacity specified in Section 3 hereof. 2. Basic Indemnity. The Corporation hereby indemnifies Indemnitee, whether or not he is then an officer, to the fullest extent permitted by the provisions of Section 2-418 of the MGCL or any amendment thereof or by any other statute permitting such indemnification that is adopted after the date hereof. 3. Additional Indemnity. Subject only to the limitations and exclusions set forth in Section 5 hereof, and without limiting the provisions of the foregoing Section 2, the Corporation hereby also expressly agrees that in the event Indemnitee is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any action, suit or proceeding, whether pending, threatened or completed, whether civil, criminal or administrative, and whether instituted by or in the name of the Corporation or any other party, or any investigation or inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, by reason of (or arising in part out of) the fact that Indemnitee is or was a Director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, trustee, officer, partner, employee, agent or fiduciary of another business trust, -2- 3 corporation, partnership, joint venture or other enterprise or an employee benefit plan, or by reason of anything done or not done by Indemnitee in any such capacity (any such threatened, pending or completed action, suit or proceeding, or any such inquiry or investigation, a "Claim"), the Corporation shall indemnify Indemnitee against any and all judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such judgments, fines, penalties or amounts paid in settlement), and any and all reasonable expenses, actually paid or incurred by Indemnitee in connection with or in respect of such Claim. 4. Advancing of Expenses. If so requested by Indemnitee, and subject only to the limitations and exclusions of Section 5 hereof, the Corporation shall pay to Indemnitee or reimburse Indemnitee for any and all expenses actually and reasonably incurred by Indemnitee in connection with or in respect of any Claim (an "Expense Advance") in advance of the final determination thereof, in the manner provided in Section 11(a) hereof. For purposes of this Agreement, "expenses" shall include attorneys' fees and all other costs, charges and obligations paid or incurred in connection with investigating, defending, being a witness in or participating in (including an appeal), or preparing to defend, be a witness in or participate in, any Claim. 5. Limitation on Additional Indemnity and Advance Payment of Expense Advances. No indemnity pursuant to Section 3 hereof shall be paid by the Corporation, nor shall the Corporation be required to make Expense Advances under Section 4 hereof: (a) For which and to the extent that payment or reimbursement of such amount is made to Indemnitee under any D&O Insurance; (b) For which and to the extent that Indemnitee is indemnified, receives a recovery or is reimbursed other than pursuant to a policy of insurance or this Agreement; (c) On account of any action, suit or proceeding for which and to the extent that judgment is rendered against Indemnitee (i) for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"), or any similar provisions of any Federal, state or local statutory law, or (ii) for a violation of any provision of the Securities Act of 1933, as amended, in connection with the offer or sale of securities of the Corporation pursuant to a registration statement under said statute, unless either (I) in the opinion of counsel for the Corporation, Indemnitee is entitled to such indemnification by controlling precedent, or (II) a final adjudication by a court of competent jurisdiction holds that such indemnification is not against public policy as expressed in such statute; (d) On account of any action, suit or proceeding in which a court of competent jurisdiction shall enter a final judgment that: -3- 4 (i) The act or omission of Indemnitee was material to the matter giving rise to the proceeding and (I) was committed in bad faith; or (II) was that result of active and deliberate dishonesty; or (ii) Indemnitee actually received an improper personal benefit in money, property or services; or (iii) In the case of any criminal proceeding, Indemnitee had reasonable cause to believe that the act or omission was unlawful; (e) On account of any action, suit or proceeding in which a court of competent jurisdiction shall enter a final judgment in a proceeding by or in the right of the Corporation that Indemnitee is liable to the Corporation; or (f) If such payment by the Corporation under this Agreement is not otherwise permitted by applicable law. In addition, if Maryland law in effect at the time so requires, (i) the obligations of the Corporation under Sections 3 and 4 hereof shall be subject to the condition that any "Determining Party" (as hereinafter defined) shall not have determined (in a written opinion in any case in which the "Independent Legal Counsel" (as defined in Section 6 hereof) is involved) that indemnification of Indemnitee is not permitted under applicable law or the expenses as to which Indemnitee requests payment or reimbursement are not reasonable, and (ii) the obligation of the Corporation to make an Expense Advance pursuant to Section 4 hereof shall be subject to the condition that if, when and to the extent that any Determining Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, Indemnitee shall reimburse the Corporation for all expenses paid; provided, however, that if as of the time any determination is made by the Determining Party that Indemnitee is under certain circumstances not permitted to be indemnified and/or that certain expenses are not reasonable, Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a final determination that Indemnitee should or may be indemnified under applicable law and/or that any expenses are not reasonable shall not be binding, and Indemnitee shall not be required to reimburse the Corporation for any such expense until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). If there has not been a Change in Control (as hereinafter defined), or if such Change in Control was approved by a majority of the Board of Directors who were Directors immediately prior to such Change in Control, the "Determining Party" shall be such members of the Board of Trustees, such Independent Legal Counsel (other than with respect to the reasonableness of expenses), or such other person or persons as MGCL Section 2-418 (or any successor provisions) shall require. If, on the other hand, there has been a Change in Control not approved by such majority of the Board, the Determining Party shall be (i) as to whether indemnification is permitted under applicable law, the Independent Legal Counsel referred to in Section 6 hereof, and (ii) as to the reasonableness of expenses, such members of the Board -4- 5 of Directors or such other person(s) as MGCL Section 2-418 (or any successor provision) shall require. For purposes of this Agreement, a "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act, other than a director or other fiduciary holding securities under an employee benefit plan of the Corporation or another business trust or corporation owned directly or indirectly by the shareholders of the Corporation in substantially in the same proportions as their ownership shares of beneficial interest of the Corporation, becomes, directly or indirectly, the "beneficial owner" (as defined in Rule 13(d)-3 under the Securities Exchange Act) of securities of the Corporation evidencing 8% or more of the total voting power evidenced by the Corporation's then outstanding securities that vote generally in the election of Directors ("Voting Securities"), or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors and any new Director whose election by the Board of Directors or nomination for election by the Corporation's stockholders was approved by the vote of at least two-thirds of the Directors then still in office who were either Directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board of Directors, or (iii) the stockholders of the Corporation approve a merger or consolidation of the Corporation with any other business corporation, trust or other entity, other than a merger or consolidation that would result in the holders of Voting Securities outstanding immediately prior to such merger or consolidation continuing to have (by virtue of such Voting Securities either remaining outstanding or being converted into securities entitled to vote generally in the election of directors or trustees of the surviving entity) at least 80% of the total voting power evidenced by the Voting Securities or the voting securities of such surviving entity outstanding immediately after such merger or consolidation, or (iv) the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of (in one transaction or a series of affiliated transactions) all or substantially all of the Corporation's assets. If within 15 business days after Indemnitee submits a request for indemnification or for a payment or reimbursement of expenses hereunder, there has been no determination by the Determining Party, or if the Determining Party determines that Indemnitee is not permitted to be indemnified in whole or in part under applicable law and/or that the expenses as to which payment or reimbursement has been requested are not reasonable, Indemnitee shall have the right to commence litigation in any court in the States of Maryland or Arizona having subject matter jurisdiction thereof and in which venue is proper, seeking an initial determination by the court or challenging any such determination by the Determining Party or any aspect thereof, including the legal or factual bases therefor, and the Corporation hereby consents to service of process and to appear in any such proceeding. 6. Independent Legal Counsel. In the event that there is a Change in Control (other than a Change in Control that has been approved by a majority of the Board of Directors immediately prior to such Change in Control), the Corporation shall seek legal advice with respect to any and all matters thereafter arising concerning the rights of Indemnitee -5- 6 to indemnity payments and payment or reimbursement of expenses under this Agreement or any other agreement or financial arrangement or the Corporation Articles as now or hereafter in effect only from an attorney or firm of attorneys (the "Independent Legal Counsel") proposed by Indemnitee and selected by the Board of Directors (or a committee thereof), or such other person(s) as MGCL Section 2-418 (or any successor provision) may require. Such Independent Legal Counsel, among other things, shall render its written opinion to the Corporation and Indemnitee as to whether and to what extent Indemnitee would be permitted to be indemnified under applicable law. The Corporation shall pay the reasonable fees and expenses of the Independent Legal Counsel and shall fully indemnify such counsel against all expenses, claims, liabilities, losses and damages arising out of or relating to this Agreement or such counsel's engagement pursuant hereto. 7. Indemnification for Additional Expenses. To the full extent permitted by law, the Corporation shall indemnify Indemnitee against any and all expenses and, if requested by Indemnitee, shall (within 10 business days of such request) advance such expenses to Indemnitee, that are incurred by Indemnitee in connection with any Claim asserted against or action, suit or proceeding brought by Indemnitee for (i) indemnification or payment or reimbursement of expenses by the Corporation and this Agreement, or any other agreement or the Corporation Articles each as now or hereafter in effect, relating to claims for indemnification or advancement of expenses, and/or (ii) recovery under any D&O Insurance policy or policies maintained by the Corporation, if Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. 8. Partial Indemnity. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Corporation for some or a portion of the expenses, judgments, fines, penalties and amounts paid in settlement or incurred by Indemnitee in respect of a Claim, but not, however, for all of such amount, the Corporation nevertheless shall indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful in the merits or otherwise in defense of any Claim, issue or matter, including dismissal without prejudice, Indemnitee shall be indemnified against all expenses incurred in connection with such defense. 9. No Presumptions; Burden of Proof. For purposes of this Agreement, the termination of any action, suit or proceeding by judgment, order or settlement (with or without court approval) shall not, of itself, create a presumption that Indemnitee's conduct was such that indemnity is not available pursuant to Section 3 hereof; provided, however, that the termination of any action, suit or proceeding by conviction, or upon a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, shall create a rebuttable presumption, and that the termination of any action, suit or proceeding by a settlement entered into by the Indemnitee at the request of the Corporation shall create a rebuttable presumption that Indemnitee is entitled to indemnity hereunder. -6- 7 Except as provided by the immediately preceding sentence, in connection with any determination by the Determining Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Corporation to establish that Indemnitee is not so entitled. In addition, any attorneys' fees as to which Indemnitee requests indemnification or advancement shall be rebuttably presumed reasonable if and to the extent that such fees, if charged at an hourly rate, do not exceed the hourly rates then regularly charged by such attorney or attorneys. 10. Notification and Defense of Claims. Promptly after receipt by Indemnitee of notice of the commencement of any Claim, Indemnitee shall notify the Corporation of the commencement thereof; provided, however, that the failure so to notify the Corporation shall relieve the Corporation from any obligation or liability that the Corporation may have to Indemnitee under this Agreement only if and to the extent that the Corporation's rights hereunder are prejudiced by such omission. If, at the time the Corporation receives such notice, the Corporation has D&O Insurance in effect, the Corporation shall give prompt notice of the commencement of Claim to the insurer(s) in accordance with the procedures set forth in the policy or policies in favor of Indemnitee. The Corporation thereafter shall take all necessary or desirable action to cause such insurer(s) to pay, or advance, to or on behalf of Indemnitee, all losses, costs and expenses payable as a result of such Claim in accordance with the terms of such policy or policies. The provisions of this Agreement shall in no way relieve or modify any obligation(s) or liability or liabilities of any insurer under any D&O Insurance or other applicable insurance policy. With respect to any Claim as to which Indemnitee notifies the Corporation of the commencement thereof: (a) The Corporation shall be entitled to participate therein at its own expense. (b) Except to the extent such Claim is brought by or in the right of the Corporation and/or as otherwise provided below, to the extent that it may wish, the Corporation jointly with any other indemnifying party similarly notified, shall be entitled to assume the defense of Indemnitee in respect of such Claim, at the Corporation's own expense, with counsel approved by Indemnitee, whose approval shall not be unreasonably withheld. After notice from the Corporation to Indemnitee of the Corporation's election to assume such defense, the Corporation shall not be liable to Indemnitee under this Agreement for any legal or other expenses subsequently incurred by Indemnitee in connection with the defense thereof, other than as expressly provided to the contrary below. Indemnitee shall have the right to employ his own counsel in connection with such Claim, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless: (i) Such retention (or continued retention) of counsel by Indemnitee has been authorized or consented to by Corporation; -7- 8 (ii) Counsel employed by Indemnitee shall have concluded that there is or may be a conflict of interest between Indemnitee and the Corporation with respect to such action, in which event counsel employed by Indemnitee also shall be entitled to participate in the defense of Indemnitee in connection with such Claim; (iii) The counsel retained by the Corporation to assume the defense of Indemnitee in such proceeding shall also be representing in such action the Corporation and/or one or more other parties; such counsel shall have concluded that there is an actual conflict of interest between Indemnitee and the one or more of such other parties (including, if applicable, the Corporation); and within 10 business days after the Corporation is notified of such conflict, separate counsel shall have been retained by the Corporation to represent either the party or parties with whom there is such conflict of interest or Indemnitee (in which case such counsel shall be selected by Indemnitee and approved by the Corporation, whose approval shall not be unreasonably withheld); or (iv) The Corporation shall not in fact have retained counsel to assume the defense of Indemnitee in connection with such action. In each of the above cases, the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Corporation. (c) The Corporation shall not be required to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Claim effected without the Corporation's written consent. The Corporation shall not settle any Claim in any manner that would impose any penalty or limitation on Indemnitee without Indemnitee's written consent. Neither the Corporation nor Indemnitee shall unreasonably withhold consent to any such proposed such settlement. 11. Indemnification and Expense Advancement Requests. (a) Advancement of Expenses. (i) Indemnitee shall, in order to request payment or reimbursement of expenses pursuant to Section 4 hereof, submit to the Board of Directors a statement or request for advancement of expenses substantially in the form of Exhibits 1 or 1A attached hereto and made a part hereof (the "Expense Advancement Request"). (ii) Within 10 business days after receipt of a properly completed Expense Advancement Request and an invoice or other statement of the expenses to be advanced, the President, the Chief Executive Officer, a Vice President or General Counsel of the Corporation shall authorize the Corporation's payment or reimbursement of said expenses, whereupon such payment(s) or reimbursement(s) shall immediately be made. No security shall be required in connection with any Expense Advancement Request, and it shall be accepted without reference to Indemnitee's financial ability to make repayment. -8- 9 (b) Indemnification. (i) Indemnitee, in order to request indemnification pursuant to Section 3 hereof, shall submit to the Board of Directors a statement of request for indemnification substantially in the form of Exhibit 2 attached hereto and made a party hereof (the "Indemnification Request"). (ii) Any and all payments on account of the Corporation's indemnification obligations under Section 3 hereof shall be made within 10 business days of the Trust's receipt of a duly completed Indemnification Request with respect thereto. 12. Continuation of Indemnity; Indemnity Not Exclusive. All agreements and obligations of the Corporation contained herein shall continue during the period Indemnitee is a Director and/or officer of the Corporation (or serves at the request of the Corporation as a director, trustee, officer, partner, employee or agent of another business trust, corporation, partnership, joint venture or other enterprise or an employee benefit plan) and shall continue thereafter so long as Indemnitee shall be subject to any possible Claim. The rights and benefits of Indemnitee and the obligations of the Corporation under this Agreement shall be in addition to, and shall not supersede, limit or be in lieu of, the provisions, if any, relating to the indemnification of Indemnitee by the Corporation in the Corporation Articles, the Bylaws of the Corporation, any resolution or resolutions of the Board of Directors, any other agreement or financing arrangement, the provisions of policies of insurance of the Corporation, or other applicable law. 13. Subrogation. In the event of payment or reimbursement by the Corporation under this Agreement, the Corporation shall be subrogated to the extent of such payment or reimbursement to any and all rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of any and all such documents as may be necessary to enable the Corporation effectively to enforce such rights. 14. Notice. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom such notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which so mailed: If to Indemnitee, to: Thomas C. Janson, Jr., Esq. Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, CA 90071 -9- 10 If to the Corporation, to: Starwood Hotels & Resorts Worldwide, Inc. 777 Westchester Avenue White Plains, NY 10604 Attention: Secretary or to such other address as may have been furnished to Indemnitee by the Corporation or to the Corporation by Indemnitee, as the case may be. 15. Severability. If any provision of this Agreement or the application of any such provision to any person or circumstance is held by a court of competent jurisdiction invalid, void or otherwise unenforceable, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected, and the provision so held to be invalid, void or otherwise unenforceable shall be reformed to the extent (and only to that extent) necessary to make it enforceable. 16. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one document. 17. Captions. The captions of the Sections to this Agreement have been included herein for convenience of reference only, and this Agreement shall not be construed by reference thereto. 18. Governing Law; Binding Effect; Amendment and Termination. (a) This Agreement is made and entered into pursuant to Section 2-418 of the MGCL, and this Agreement shall be governed by and its provisions interpreted and enforced in accordance with the laws of the State of Maryland applicable to contracts made and to be performed in such State without giving effect to the principles of conflicts of laws. (b) This Agreement shall be binding upon and inure to the benefit of (i) the Corporation and its successors and permitted assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Corporation), and (ii) Indemnitee, his or her spouse, heirs, executors, personal and legal representatives and other successors and permitted assigns. Neither this Agreement nor any right or obligation hereunder may be assigned, delegated or otherwise transferred by Indemnitee voluntarily during his lifetime or by the Corporation, except that the Corporation shall require and cause any successor to expressly assume and agree (by a writing in form and substance satisfactory to Indemnitee, whose approval shall not be unreasonably withheld) to perform this Agreement in the same manner and to the same extent that the Corporation would have been required to perform if no such succession had taken place. (c) No amendment, supplement or other modification, or termination of this Agreement shall be effective unless executed in writing by both of the parties hereto. No waiver of any provision or provisions of this Agreement shall be deemed or shall constitute -10- 11 a waiver of any other provision or provisions hereof (whether or not similar), nor shall any such waiver constitute a continuing waiver. 19. Other Indemnification Agreements. (a) This Agreement supersedes and replaces any prior indemnification agreement between the Corporation and Indemnitee which covers similar rights and obligations between Indemnitee and the Corporation; provided however that Indemnitee and the Corporation shall retain any and all rights and obligations under any such prior agreement which may have accrued or be applicable to any period prior to the date of this Agreement. (b) If Indemnitee has entered into, or in the future enters into, an indemnification agreement with Starwood Hotels & Resorts Trust, a Maryland real estate investment trust, similar to this Agreement, then if and to the extent that Indemnitee is entitled to indemnification against and/or advancement of any judgement(s), fine(s), penalty(ies), amount(s) paid in settlement, cost(s) and/or expense(s) both under this Agreement and such other indemnification agreement, Indemnitee shall be entitled to seek such indemnification and/or reimbursement under either or both said agreements, as Indemnitee may elect, but any and all such requests for indemnification and/or advancement or expenses shall be subject to the provisions of paragraph (b) of Section 5 of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. By: /s/ RONALD C. BROWN ------------------------------------- Its: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER /S/ THOMAS C. JANSON, JR. ------------------------------------- Thomas C. Janson, Jr., Indemnitee EXHIBIT 1- Expense Advancement Request EXHIBIT 1A- Expense Advancement Request EXHIBIT 2- Indemnification Request -11- EX-10.2 4 EX-10.2 1 EXHIBIT 10.2 FIFTH AMENDMENT TO CREDIT AGREEMENT FIFTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of August 26, 1998, among STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust ("Starwood REIT"), SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership ("SLT RLP"), STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Corporation"), ITT CORPORATION, a Nevada corporation ("ITT" and, together with Starwood REIT, SLT RLP and the Corporation, the "Borrowers"), the lenders from time to time party to the Credit Agreement referred to below (the "Lenders"), BANKERS TRUST COMPANY and THE CHASE MANHATTAN BANK, as Administrative Agents (in such capacity, the "Administrative Agents") and LEHMAN COMMERCIAL PAPER INC. and BANK OF MONTREAL, as Syndication Agents (in such capacity, the "Syndication Agents"). Unless otherwise defined herein, all capitalized terms used herein shall have the respective meanings provided such terms in the Credit Agreement referred to below. W I T N E S S E T H : WHEREAS, the Borrowers, the Lenders, the Administrative Agents and the Syndication Agents are parties to a certain Credit Agreement, dated as of February 23, 1998 (as amended, modified or supplemented to the date hereof, the "Credit Agreement"); WHEREAS, the Parent Companies are contemplating the following proposed reorganization transaction (the "Reorganization"): (i) a newly created direct Wholly-Owned Subsidiary of the Corporation ("Newco") shall be merged (with such merger being herein called the "Reorganization Merger") with and into Starwood REIT, with Starwood REIT surviving the Reorganization Merger as a direct Subsidiary of the Corporation; (ii) the common stock of Newco shall become the common shares of beneficial interest in Starwood REIT (the "Class A Shares") and the common shares of beneficial interest in Starwood REIT shall be converted into a new class of shares of beneficial interest of Starwood REIT (the "Class B Shares"); (iii) the Class B Shares shall be paired with the common stock of the Corporation; (iv) the existing Class A Exchangeable Preferred Shares and Class B Exchangeable Preferred Shares of Starwood REIT shall remain outstanding as such shares of Starwood REIT; and (v) the organizational documents of Starwood REIT and the Corporation shall be amended and restated to effectuate the foregoing; WHEREAS, three of SLT RLP's Wholly-Owned Subsidiaries, W&S Seattle Corp., W&S Lauderdale Corp. and W&S Denver Corp. each intend to issue up to 500 shares of preferred shares to at least 100 new shareholders to enable such corporations to be treated as real estate investment trusts under the Code (with such stock issuances being collectively referred to herein as the "Westin Stock Issue"); WHEREAS, the Borrowers wish to request certain one time waivers from certain restrictions set forth in certain sections of the Credit Agreement in order to permit the Reorganization and the Westin Stock Issue, as herein provided; and 2 WHEREAS, the parties hereto wish to further amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: I. Waivers, Amendments and Agreements with Respect to the Credit Agreement. 1. Consent to Reorganization. Notwithstanding anything to the contrary contained in the Credit Agreement, but subject to the terms of this Amendment, the Lenders hereby consent to the Reorganization and to the Parent Companies and their Subsidiaries taking the steps necessary to consummate the Reorganization, in accordance with the steps described in Exhibit A attached hereto, so long as the following conditions are satisfied: (i) after giving effect to the Reorganization Merger, the Corporation shall own all of the issued and outstanding Class A Shares of Starwood REIT, which shares shall represent 100% of the equity interests in Starwood REIT other than the equity interests represented by the Class B Shares and the Class A Exchangeable Preferred Shares and Class B Exchangeable Preferred Shares; (ii) (x) in no event shall any additional Class A Exchangeable Preferred Shares or Class B Exchangeable Preferred Shares be issued in connection with the Reorganization Merger, except as specifically contemplated by clause (ii) of Section 9.14(c) of the Credit Agreement (as added pursuant to this Amendment), (y) in no event shall the issued and outstanding Class B Shares, at the time of the consummation of the Reorganization and immediately after giving effect thereto, represent more than 49% of the aggregate economic interests (as determined by the Corporation in good faith on a reasonable basis) represented by all outstanding equity interests in Starwood REIT (exclusive of the outstanding Class A Exchangeable Preferred Shares and Class B Exchangeable Preferred Shares) and (z) in any event the terms of all Class B Shares shall provide that same shall be, at the option of the Corporation at any time when one or more material Events of Default (pursuant to the Credit Agreement or certain other material Indebtedness) have continued in existence beyond certain cure periods to be determined, mandatorily exchanged for shares of common stock of the Corporation; (iii) in no event shall the Class A Shares constitute Margin Stock, and all said Class A Shares shall be immediately pledged (and delivered for pledge) by the Corporation pursuant to the Pledge and Security Agreement; (iv) all material consents and approvals of, and filings and registrations with, and all of the actions in respect of, all governmental agencies, authorities or instrumentalities, as well as all shareholders, holders of equity interests, creditors and parties to contracts with the Parent Companies and their Subsidiaries, required in order to make or consummate the Reorganization shall have been obtained, given, filed or taken and are or will, at the time of the consummation of the Reorganization Merger, be in full force and effect (without limiting the foregoing, all required shareholder consents of the -2- 3 Parent Companies shall have been obtained, as well as any consents required of any holders of material outstanding Indebtedness of the Parent Companies and their Subsidiaries); (v) at the time of the consummation of the Reorganization (and after giving effect thereto) no Specified Default, and no Event of Default, shall be in existence and all representations, warranties and agreements contained in the Credit Documents shall be true and correct in all material respects (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date); provided that for purposes of this clause (v), the following modifications shall be deemed made to Section 7 of the Credit Agreement; (a) all references in said Section 7 to "Documents" shall be deemed to include any documents executed and delivered in connection with the Reorganization; and (b) all references in said Section 7 to the "Transaction" shall be deemed to include the Reorganization and each of the components thereof; (vi) all proxy materials and similar materials distributed to shareholders of Starwood REIT or the Corporation, generally, shall be distributed to the Lenders substantially concurrently with their distribution to said shareholders; (vii) all terms of the Reorganization, the Class B Shares and any other documentation entered into in connection with the Reorganization or the Class B Shares shall, in each case, be required to be reasonably satisfactory to the Lead Agents and, if there are any material differences (in the good faith determination of the Lead Agents) in any of the terms of the Reorganization, the Class B Shares and the other documentation entered into in connection therewith from that described in this Fifth Amendment, same shall be required to be satisfactory to the Required Lenders. Such satisfaction may be evidenced by (i) the written approval of the Required Lenders obtained after the documentation relating thereto has been distributed to them or (ii) if said terms and documentation are satisfactory to the Lead Agents and the Lenders are notified thereof, the Required Lenders shall be deemed satisfied therewith unless, within 10 days after the Lenders' receipt of such notice and the relevant documentation, the Required Lenders have objected in writing to any of the terms or documentation entered into in connection with the Reorganization or the Class B Shares; (viii) the Reorganization Merger shall be consummated not later than March 31, 1999; and (ix) the Lead Agents shall have received such opinions of counsel (with the counsel and form and substance of said opinions to be reasonably satisfactory to the Lead Agents) to the extent requested by them in connection with the foregoing. -3- 4 As used herein, the term "Reorganization Merger Date" shall mean the date upon which the merger of Newco with and into Starwood REIT is consummated as described in step 2 set forth in Exhibit A. 2. Consent to Westin Stock Issue. Notwithstanding anything to the contrary contained in the Credit Agreement, but subject to the terms of this Amendment, the Lenders hereby consent to the Westin Stock Issue, so long as the conditions described below are satisfied: (i) none of W&S Seattle Corp., W&S Lauderdale Corp. or W&S Denver Corp. shall issue more than 500 preferred shares pursuant to the Westin Stock Issue; (ii) unless the Required Lenders otherwise agree, the preferred stock issued pursuant to the Westin Stock Issue shall (x) have a liquidation preference not to exceed $500 per share, (y) have dividends which accrue thereon at a rate per annum not to exceed 8.25% and (z) otherwise constitute Perpetual Preferred Stock (as defined in the Credit Agreement), except for the fact that the issuer thereof shall be the respective entity identified in preceding clause (i); and (iii) at the time of each issuance of preferred stock pursuant to the Westin Stock Issue, no Specified Default, and no Event of Default, shall be in existence. 3. Definition of Parent Companies. (a) Effective as of the Reorganization Merger Date, and except as otherwise expressly provided in following clause (b), all references in the Credit Agreement to the term "Parent Companies" or "Parent Company" shall be deemed to refer only to the Corporation and any references in the Credit Agreement before or after the term "Parent Companies" to items such as "their Subsidiaries", etc., shall be changed appropriately, mutatis mutandis. Without limiting the foregoing, (i) references in the Credit Agreement to "either or both Parent Companies", "such Parent Company", "either Parent Company", "Each Parent Company", "each Parent Company", "each Parent Company (or both Parent Companies)" and "the respective Parent Company" shall in each case be deemed to refer to the Corporation, (ii) references in the Credit Agreement to "Parent Company's" or "Parent Companies'" shall be deemed to refer to the Corporation's, (iii) any reference in the Credit Agreement such as "neither Parent Company has been" shall be appropriately changed to "the Corporation has not been" and (iv) references after the term "Parent Company" to "their Subsidiaries", "their Subsidiaries and Affiliates" and other similar references shall be deemed to refer to "its Subsidiaries", "its Subsidiaries and Affiliates" or other appropriate reference, as the case may be. (b) Notwithstanding anything to the contrary contained in preceding clause (a), the following references to the term "Parent Companies" or "Parent Company" shall not be changed as otherwise required by preceding clause (a): (i) references to the "Parent Companies" or "Parent Company" in Section 5 of the Credit Agreement shall not be modified; -4- 5 (ii) references to the Parent Companies in Section 7.03(a) shall not be modified; (iii) the reference to the "Parent Companies" in Section 7.14 shall not be modified; (iv) the reference to "Parent Companies" in Section 9.03(a)(v) shall not be modified; (v) references to "Parent Companies" in Section 9.07, in each case to the extent relating to periods prior to the Reorganization Merger Date, shall be deemed not to be changed for such prior periods; (vi) the reference to "Parent Companies" in the definitions of "Dividend" and "GAAP" appearing in Section 11 of the Credit Agreement shall not be changed; (vii) no modification shall be made to the definition of "Parent Companies" appearing in Section 11 of the Credit Agreement; (viii) lower case references to a "parent company" or "parent companies" shall not be modified (including, without limitation, those references thereto contained in Sections 13.04(b)(x)(i)(a) and 13.17); and (ix) the term "Parent Company" and "Parent Companies" as used in Section 13.12 shall not be modified hereby. 4. Section 4.02(d); Debt Proceeds. Section 4.02(d) of the Credit Agreement is hereby amended as follows: (a) by adding at the end of the first parenthetical contained in Section 4.02(d), the following: ", Indebtedness permitted to be incurred pursuant to Section 9.04(viii), and Indebtedness in connection with any CMBS Transaction permitted to be incurred pursuant to Section 9.04(xiv), except that (x) Indebtedness evidenced by Permanent Senior Notes issued pursuant to Section 9.04(viii)(B) (unless and to the extent such Permanent Senior Notes are issued as a result of an increase in availability as specifically contemplated by the last sentence of Section 9.04) and Indebtedness incurred pursuant to any CMBS Transaction shall not be excepted pursuant to this parenthetical unless and until all Tranche I Term Loans have been repaid in full (with the aggregate amount of Net Proceeds from issuances of Permanent Senior Notes and CMBS Transactions incurred on or before February 23, 1999 which are actually used to repay principal of Tranche I Term Loans then outstanding in accordance with the provisions of this clause (d) being herein called the "Maximum Indebtedness Scheduled Asset Sale Credit Amount") and (y) thereafter, Indebtedness incurred pursuant to CMBS Transactions shall not be excepted pursuant to this parenthetical if, and to the extent, the Indebtedness incurred in connection with the respective CMBS Transaction is permitted pursuant to Section 9.04(viii) as a result of an -5- 6 increase to the $1.0 billion amount contained therein pursuant to the provisions of the last sentence of Section 9.04"; and (b) by adding at the end of the second parenthetical contained in Section 4.02(d) the following: "and other than Qualified Preferred Stock permitted to be issued pursuant to Section 9.14(c) (unless and to the extent such Qualified Preferred Stock is issued as a result of an increase in availability as specifically contemplated by the last sentence of Section 9.04) shall not be excepted pursuant to this parenthetical unless and until all Tranche I Term Loans have been repaid in full." 5. Section 4.02(e); Proceeds from Asset Sales. Section 4.02(e) of the Credit Agreement is hereby amended by (x) inserting immediately after the phrase "Scheduled Asset Disposition" the first place it appears therein the phrase "(except that, if one or more Scheduled Asset Dispositions occurs on or before February 23, 1999 and after proceeds of Indebtedness issued pursuant to Section 9.04(viii)(B) and/or 9.04(xiv) and/or proceeds of Qualified Preferred Stock issued pursuant to Section 9.04(c) have actually been used to repay principal of outstanding Tranche I Term Loans pursuant to the requirements of preceding Section 4.02(d) and/or the requirements of this clause (e), an aggregate amount of Net Proceeds from such Scheduled Asset Dispositions may be excluded from the requirements that same be applied pursuant to this Section 4.02(e) so long as the aggregate amount so excluded does not exceed the sum of the Maximum Indebtedness Scheduled Asset Sale Credit Amount and the Maximum QPS Scheduled Asset Sale Credit Amount)", (y) inserting immediately after the phrase "receives cash proceeds from any sale or issuance of its equity" the phrase "(excluding equity issued in accordance with the requirements of Section 9.14(c), except that Qualified Preferred Stock issued pursuant to Section 9.14(c) (unless and to the extent such Qualified Preferred Stock is issued as a result of an increase in availability as specifically contemplated by the last sentence of Section 9.04) shall not be excepted pursuant to this parenthetical unless and until all Tranche I Term Loans have been repaid in full (with the aggregate amount of Net Proceeds from issuances of Qualified Preferred Stock on or before February 23, 1999 which are actually used to repay principal of Tranche I Term Loans then outstanding accordance with the provisions of this clause (e) or preceding Section 4.02(d) being herein called the "Maximum QPS Scheduled Asset Sale Credit Amount"))" and (z) deleting the text thereof from and after the first proviso thereto and inserting in lieu thereof the following new text: "provided that, Net Proceeds received in respect of Asset Sales made pursuant to, and in accordance with the requirements of, clause (viii) of Section 9.02 and which otherwise would be required to be applied as mandatory repayments or commitment reductions hereunder shall not be required to be so applied and may be reinvested in assets used or to be used in Hotel and Gaming Businesses if the following conditions are satisfied: (1) no Specified Default, and no Event of Default, then exists; (2) the Parent Companies deliver a certificate to the Paying Agent on or prior to such date stating that such Net Proceeds shall be used (or contractually committed to be -6- 7 used) to purchase assets used or to be used in Hotel and Gaming Businesses within 360 days (or earlier to the extent required to be so applied pursuant to the terms of any outstanding Indebtedness) following the date of such Asset Sale (which certificate shall set forth the estimates of the proceeds to be so expended); (3) the amount of Net Sale Proceeds which may be reinvested (including the amounts of any "deemed reinvestments" pursuant to following clause (4)) shall not exceed (a) $600,000,000 (or $750,000,000 if, at the time of the respective Asset Sale and after giving effect thereto, either (1) the Combined Leverage Ratio is less than 4.5:1.0 or (2) the Unsecured Debt Rating of each Parent Company (or both Parent Companies) shall be at least BBB- by S&P and Baa3 by Moody's) for Net Sale Proceeds received during the period commencing on the Initial Borrowing Date and ending on December 31, 1998 and (b) $250,000,000 (or $500,000,000 if all Tranche I Term Loans have been repaid in full) for Net Sale Proceeds received during any Fiscal Year thereafter; and, if, at the time of the respective Asset Sale and after giving effect thereto, either (1) the Combined Leverage Ratio is less than 4.5:1.0 or (2) the Unsecured Debt Rating of each Parent Company (or both Parent Companies) shall be at least BBB- by S&P and Baa3 by Moody's), then there shall be no further limitation on the amount of such permitted reinvestments; and (4) any Asset Sale structured in the form of a "like-kind exchange" in accordance with Section 1031 of the Code shall be treated as the sale of an Asset with the Net Sale Proceeds (deemed to be an amount equal to the fair market value of the Assets so exchanged) therefrom reinvested pursuant to clause (3) of this proviso; provided further, that if (x) all or any portion of such Net Sale Proceeds not so applied pursuant to the immediately preceding proviso as a mandatory repayment are not so used (or contractually committed to be used) within the 360 day period after the date of the respective Asset Sale (or earlier to the extent required to be so applied pursuant to the terms of any outstanding Indebtedness), such remaining portion shall be applied on the last day of such period as provided above in this Section 4.02(e) (without regard to the immediately preceding proviso) and (y) all or any portion of such Net Sale Proceeds are contractually committed to be used and subsequent to such date such contract is terminated or expires without such portion being so used, then such remaining portion shall be applied on the date of such termination or expiration as provided in this Section 4.02(e) (without regard to the immediately preceding proviso)." 6. Section 7.13; Mortgage Loans. The second sentence of Section 7.13(b) of the Credit Agreement is hereby amended by inserting, immediately after the last word thereof, the following: ", except for such waivers, modifications, alterations, satisfactions, cancellations or subordinations which could not reasonably be expected to result in a material adverse effect on the value of the affected Mortgage Loan." -7- 8 7. Section 7.15; Preferred Stock Subsidiaries. The first sentence of Section 7.15 of the Credit Agreement is hereby amended by inserting the phrase ", as of the Initial Borrowing Date," immediately after the phrase "complete and accurate list" appearing in the first sentence thereof. 8. Section 7.28; Status as a REIT. Section 7.28 of the Credit Agreement is hereby amended by deleting the first sentence thereof and by inserting the following sentence in its place: "Starwood REIT is organized in conformity with the requirements for qualification as a real estate investment trust under the Code and, until the consummation of the Reorganization, is grandfathered from the application of Section 269B(a)(3) of the Code pursuant to Section 136(c)(3) of the Deficit Reduction Act of 1984." 9. Section 7.31; Stock. Effective as of the Reorganization Merger Date, Section 7.31 of the Credit Agreement shall be deemed amended and restated in its entirety to read as follows: "The Corporation lists its outstanding shares of common stock (other than the UBS Shares, and except for similar issuances after the Initial Borrowing Date) on the New York Stock Exchange and such shares trade as "paired shares" with the Class B Shares of Starwood REIT subject to an amended pairing agreement between Starwood REIT and the Corporation." 10. Section 8.01; Information Covenants. (a) Notwithstanding anything to the contrary contained in Section 8.01(a) or (b), as the case may be, of the Credit Agreement, to the extent financial statements are required to be delivered pursuant to said Sections 8.01(a) and/or (b) for any fiscal quarter or fiscal year which ends after the Reorganization Merger Date, each reference in said Sections 8.01(a) and (b) to (x) the separate consolidated and consolidating financial statements of each of (i) Starwood REIT and its Subsidiaries and (ii) the Corporation and its Subsidiaries and (y) the combined consolidated and consolidating financial statements of the Parent Companies, shall be deemed to refer to the consolidated and consolidating balance sheets of the Corporation and its Subsidiaries only. (b) Notwithstanding anything to the contrary contained in Section 8.01(d) of the Credit Agreement, any budgeted statements prepared in accordance with the requirements of Section 8.01(d), if prepared after the Reorganization Merger Date, shall be prepared by the Corporation on a consolidated basis, rather than on a combined basis. 11. Section 8.11; REIT Requirements. Section 8.11 of the Credit Agreement is hereby amended by deleting the first sentence thereof and by inserting the following sentence in its place: "Starwood REIT shall operate its business at all times so as to satisfy all requirements necessary to qualify as a real estate investment trust under Sections 856 through 860 of the Code and, until the consummation of the Reorganization, shall at all times maintain -8- 9 its status as grandfathered from the application of Section 269B(a)(3) of the Code pursuant to Section 136(c)(3) of the Deficit Reduction Act of 1984." 12. Section 8.16; Margin Regulations. Section 8.16 of the Credit Agreement is hereby amended by adding the following new sentence immediately after the first sentence thereof: "Furthermore, the Borrowers shall take all actions so that at all times all Capital Stock of Starwood REIT owned by the Corporation or any of its Subsidiaries (including, without limitation, the Class A Shares to be issued pursuant to the Reorganization) do not constitute Margin Stock." 13. Section 8.19; REIT and Corporation Stock. Effective as of the Reorganization Merger Date, Section 8.19 of the Credit Agreement shall be deemed amended and restated in its entirety to read as follows: "The Corporation shall maintain in good standing its listing of, or listing authorization for, all of its outstanding shares of Capital Stock on the New York Stock Exchange (other than the UBS Shares, and except for similar issuances after the Initial Borrowing Date) and such shares shall trade as "paired shares" with the Class B Shares of Starwood REIT subject to an amended pairing agreement between Starwood REIT and the Corporation." 14. Section 9.01; Liens. (a) Section 9.01(iii) of the Credit Agreement is amended by deleting the words "without giving effect to any renewals, replacements and extensions of such Liens" appearing therein and by inserting in lieu thereof the phrase "and giving effect to any renewals, replacements and extensions of such Liens, in each case so long as the obligations secured thereby are not increased as a result thereof and so long as such renewals, replacements and extensions do not result in Liens applying to any Assets which are not already subject to the Liens securing the respective obligations being renewed, replaced or extended." (b) Section 9.01 of the Credit Agreement is hereby further amended by (i) deleting the word "and" appearing at the end of clause (xiv) thereof, (ii) deleting the period at the end of clause (xv) thereof and inserting in lieu thereof a semi-colon and (iii) adding new clauses (xvi) and (xvii) at the end of Section 9.01 as follows: "(xvi) Liens on Assets of any Borrower or any Subsidiary of any Borrower (other than Assets constituting Collateral) securing CMBS Transactions permitted under Section 9.04(xiv); and (xvii) Liens on cash or Cash Equivalents (with the amount of cash and Cash Equivalents at any time subject to Liens pursuant to this clause (xvii) not to exceed the lesser of (x) $135,000,000 and (y) remainder of $1,135,000,000 less the amount of all payments theretofore made pursuant to Section 9.03(a)(iv) in connection with the Existing Forward Equity Transaction entered into with the holder of and in connection with the UBS Shares)." -9- 10 15. Section 9.02; Consolidation, Merger, Etc. (a) Notwithstanding anything to the contrary contained in the Credit Agreement, the Lenders hereby waive the restrictions contained in Section 9.02 with respect to the Reorganization, so long as same is consummated in accordance with the requirements of Section 1 of Part I of the Fifth Amendment. (b) Section 9.02(viii) of the Credit Agreement is amended by (1) deleting the words "as provided in" appearing in clause (z) immediately before the words "Section 4.02(e)" and replacing the same with "if and to the extent required by the provisions of", (2) placing a period after the first appearance of the reference to "Section 4.02(e)" and (3) deleting the entire subsection from and after such period and replacing the same with the following sentence: "Notwithstanding anything to the contrary contained in clause (y) of the immediately preceding sentence, any Asset Sale permitted pursuant to this clause (viii) may be structured in the form of a "like-kind exchange" in accordance with Section 1031 of the Code, in each case so long as the fair market value of the Assets so exchanged would not, when added to the amount of Net Sale Proceeds in respect of Asset Sales received during the respective Fiscal Year which are to be reinvested pursuant to clause (3) of the first proviso to Section 4.02(e), exceed the respective amounts for such Fiscal Year specified in said clause (3) of the first proviso to Section 4.02(e) hereof." 16. Section 9.03; Restricted Payments. (a) Section 9.03(a)(ii) of the Credit Agreement is hereby amended by (x) inserting, immediately after the phrase "qualifies as a "real estate investment trust" under the Code," appearing therein the phrase "(A) until the occurrence of the Reorganization Merger Date," and (y) inserting the following new text immediately at the end thereof: "and (B) at all times from and after the Reorganization Merger Date, (a) Starwood REIT may pay regularly accruing dividends on any Qualified Preferred Stock issued by it in accordance with the provisions of Section 9.14(c) so long as such Qualified Preferred Stock bears dividends consistent with then prevailing market conditions (as determined in good faith by Starwood REIT) at the time of the issuance of the respective Qualified Preferred Stock), (b) Starwood REIT may pay Dividends to the Corporation or any Wholly-Owned Subsidiary thereof and (c) during any period of twelve consecutive calendar months ending after the Reorganization Merger Date (but excluding that portion of any such twelve month period which occurs prior to the Reorganization Merger Date), Starwood REIT may pay cash dividends to its shareholders (excluding (x) the Corporation and any Wholly-Owned Subsidiary thereof and (y) dividends paid by Starwood REIT on any Qualified Preferred Stock) for such period in an aggregate amount not to exceed the lesser of (A) $150,000,000 (with the dollar amount otherwise provided in this clause (A) to be increased, but only for periods ended after the date of the respective increase, on each anniversary of the Reorganization Merger Date by an amount equal to 20% of the dollar amount as permitted pursuant to this clause (A) as same was in effect immediately before such increase and (B) 15% of Adjusted Funds From Operations for such period." -10- 11 (b) Subsection 9.03(a)(iv) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(iv) so long as (x) no Specified Default, and no Event of Default, then exists or would result therefrom and (y) Starwood REIT qualifies as a "real estate investment trust" under the Code, Starwood REIT and/or the Corporation shall be permitted to repurchase shares of their own common stock and may make payments (excluding the delivery of cash or Cash Equivalents pursuant to Section 9.01(xvii) unless and until such cash or Cash Equivalents are actually used to satisfy obligations pursuant to the respective Existing Forward Equity Transaction) in respect of one or more Forward Equity Transactions, in an aggregate amount for all purchases and payments pursuant to this clause (iv) not to exceed $1,135,000,000 (reduced by the amount of cash and Cash Equivalents from time to time subject to Liens securing any Forward Equity Transaction)." (c) Effective as of the Reorganization Merger Date, clause (vi) of Section 9.03(a) shall be deleted, with any amounts theretofore used to repurchase UBS Shares as provided in said Section 9.03(a)(vi) prior to the Reorganization Merger Date to thereafter be deemed to have been expended pursuant to clause (iv) of Section 9.03(a). 17. Section 9.04; Indebtedness. (a) Section 9.04(viii) is hereby amended and restated in its entirety to read as follows: "(viii) (A) the Corporation shall be permitted to issue Senior Secured Bridge Notes on the Initial Borrowing Date as required by Section 5.06(a) (with the Senior Secured Bridge Note Documents to be in the form provided pursuant to Section 5.06(b) on or prior to the Initial Borrowing Date) and shall be permitted from time to time to issue (but not to any Borrower or Affiliate thereof) Permanent Senior Notes for cash; provided that (w) all of the terms and conditions of the Permanent Senior Notes (including, without limitation, amortization, maturities, interest rates, covenants, defaults, remedies, guaranties, sinking fund provisions and other terms) shall be reasonably satisfactory to the Lead Agents, (x) at the option of the Corporation, Permanent Senior Notes may be issued as Permanent Senior Secured Notes and, in such event, may be secured to the extent provided in the Pledge and Security Agreement, (y) all Net Proceeds (determined without giving effect to the proviso to the definition of Net Proceeds contained herein) from any issuance of Permanent Senior Notes under this clause (viii)(A) or clause (viii)(B) below shall be applied first to repay the outstanding Senior Secured Bridge Notes until all such Senior Secured Bridge Notes are repaid in full (except to the extent such Net Proceeds are otherwise required to be applied to the Tranche I Term Loans pursuant to Section 4.02 (d)), and any remaining Net Proceeds shall be used for general corporate purposes of the Corporation otherwise permitted under the terms of this Agreement, and (z) in no event shall the aggregate principal amount of Indebtedness at any time outstanding pursuant to this clause (viii)(A) exceed $2.5 billion; and (B) in addition to the Indebtedness permitted to be incurred under clause (viii)(A) above, the Corporation shall be permitted to issue (but not to any Borrower or Affiliate thereof) additional Senior Secured Bridge Notes from time to time and at any time (with -11- 12 amendments to the Senior Secured Bridge Note Documents to effect any such increase to be in form and substance reasonably satisfactory to the Lead Agents) and shall be permitted from time to time to issue (but not to any Borrower or Affiliate thereof) Permanent Senior Notes (in addition to those issued pursuant to clause (viii)(A) above) for cash; provided that (w) no Specified Default, and no Event of Default, shall exist at the time of any issuance of Indebtedness pursuant to this clause (viii)(B) or immediately after giving effect thereto, (x) all of the terms and conditions of the additional Permanent Senior Notes (including, without limitation, amortization, maturities, interest rates, covenants, defaults, remedies, guaranties, sinking fund provisions and other terms) shall be reasonably satisfactory to the Lead Agents, (y) at the option of the Corporation, such additional Permanent Senior Notes may be issued as Permanent Senior Secured Notes and, in such event, may be secured to the extent provided in the Pledge and Security Agreement, and (z) in no event shall the aggregate principal amount of Indebtedness at any time outstanding pursuant to this clause (viii)(B), together with the aggregate principal amount of all Indebtedness outstanding pursuant to Section 9.04(xiv) and the aggregate liquidation preference of all Qualified Preferred Stock then outstanding pursuant to Section 9.14(c), exceed $1.0 billion." (b) Section 9.04 is hereby further amended by (x) deleting the word "and" appearing at the end of clause (xii) thereof, (y) changing the period at the end of clause (xii) thereof to "; and" and (z) inserting, immediately after clause (xiii) of Section 9.04, the following new clause (xiv): "(xiv) in addition to all other permitted Indebtedness described in clauses (i) through (xiii) of this Section 9.04, either Starwood REIT, the Corporation or any of their respective Subsidiaries or Affiliates shall be permitted to enter into one or more collateralized mortgage backed securities transactions (each a "CMBS Transaction"); provided that (x) no Specified Default, and no Event of Default, shall exist at the time of the consummation of any CMBS Transaction or immediately after giving effect thereto, (y) all of the terms and conditions of each CMBS Transaction (including, without limitation, amortization, maturities, interest rates, covenants, defaults, remedies, guaranties, sinking fund provisions, security and other terms) shall be reasonably satisfactory to the Lead Agents and (z) in no event shall the aggregate principal amount of Indebtedness at any time outstanding pursuant to this clause (xiv), together with the aggregate principal amount of all Indebtedness then outstanding pursuant to Section 9.04(viii)(B) and the aggregate liquidation preference of all Qualified Preferred Stock then outstanding pursuant to Section 9.14(c), exceed $1.0 billion." (c) Section 9.04 is hereby further modified and amended by adding the following new sentence at the end thereof: "Notwithstanding the provisions of Section 9.04(viii)(B) and Section 9.04(xiv) above, if and to the extent that the aggregate amount of New Commitments actually obtained pursuant to the Fourth Amendment after the effective date thereof are less than $500,000,000 and either the Corporation or Starwood REIT have no further right under the Fourth Amendment to obtain New Commitments or the Corporation and Starwood -12- 13 REIT shall have irrevocably waived in writing (delivered to the Lead Agents, and in form and substance reasonably satisfactory to the Lead Agents) such right to obtain New Commitments, the amount "$1.0 billion" appearing in Section 9.04(viii)(B), Section 9.04(xiv) and 9.14(c) shall, in each instance in which the same appears, be increased by an amount equal to the difference between $500,000,000 and the aggregate amount of New Commitments actually obtained pursuant to the Fourth Amendment after the effective date thereof, if any (it being understood and agreed that, at the time of any incurrence of Indebtedness or issuance of Qualified Preferred Stock pursuant to any of Sections 9.04(viii)(B), Section 9.04(xiv) and/or 9.14(c), if there is basket availability under the relevant such Section in the absence of the provisions of this sentence, and if there is also availability pursuant to this sentence, the Borrower shall, at its option, determine whether or not the respective incurrence of Indebtedness or issuance of Qualified Preferred Stock has been made as a result of an increase to the respective such basket pursuant to this sentence, including for purposes of Sections 4.02(d) and 4.02(e))." 18. Section 9.06; Transactions with Affiliates. Section 9.06 of the Credit Agreement is hereby amended by (x) deleting the word "and" appearing at the end of clause (v) thereof, (y) deleting the period appearing at the end of clause (vi) thereof and inserting "; and" in lieu thereof and (z) inserting the following new clause (vii) immediately after clause (vi) thereof: "(vii) in connection with the Reorganization, and in accordance with the requirements of Section 1 of Part I of the Fifth Amendment, the lessees' interests under the Operating Leases (in each case so long as the lessee is a Subsidiary of the Corporation) may be transferred from the current lessees to the Corporation." 19. Section 9.07; Capital Expenditures. Section 9.07(c) of the Credit Agreement is hereby amended by (i) deleting the remainder of the Section beginning with clause (y) thereof and replacing such portion of said Section with the following: "(y) for Fiscal Year 1999, $900,000,000 and for any Fiscal Year thereafter, $400,000,000; provided that, to the extent that the amount of Capital Expenditures made by the Parent Companies and their Subsidiaries pursuant to preceding clause (x) during the period specified therein is greater than $700,000,000, then the amount of such excess, but not to exceed $200,000,000, shall be permitted, but the amount of such excess shall reduce the amount available for Capital Expenditures for Fiscal Year 1999 as set forth above." and (ii) inserting the following new clause (f) immediately at the end thereof: "(f) Notwithstanding anything to the contrary contained above in this Section 9.07, the maximum amount of Capital Expenditures (which in any event must justified pursuant to the preceding provisions of this Section 9.07) in any Fiscal Year in respect of new construction (for this purpose, including as new construction any Hotels which are, or have been, entirely closed for renovation) shall not exceed $350,000,000." -13- 14 20. Section 9.09; Maximum Combined Leverage Ratio. The periods and ratios set forth in Section 9.09 of the Credit Agreement are amended and restated in their entirety to read as follows: -14- 15 Period Ratio ------ ----- From and including the Initial Borrowing 6.50:1.00 Date to and including September 30, 1998 From and including October 1, 1998 to and 5.75:1.00 including March 31, 1999 April 1, 1999 to and including September 30, 1999 5.50:1.00 October 1, 1999 to and including March 31, 2000 5.00:1.00 April 1, 2000 to and including September 30, 2000 4.75:1.00 October 1, 2000 to and including March 31, 2001 4.50:1.00 April 1, 2001 to and including September 30, 2001 4.25:1.00 October 1, 2001 and thereafter 4.00:1.00 21. Section 9.12; Limitations on Voluntary Payments and Modifications of Indebtedness; Modification of Certificate of Incorporation and Certain Other Agreements. Section 9.12 of the Credit Agreement is hereby amended by deleting, in the parenthetical appearing in clause (iii) thereof which immediately precedes the proviso thereto, the phrase "proceeds of Permanent Senior Notes" and inserting in lieu thereof the following: "proceeds (x) of Permanent Senior Notes issued pursuant to Section 9.04(viii)(A) and, in each case except to the extent the Net Proceeds thereof are required to be used to repay outstanding Tranche I Term Loans in accordance with the relevant requirements of Sections 4.02(d) and (e), with the proceeds of Permanent Senior Notes issued pursuant to Section 9.04(viii)(B), CMBS Transactions entered into in accordance with the requirements of Section 9.04(xiv) and Qualified Preferred Stock issued pursuant to Section 9.14(c) and (y) Scheduled Asset Dispositions which are effected on or before February 23, 1999 and are not required to be applied pursuant to Section 4.02(d), but only to the extent the amount so applied to repay Senior Secured Bridge Notes does not exceed the sum of the Maximum Indebtedness Scheduled Asset Sale Credit Amount and the Maximum QPS Scheduled Asset Sale Credit Amount." Furthermore, and notwithstanding anything to the contrary contained in the Credit Agreement, the Lenders hereby waive the restrictions contained in Section 9.12 to the extent same would prohibit (a) Starwood REIT and the Corporation from amending their "pairing agreement" and Starwood REIT, the Corporation, SLT RLP, SLC OLP and their respective Subsidiaries from amending their respective organizational documents in order to consummate the Reorganization, and (b) the Westin Stock Issue from occurring. Furthermore, the Lenders hereby acknowledge and agree that, notwithstanding the restrictions contained in Section 9.12, (x) the Senior Secured Bridge Notes Documents may be amended or modified to loosen certain covenants contained therein, in each case to adopt changes consistent with those contained -15- 16 through and including the Fifth Amendment to the Credit Agreement and (y) modifications to the Senior Secured Bridge Note Documents may be made to effect an increase in the outstanding principal amount thereof, in each case as specifically contemplated by Section 9.04(viii)(B). 22. Section 9.13; Limitations on Certain Restrictions on Subsidiaries. Section 9.13 of the Credit Agreement is hereby amended by deleting the word "and" immediately preceding clause (xi) thereof and by adding the following new text immediately at the end thereof: ", (xii) the Class A Exchangeable Preferred Shares and the Class B Exchangeable Preferred Shares of Starwood REIT outstanding prior to the Initial Borrowing Date may remain outstanding, and any additional shares of preferred stock issued as contemplated by Section 9.14(c) may be issued and remain outstanding, and any classes of preferred stock so issued or outstanding may contain provisions requiring that accrued dividends thereon be paid before distributions are made in respect of common shares and (xiii) the Class B Shares of Starwood REIT may be issued in connection with the Reorganization and may contain provisions requiring that dividends thereon be paid on a pari passu basis with dividends to be paid on the Class A Shares of Starwood REIT." 23. Section 9.14; Limitations on Issuance of Capital Stock. Section 9.14 of the Credit Agreement is hereby amended by adding the following new clause (c) immediately after clause (b) thereof: "(c) Notwithstanding anything to the contrary contained in preceding clauses (a) and (b), (i) Starwood REIT may issue Class B Shares (x) as merger consideration in connection with the Reorganization, in each case in accordance with the requirements of Section 1 of Part I of the Fifth Amendment, (y) after the Reorganization Merger Date, as "paired shares" with common shares of the Corporation issued after the Reorganization Merger Date and (z) to the extent permitted by the terms of theretofore outstanding Class B Shares, as payment-in-kind dividends on theretofore outstanding Class B Shares, in each case so long as any issuance of Class B Shares otherwise permitted by this Section 9.14(c) does not result in a Change of Control pursuant to the definition thereof contained herein, (ii) in connection with the Reorganization, Starwood REIT may issue up to 100 additional Class A Exchangeable Preferred Shares, (iii) the Westin Stock Issue may be consummated in accordance with the provisions of Section 2 of Part I of the Fifth Amendment, (iv) Starwood REIT and/or the Corporation shall be permitted to issue Qualified Preferred Stock pursuant to this Section 9.14(c) so long as (x) no Specified Default, and no Event of Default, exists at the time of, or immediately after giving effect to, any issuance of Qualified Preferred Stock pursuant to this Section 9.14(c) and (y) the aggregate liquidation preference thereof at no time outstanding exceeds, when added to the aggregate principal amount of Indebtedness then outstanding pursuant to Sections 9.04(viii)(B) and 9.04(xiv), $1.0 billion (subject to increase as provided in the last sentence of Section 9.04) and (v) to the extent that the Corporation issues any common shares after the Reorganization Merger Date, such common shares shall be issued as "paired shares" with Class B Shares of Starwood REIT after the Reorganization Merger Date." -16- 17 24. Section 9.23; Unencumbered EBITDA Ratio. Section 9 of the Credit Agreement is hereby further amended by adding the following new Section 9.23 immediately at the end thereof: "9.23 Unencumbered EBITDA Ratio. The Borrowers will not permit the ratio of Combined EBITDA to Encumbered EBITDA for any test period ending after the Fifth Amendment Effective Date to be less then 4.00:1.00." 25. Section 10.11; REIT Status. Effective as of the Reorganization Merger Date, Section 10.11 of the Credit Agreement is amended by deleting all language after the words "of the Code" appearing in the second line thereof. 26. Section 11; Definitions. The following definitions in Section 11 of the Credit Agreement are amended as set forth below: (a) Applicable Asset Sale Percentage. The definition of "Applicable Asset Sale Percentage" shall be amended by amending and restating the second proviso to read as follows: "provided further, that if at any time after all Tranche I Term Loans have been repaid in full and (A) either (1) the Combined Leverage Ratio is less than 4.5:1.0 or (2) the Unsecured Debt Rating of each Parent Company (or both Parent Companies) shall be at least BBB- by S&P and Baa3 by Moody's, and (B) no Specified Default, and no Event of Default, then exists, then the Applicable Asset Sale Percentage shall be reduced to zero for so long as the conditions specified in preceding clauses (A) and (B) continue to be satisfied." (b) Applicable Debt Percentage. The definition of "Applicable Debt Percentage" shall be modified and amended by deleting the ratio "4.0:1.0" appearing therein and replacing the same with "4.5:1.0." (c) Asset Sale. The definition of "Asset Sale" is amended by deleting the amount "$500,000" in the last line thereof and by inserting the amount "$5,000,000" in lieu thereof. (d) Change of Control. The definition of "Change of Control" is hereby amended by (x) deleting the word "or" appearing immediately before clause (iv) thereof and by inserting a comma in lieu thereof and (y) inserting the following new text immediately after the last word thereof: "or (v) after the Reorganization Merger Date, at any time either (x) Starwood REIT shall not for any reason be a Subsidiary of the Corporation or (y) the Corporation shall at any time cease to directly own 100% of the Capital Stock of Starwood REIT (other than the Class A Exchangeable Preferred Shares and Class B Exchangeable Preferred Shares outstanding on the Initial Borrowing Date and any other shares of Starwood REIT issued thereafter pursuant to the express provisions of Section 9.14(c), in each case so long as the issued and outstanding -17- 18 Class B Shares of Starwood REIT held by persons other than the Corporation or Wholly-Owned Subsidiaries thereof at no time represent more than 49% of the aggregate economic interests (as determined by the Corporation in good faith on a reasonable basis) represented by all outstanding equity interests in Starwood REIT (exclusive of the outstanding Class A Exchangeable Preferred Shares and Class B Exchangeable Preferred Shares)). (e) Combined Adjusted Charges. The definition of "Combined Adjusted Charges" is hereby amended by (i) inserting, immediately before clause (x) thereof, the following new clause (w): "(w) the aggregate amount of cash taxes paid by the Parent Companies and their Subsidiaries (on a combined consolidated basis) during such period," (ii) in clause (y) thereof, inserting the phrase "(other than to the Corporation or any Wholly-Owned Subsidiary thereof)" immediately after the phrase "paid by Starwood REIT" appearing therein and (iii) for all periods from and after the Reorganization Merger Date, changing the phrase "combined total revenues" appearing therein to "consolidated total revenues." (f) Combined Adjusted Charges; Combined Current Assets; Combined Current Liabilities; Combined Indebtedness; Combined Interest Expense; Combined Net Income; Combined Shareholders' Equity; Excess Cash Flow. Each of the definitions of "Combined Adjusted Charges", "Combined Current Assets", "Combined Current Liabilities", "Combined Indebtedness", "Combined Interest Expense", "Combined Net Income", "Combined Shareholders' Equity" and "Excess Cash Flow" appearing in Section 11 of the Credit Agreement are hereby amended, but only for all periods occurring after the Reorganization Merger Date, by changing the term "combined consolidated" in each place it appears therein to "consolidated." (g) Combined EBITDA. Effective from and after the first Test Date occurring after the Fifth Amendment Effective Date, the definition of "Combined EBITDA" is hereby amended by deleting the amount "$1.651 billion" appearing therein and by inserting in lieu thereof the amount "$1.608 billion." (h) Combined Indebtedness. The definition of "Combined Indebtedness" is hereby amended by adding the following new sentence immediately at the end thereof: "Notwithstanding anything to the contrary contained above, to the extent not already reflected therein, the maximum amount of Indebtedness at any time outstanding as described in the last sentence of the definition of Indebtedness contained herein shall be added to, and form part of, Combined Indebtedness (regardless of any contrary treatment under GAAP)." (i) Combined Net Income. The definition of "Combined Net Income" is hereby amended by adding the following new sentence at the end thereof: -18- 19 "Notwithstanding anything to the contrary in clause (ii) of the immediately preceding sentence, for periods from and after the Reorganization Merger Date, and so long as no Change of Control pursuant to clause (v) of the definition thereof contained herein has occurred, Starwood REIT shall be treated as a Wholly-Owned Subsidiary of the Corporation for purposes of clause (ii) of the immediate preceding sentence. (j) Combined Shareholders' Equity. The definition of "Combined Shareholders' Equity" is hereby amended by adding the following new sentence immediately at the end thereof: "Notwithstanding anything to the contrary contained above, if Combined Shareholders' Equity is being determined at any time after the Initial Borrowing Date, then to the extent said Combined Shareholders' Equity (as determined in accordance with GAAP and before giving effect to this sentence) has been reduced by (x) cash amounts used by Starwood REIT and/or the Corporation after the Fifth Amendment Effective Date to repurchase shares of their own common stock pursuant to Section 9.03(a)(iv) of the Credit Agreement, the aggregate amount of such reductions (but in no event to exceed $1.0 billion) shall be added back to Combined Shareholders' Equity for purposes of this Agreement and/or (y) any "restructuring charges" in respect of deferred tax liabilities actually incurred by the Parent Companies after the Initial Borrowing Date in connection with the Restructuring, such amounts (not to exceed $800,000,000 in the aggregate) shall be added back to Combined Shareholders' Equity for purposes of this Agreement. (k) Credit Party Subsidiary. For all periods occurring after the Reorganization Merger Date, the definition of "Credit Party Subsidiary" contained in Section 11 of the Credit Agreement is hereby amended by deleting the phrase ", or which would be a Subsidiary of the Parent Companies if same were a single entity" appearing therein. (l) Dividend. The definition of "Dividend" is hereby amended by (x) inserting "(i)" immediately after the words "shall also include" appearing in the last sentence thereof, (y) inserting the phrase "or in common stock of the Corporation" immediately after the phrase "the Parent Companies" appearing in the last sentence thereof and (z) inserting the following phrase at the end of the last sentence thereof: "and (ii) all payments (other than payments made in "paired shares" of the Parent Companies or common stock of the Corporation) made at any time in respect of any Forward Equity Transactions." (m) Excess Cash Flow. The definition of "Excess Cash Flow" is hereby amended and restated in its entirety as follows: "Excess Cash Flow" shall mean, for any period, the remainder of (i) Combined EBITDA for such period less (ii) the sum of (a) the amount of Capital Expenditures (but excluding Capital Expenditures (x) financed with proceeds of Indebtedness or equity or reinvestments of Asset Sale proceeds or (y) made -19- 20 pursuant to Section 9.07(d) or (e)) made by the Parent Companies and their Subsidiaries on a combined consolidated basis during such period in accordance with Section 9.07, (b) the amount of cash Dividends paid by Starwood REIT pursuant to Section 9.03(a)(ii) (but not to the Corporation or any of its Subsidiaries) during such period, (c) cash payments of taxes actually made by the Parent Companies and their Subsidiaries on a combined consolidated basis during such period and (d) that portion of Combined Interest Expense for such period which is actually paid in cash." (n) GAAP. The definition of "GAAP" is hereby amended by adding the following phrase immediately at the end thereof: ", it being understood that, from and after the Reorganization Merger Date, principles consistent with the foregoing shall be used in preparing consolidated financial statements (rather than combined consolidated financial statements) of the Corporation and its Subsidiaries." (o) Indebtedness. The definition of "Indebtedness" is hereby amended by adding the following new sentence immediately at the end thereof: "Notwithstanding anything to the contrary contained above, all Forward Equity Transactions shall be deemed to constitute Indebtedness for purposes of this Agreement, with the amount of such Indebtedness at any time outstanding to be equal to the maximum amount of cash and/or fair market value of property which would be required to be delivered by the Parent Companies and their Subsidiaries at such time to satisfy in full their obligations under the respective Forward Equity Transactions; provided that the Existing Forward Equity Transactions shall not constitute Indebtedness as a result of the provisions of this sentence unless (x) the obligations of the Parent Companies and their Subsidiaries are increased after the Fifth Amendment Effective Date or (y) such agreements are extended beyond, or in effect after, June 30, 1999." (p) Net Sale Proceeds. The definition of "Net Sale Proceeds" is hereby amended by inserting the phrase "(other than the Corporation and its Subsidiaries)" immediately after the phrase "Dividends to its shareholders" appearing in clause (c) thereof. (q) Non-Recourse Indebtedness. The last sentence of the definition of "Non-Recourse Indebtedness" is amended and restated in its entirety to read as follows: "For purposes of Section 9.04(iv), the Corporation and its Subsidiaries may not incur in excess of $150,000,000, in the aggregate, of Non-Recourse Indebtedness with Final Stated Maturities occurring on or prior to the Final Maturity Date." (r) Operating Lease. The definition of "Operating Lease" is modified by inserting the following language in the second line after the term "Starwood REIT": "or an owner of a Hotel unrelated to the Parent Companies,." -20- 21 (s) Permitted Refinancing Indebtedness. The definition of "Permitted Refinancing Indebtedness" is modified by inserting the following language after the word "Subsidiary" in the seventh line thereof: "or Indebtedness constituting New Debt (as defined in the Fourth Amendment) (or previous refinancings thereof constituting Permitted Refinancing Indebtedness)." (t) Qualified Preferred Stock. The definition of "Qualified Preferred Stock" is amended by adding the following new sentence immediately at the end thereof: "Notwithstanding anything to the contrary contained above, up to $500,000,000 aggregate liquidation preference of preferred stock (x) issued by Starwood REIT and/or (y) which has a mandatory put, redemption, repayment, sinking fund or other similar provision occurring before February 23, 2005, but not before August 23, 2003, may be issued so long as same meets all of the criteria set forth in the immediately preceding sentence for Qualified Preferred Stock except as otherwise expressly permitted pursuant to this sentence." (u) Subsidiary. The definition of "Subsidiary" appearing in Section 11 of the Credit Agreement shall be modified, for all periods after the Reorganization Merger Date, by deleting the second sentence thereof in its entirety. 27. Additional Definitions. Section 11.01 of the Credit Agreement is hereby amended by inserting the following new definitions in appropriate alphabetical order therein: "Class A Shares" shall mean the Class A Shares of Starwood REIT resulting from the Reorganization. "Class B Shares" shall mean the Class B Shares of Starwood REIT to be issued in connection with the Reorganization in accordance with the relevant requirements of the Fifth Amendment, which shares shall in any event and in all cases provide that same shall, at the option of the Corporation at any time when one or more material Events of Default (pursuant to the Credit Agreement or certain other material Indebtedness) have continued in existence beyond certain cure periods to be determined, be mandatorily exchangeable for common stock of the Corporation. "CMBS Transaction" shall have the meaning provided in Section 9.04(xiv). "Encumbered EBITDA" for any period, shall mean all amounts included in Combined EBITDA for such period to the extent such amounts were generated from Assets (including without limitation Hotels, or any Hotel and Gaming Business) which is subject to any Lien securing Indebtedness which is then outstanding (exclusive of Indebtedness secured only pursuant to the Pledge and Security Agreement). "Existing Forward Equity Transactions" shall mean the Forward Equity Transactions described in the last sentence of the definition thereof contained herein. -21- 22 "Fifth Amendment Effective Date" shall mean the date upon which the Fifth Amendment becomes effective in accordance with its terms. "Fifth Amendment" shall mean the Fifth Amendment to this Agreement dated as of August 26, 1998. "Forward Equity Transactions" shall mean any arrangement or agreement by either Parent Company or any of their Subsidiaries involving any forward equity sale, including, without limitation, any agreement pursuant to which funds are advanced to either Parent Company or any Subsidiary thereof and pursuant to which any Parent Company or any Subsidiary thereof is contractually obligated (or permitted) to, at a future date or dates, issue Capital Stock to satisfy its obligations under such agreement (whether or not said obligation may be satisfied through the delivery of cash in lieu of such Capital Stock). It is understood and agreed that the agreements in place on the Fifth Amendment Effective Date with (x) Union Bank of Switzerland, London Branch, in respect of the placement of the UBS Shares on October 15, 1997 and such additional shares as may be required from time to time, and (y) Merrill Lynch International, Lehman Brothers Inc. and NMS Services, Inc. (and affiliates thereof) for the issuance of an aggregate of 4,641,000 Paired Shares on February 24, 1998 and such additional shares as may be required from time to time, in each case constitute Forward Equity Transactions. "Maximum Indebtedness Scheduled Asset Sale Credit Amount" shall have the meaning provided in Section 4.02(d). "Maximum QPS Scheduled Asset Sale Credit Amount" shall have the meaning provided in Section 4.02(e). "Reorganization Merger Date" shall mean the date upon which the merger of Newco into Starwood REIT occurs pursuant to the Reorganization. "Reorganization" shall mean the proposed reorganization transaction described in the recitals to the Fifth Amendment. "Westin Stock Issue" shall have the meaning provided in the recitals to the Fifth Amendment. II. Confirmation and Agreement of Credit Parties. Each Credit Party, by its signature below, hereby confirms and agrees that (x) the identity of the Borrowers and their obligations pursuant to the Credit Agreement and the Credit Documents shall remain in full force and effect after giving effect to this Fifth Amendment (and such obligations shall be unaffected thereby, except to the extent specific provisions of the Credit Agreement are waived or amended in accordance with the terms of this Fifth Amendment), (y) the Guaranty shall remain in full force and effect and the Guaranty shall cover all obligations of each of the Borrowers under the Credit Agreement, as modified and amended by this Fifth Amendment (including, without limitation, after giving effect to the Reorganization) and (z) the Pledge and Security Agreement shall remain in full force and effect as security for all obligations -22- 23 under the Credit Agreement, as modified and amended by this Fifth Amendment (including, without limitation, after giving effect to the Reorganization) and the Guaranty. III. Miscellaneous Provisions. A. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. As specified herein, certain of the modifications effected hereby shall only be effective upon the Reorganization Merger Date. B. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrowers and the Paying Agent. C. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. D. This Amendment shall become effective on the date (the "Amendment Effective Date") when each of the Borrowers, each Guarantor and the Required Lenders shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Paying Agent at its Notice Office. E. The Borrowers hereby covenant and agree that, so long as the Amendment Effective Date occurs, they shall pay (and shall be jointly and severally obligated to pay) each Lender which executes and delivers to the Paying Agent a counterpart hereof by the later to occur of (x) the close of business on the Amendment Effective Date or (y) 5:00 p.m. (New York time) on August 26, 1998, a cash fee in an amount equal to 25 basis points (0.25%) of an amount equal to the sum of the outstanding principal amount of Term Loans of such Lender and the Revolving Loan Commitment of such Lender, in each case as same is in effect on the Amendment Effective Date. All fees payable pursuant to this clause E shall be paid by the Borrowers to the Paying Agent for distribution to the Lenders not later than the first Business Day following the later date specified in the immediately preceding sentence. F. From and after the Amendment Effective Date, all references in the Credit Agreement and each of the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as modified hereby. G. No Default or Event of Default exists as of the Amendment Effective Date, both before and after giving effect to this Amendment; and H. All of the representations and warranties contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects as of the Amendment Effective Date, both before and after giving effect to this Amendment, -23- 24 with the same effect as though such representations and warranties had been made on and as of the Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date). [SIGNATURE PAGES FOLLOW] -24- 25 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust By: /s/ BARRY S. STERNLICHT ------------------------------------- Name: BARRY S. STERNLICHT Title: CHAIRMAN AND CHIEF EXECUTIVE OFFICER STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation By: /s/ RONALD C. BROWN ------------------------------------ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ BARRY S. STERNLICHT ------------------------------------- Name: BARRY S. STERNLICHT Title: CHAIRMAN AND CHIEF EXECUTIVE OFFICER ITT CORPORATION, a Nevada corporation By: /s/ RONALD C. BROWN ------------------------------------ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER -25- 26 BW HOTEL REALTY LIMITED PARTNERSHIP, a Maryland limited partnership By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust its general partner By: /s/ Barry S. Sternlicht ---------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer CHARLESTON HOTEL ASSOCIATES L.L.C., a New Jersey limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry S. Sternlicht ----------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer CP HOTEL REALTY LIMITED PARTNERSHIP, a Maryland limited partnership By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry S. Sternlicht ---------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer -26- 27 CRYSTAL CITY HOTEL ASSOCIATES, L.L.C., a New Jersey limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ BARRY S. STERNLICHT -------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer EDISON HOTEL ASSOCIATES LIMITED PARTNERSHIP, a New Jersey limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ BARRY S. STERNLICHT -------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer -27- 28 LONG BEACH HOTEL ASSOCIATES L.L.C., a New Jersey limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry S. Sternlicht ______________________________________ Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer NOVI HOTEL ASSOCIATES, L.P., a Delaware limited partnership By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: /s/ Barry S. Sternlicht ______________________________________ Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer PARK RIDGE HOTEL ASSOCIATES L.P., a Delaware limited partnership By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner -28- 29 By: /s/ Barry S. Sternlicht ---------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer PRUDENTIAL-HEI JOINT VENTURE, a Georgia general partnership By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry S. Sternlicht ---------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer SANTA ROSA HOTEL ASSOCIATES, L.L.C., a New Jersey limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry S. Sternlicht ---------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer -29- 30 SLT ALLENTOWN LLC, a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investments trust, its general partner By: /s/ Barry S. Sternlicht -------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer SLT ARLINGTON L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry S. Sternlicht -------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer SLT ASPEN DEAN STREET, LLC, a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels and Resorts, a Maryland real estate investment trust, its managing general partner -30- 31 By: /s/ Barry S. Sternlicht ------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer SLT BLOOMINGTON, LLC, a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels and Resorts, a Maryland real estate investment trust, its managing general partner By: /s/ Barry S. Sternlicht ------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer SLT CENTRAL PARK SOUTH, LLC, a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its managing general partner By: /s/ Barry S. Sternlicht ------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer -31- 32 SLT DANIA L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ BARRY S. STERNLICHT ------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer SLT DC MASSACHUSETTS AVENUE, L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its managing general partner By: /s/ BARRY S. STERNLICHT ------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer SLT FINANCING PARTNERSHIP, a Delaware general partnership By: SLT Realty Limited Partnership, a Delaware partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment partnership, its general partner By: /s/ BARRY S. STERNLICHT ------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer -32- 33 SLT HOUSTON BRIAR OAKS, LP, a Delaware limited partnership By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its managing general partner By: /s/ BARRY S. STERNLICHT ---------------------- Name: BARRY S.STERNLICHT Title: CHAIRMAN AND CHIEF EXECUTIVE OFFICER SLT INDIANAPOLIS L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ BARRY S. STERNLICHT ---------------------- Name: BARRY S. STERNLICHT Title: CHAIRMAN AND CHIEF EXECUTIVE OFFICER SLT KANSAS CITY L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ BARRY S. STERNLICHT ---------------------- Name: BARRY S. STERNLICHT Title: CHAIRMAN AND CHIEF EXECUTIVE OFFICER -33- 34 SLT LOS ANGELES L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry S. Sternlicht ______________________________________ Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer SLT MINNEAPOLIS L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry S. Sternlicht ______________________________________ Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer SLT PALM DESERT L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry S. Sternlicht ______________________________________ Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer -34- 35 SLT PHILADELPHIA L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry S. Sternlicht ------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer SLT REALTY COMPANY, L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry S. Sternlicht ------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer SLT SAN DIEGO L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry S. Sternlicht ------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer -35- 36 SLT SOUTHFIELD L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ BARRY S. STERNLICHT ------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer SLT ST. LOUIS L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ BARRY S. STERNLICHT ------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer SLT TUCSON L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ BARRY S. STERNLICHT ------------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer -36- 37 STARLEX L.L.C., a New York limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry S. Sternlicht -------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer STARWOOD ATLANTA II L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry S. Sternlicht -------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer STARWOOD ATLANTA L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry S. Sternlicht -------------------------------------- Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer -37- 38 STARWOOD MISSION HILLS, L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry S. Sternlight ------------------------------------------- Name: Barry S. Sternlight Title: Chairman and Chief Executive STARWOOD NEEDHAM L.L.C., a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry S. Sternlight ---------------------------------------------- Name: Barry S. Sternlight Title: Chairman and Chief Executive Officer STARWOOD WALTHAM LLC, a Delaware limited liability company By: SLT Realty Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry S. Sternlight ---------------------------------------------- Name: Barry S. Sternlight Title: Chairman and Chief Executive Officer -38- 39 VIRGINIA HOTEL ASSOCIATES, L.P., a Delaware limited partnership By: SLT Realty Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By:______________________________________ Name: Title: W&S DENVER CORP. By:______________________________________ Name: Title: W&S SEATTLE CORP., a Delaware corporation By:______________________________________ Name: Title: W&S REALTY CORPORATION OF DELAWARE, a Delaware corporation By:______________________________________ Name: Title: BENJAMIN FRANKLIN HOTEL, INC., a Washington corporation By:______________________________________ Name: Title: -39- 40 WESTIN SEATTLE HOTEL COMPANY, a Washington general partnership By: W&S Realty Corporation of Delaware, a Delaware corporation, its general partnership By: /s/ Barry S. Sternlicht ______________________________________ Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer By: Benjamin Franklin Hotel, Inc., a Washington corporation By: /s/ Barry S. Sternlicht ______________________________________ Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer W&S LAUDERDALE CORP., a Delaware corporation By: /s/ Barry S. Sternlicht ______________________________________ Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer LAUDERDALE HOTEL COMPANY, a Delaware corporation By: /s/ Barry S. Sternlicht ______________________________________ Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer WESTIN BAY HOTEL COMPANY, a Delaware corporation By: /s/ Barry S. Sternlicht ______________________________________ Name: Barry S. Sternlicht Title: Chairman and Chief Executive Officer -40- 41 CINCINNATI PLAZA COMPANY, a Delaware corporation By: /s/ BARRY S. STERNLICHT ______________________________________ Name: BARRY S. STERNLICHT Title: CHAIRMAN AND CHIEF EXECUTIVE OFFICER SOUTH COAST WESTIN HOTEL COMPANY, a Delaware corporation By: /s/ BARRY S. STERNLICHT ______________________________________ Name: BARRY S. STERNLICHT Title: CHAIRMAN AND CHIEF EXECUTIVE OFFICER TOWNHOUSE MANAGEMENT, INC., a Delaware corporation By: /s/ BARRY S. STERNLICHT ______________________________________ Name: BARRY S. STERNLICHT Title: CHAIRMAN AND CHIEF EXECUTIVE OFFICER HEI HOTELS, L.L.C. By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER MIDLAND BUILDING CORPORATION, an Illinois corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER -41- 42 MIDLAND HOLDING CORPORATION, an Illinois corporation By: /s/ RONALD C. BROWN ------------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer MIDLAND HOTEL CORPORATION, an Illinois corporation By: /s/ RONALD C. BROWN ------------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer MILWAUKEE BROOKFIELD L.P., a Wisconsin limited partnership By: SLC Operating Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ RONALD C. BROWN ------------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer MOORLAND HOTEL LIMITED PARTNERSHIP, a Wisconsin limited partnership By: Milwaukee Brookfield L.P., a Wisconsin limited partnership, its general partner By: SLC Operating Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ RONALD C. BROWN ------------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer -42- 43 OPERATING PHILADELPHIA LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SLC ALLENTOWN LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SLC ARLINGTON L.L.C., a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer -43- 44 SLC ASPEN DEAN STREET, LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ RONALD C. BROWN ------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER SLC ATLANTA II LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /S/ RONALD C. BROWN ------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER SLC ATLANTA LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /S/ RONALD C. BROWN ------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER -44- 45 SLC BLOOMINGTON LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /S/ RONALD C. BROWN ------------------------------ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER SLC-CALVERTON LIMITED PARTNERSHIP, a Delaware limited partnership By: SLC Operating Limited Partnership, a Delaware limited partnership, its general partner By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /S/ RONALD C. BROWN ------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER SLC CENTRAL PARK SOUTH, LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its managing general partner By: /S/ RONALD C. BROWN ------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER -45- 46 SLC DANIA LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ RONALD C. BROWN -------------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER SLC DC MASSACHUSETTS AVENUE, LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its managing general partner By: /s/ RONALD C. BROWN -------------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER SLC HOUSTON BRIAR OAKS, LP, a Delaware limited partnership By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing general partner By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its managing general partner By: /s/ RONALD C. BROWN -------------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER -46- 47 SLC INDIANAPOLIS LLC By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ RONALD C. BROWN ------------------------------ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER SLC KANSAS CITY L.L.C., a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ RONALD C. BROWN ----------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER SLC LOS ANGELES, LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ RONALD C. BROWN ----------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER -47- 48 SLC MINNEAPOLIS LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SLC NEEDHAM, LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SLC OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer -48- 49 SLC PALM DESERT LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SLC SAN DIEGO LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SLC SOUTHFIELD LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer -49- 50 SLC ST. LOUIS L.L.C., a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SLC TUCSON LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SLC WALTHAM LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer -50- 51 STARWOOD MANAGEMENT COMPANY, LLC, a Delaware limited liability company By: SLC Operating Limited Partnership, a Delaware limited partnership, its managing member By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Ronald C. Brown ______________________________________ Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer WESTIN PREMIER, INC., a Delaware corporation By: /s/ Ronald C. Brown ______________________________________ Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer WESTIN VACATION MANAGEMENT CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown ______________________________________ Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer WESTIN VACATION EXCHANGE COMPANY, a Delaware corporation By: /s/ Ronald C. Brown ______________________________________ Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer WVC RANCHO MIRAGE, INC., a Delaware corporation By: /s/ Ronald C. Brown ______________________________________ Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer -51- 52 WESTIN ASSET MANAGEMENT CO., a Delaware company By: /s/ Ronald C. Brown ------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer WESTIN HOTEL COMPANY, a Delaware company By: /s/ Ronald C. Brown ------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer W&S ATLANTA CORP., a Delaware corporation By: /s/ Ronald C. Brown ------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer ITT SHERATON CORPORATION, a Delaware corporation, By: /s/ Ronald C. Brown ------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer DESTINATION SERVICES OF SCOTTSDALE, INC., a Delaware corporation By: /s/ Ronald C. Brown ------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer GENERAL FIDUCIARY CORPORATION, a Massachusetts corporation By: /s/ Ronald C. Brown ------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer -52- 53 GLOBAL CONNEXIONS, INC., a Delaware corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON INTER-AMERICAS, LTD., a Delaware corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer HUDSON SHERATON LLC, a New York limited liability company By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer ITT SHERATON RESERVATIONS CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer MANHATTAN SHERATON CORPORATION, a New York corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SAN DIEGO SHERATON CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer -53- 54 SAN FERNANDO SHERATON CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON 45 PARK CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON ARIZONA CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON ASIA-PACIFIC CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON BLACKSTONE CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON BOSTON CORPORATION, a Massachusetts corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer -54- 55 SHERATON CALIFORNIA CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON CAMELBACK CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON FLORIDA CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON HARBOR ISLAND CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON HARTFORD CORPORATION, a Connecticut corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON HAWAII HOTELS CORPORATION, a Hawaii corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer -55- 56 SHERATON INTERNATIONAL, INC., a Delaware corporation By: /s/ RONALD C. BROWN ------------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON INTERNATIONAL DE MEXICO, INC., a Delaware corporation By: /s/ RONALD C. BROWN ------------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON MANAGEMENT CORPORATION, a Delaware corporation By: /s/ RONALD C. BROWN ------------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON OVERSEAS MANAGEMENT CORPORATION, a Delaware corporation By: /s/ RONALD C. BROWN ------------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON WARSAW CORPORATION, a Delaware corporation By: /s/ RONALD C. BROWN ------------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON MARKETING CORPORATION, a Delaware corporation By: /s/ RONALD C. BROWN ------------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer -56- 57 SHERATON MIAMI CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown ---------------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON MIDDLE EAST MANAGEMENT CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown ---------------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON NEW YORK CORPORATION, a New York corporation By: /s/ Ronald C. Brown ---------------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON OVERSEAS TECHNICAL SERVICES CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown ---------------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON PEACHTREE CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown ---------------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer SHERATON PHOENICIAN CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown ---------------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer -57- 58 SHERATON SAVANNAH CORPORATION, a Delaware corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER SHERATON SERVICES CORPORATION, a Delaware corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER SOUTH CAROLINA SHERATON CORPORATION, a Delaware corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER ST. REGIS SHERATON CORPORATION, a New York corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WORLDWIDE FRANCHISE SYSTEMS, INC., a Delaware corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER SHERATON VERMONT CORPORATION, a Vermont corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER -58- 59 ITT BROADCASTING CORPORATION, a Delaware corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer WESTIN LICENSE COMPANY, a Delaware company By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer WESTIN INTERNATIONAL SERVICES COMPANY, a Delaware corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer WESTIN ASIA MANAGEMENT HOLDING CO., a Delaware corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer WESTIN ASIA MANAGEMENT CO., a Delaware corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer WESTIN CANADA MANAGEMENT CO., a Delaware corporation By: /s/ Ronald C. Brown -------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer -59- 60 WESTIN OTTAWA MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN MEXICO MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN CHARLOTTE MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN RIVER NORTH MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN HILTON HEAD MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN KANSAS CITY MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER -60- 61 WESTIN MAUI MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN ------------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN BOSTON MANAGEMENT HOLDING CO., a Delaware corporation By: /s/ RONALD C. BROWN ------------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN BOSTON MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN ------------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN CENTURY CITY MANAGEMENT HOLDING CO., a Delaware corporation By: /s/ RONALD C. BROWN ------------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN CENTURY CITY MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN ------------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN NEW ORLEANS MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN ------------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER -61- 62 WESTIN ORLANDO MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN --------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN SANTA CLARA MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN --------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN TUCSON MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN --------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN INTERNATIONAL MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN --------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN INNISBROOK MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN --------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN FRANCE MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN --------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER -62- 63 WESTIN PITTSBURGH MANAGEMENT HOLDING CO., a Delaware corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN PITTSBURGH MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN PEACHTREE MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN DALLAS MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN RIVERWALK MANAGEMENT CO., a Delaware corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN REPRESENTATION CO., a Delaware corporation By: /s/ RONALD C. BROWN ______________________________________ Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER -63- 64 WESTIN LICENSE COMPANY SOUTH, a Delaware corporation By: /s/ RONALD C. BROWN ----------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN LICENSE COMPANY NORTH, a Delaware corporation By: /s/ RONALD C. BROWN ----------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN LICENSE COMPANY EAST, a Delaware corporation By: /s/ RONALD C. BROWN ----------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN LICENSE COMPANY WEST, a Delaware corporation By: /s/ RONALD C. BROWN ----------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WESTIN FRANCHISE CO., a Delaware corporation By: /s/ RONALD C. BROWN ----------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER SHERATON O'HARE CORPORATION, a Delaware corporation By: /s/ RONALD C. BROWN ----------------------------------- Name: RONALD C. BROWN Title: EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER -64- 65 BANKERS TRUST COMPANY, Individually and as Administrative Agent and as Paying Agent /s/ LAURA S. BURWICK By:______________________________________ Name: Laura S. Burwick Title: Principal THE CHASE MANHATTAN BANK, Individually and as Administrative Agent /s/ FREDERICK P. HAMMER By:______________________________________ Name: Frederick P. Hammer Title: Vice President LEHMAN COMMERCIAL PAPER, INC., Individually and as Syndication Agent /s/ FRANCIS X. GILHOOL By:______________________________________ Name: Francis X. Gilhool Title: Authorized Signatory BANK OF MONTREAL, CHICAGO BRANCH, Individually and as Syndication Agent /s/ JOHN T. MEAD, JR. By:______________________________________ Name: John T. Mead, Jr. Title: Director ARAB BANKING CORPORATION (B.S.C.) /s/ LOUISE BILBRO By:______________________________________ Name: Louise Bilbro Title: Vice President -65- 66 BANCA POPOLARE DI MILANO By: /s/ Patrick F. Dillon ______________________________________ Name: Patrick F. Dillon Title: Vice President, Chief Credit Officer By: /s/ Esperanza Quintero ______________________________________ Name: Esperanza Quintero Title: Vice President BANKBOSTON, N.A. By: /s/ Kathleen M. Ahern ______________________________________ Name: Kathleen M. Ahern Title: Vice President BANK LEUMI USA By: /s/ Joung Hee Hong ______________________________________ Name: Joung Hee Hong Title: Vice President THE BANK OF TOKYO-MITSUBISHI, LIMITED, NEW YORK BRANCH By: /s/ N. Saffra ______________________________________ Name: N. Saffra Title: Vice President BANK POLSKA KASA OPIEKI S.A. PEKAO S.A. GROUP, NEW YORK BRANCH By: /s/ William A. Shea ______________________________________ Name: William A. Shea Title: Vice President, Senior Lending Officer -66- 67 PARIBAS By: /s/ John W. Kopcha ______________________________________ Name: John W. Kopcha Title: Vice President By: /s/ Matthew C. Bishop ______________________________________ Name: Matthew C. Bishop Title: Assistant Vice President BANQUE WORMS CAPITAL CORP. By: /s/ Frederick Gamet ______________________________________ Name: Frederick Gamet Title: Senior Vice President BEAR STEARNS INVESTMENT PRODUCTS INC. By: /s/ Harvey Rosenberg ______________________________________ Name: Harvey Rosenberg Title: Senior Managing Director BARCLAYS BANK PLC By: /s/ John Giannone ______________________________________ Name: John Giannone Title: Director CHANG HWA COMMERCIAL BANK, LTD., NEW YORK BRANCH By: /s/ Wan-Tu Yeh ______________________________________ Name: Wan-Tu Yeh Title: VP and General Manager CHIAO TUNG BANK CO., LTD. NEW YORK AGENCY By: /s/ Samuel S.T. Liu ______________________________________ Name: Samuel S.T. Liu Title: VP and DGM -67- 68 DULY AUTHORIZED AND EXECUTED: CIBC INC. COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE CREDIT LYONNAIS NEW YORK BRANCH CREDIT SUISSE FIRST BOSTON CREDITO ITALIANO -68- 69 DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN ISLANDS BRANCH DOMINION BANK ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG FIRST COMMERCIAL BANK -69- 70 FIRST SECURITY BANK, N.A. FLEET BANK, N.A. GENERAL ELECTRIC CAPITAL CORPORATION GOLDMAN SACHS CREDIT PARTNERS L.P. GULF INTERNATIONAL BANK B.S.C. HUA NAN COMMERCIAL BANK, LTD. NEW YORK AGENCY -70- 71 THE INDUSTRIAL BANK OF JAPAN, LIMITED, NEW YORK BRANCH ISTITUTO BANCARIO SAN PAOLO DI TORINO SpA KZH CNC LLC LAND BANK OF TAWAIN, LOS ANGELES BRANCH THE LONG TERM CREDIT BANK OF JAPAN, LTD. MITSUBISHI TRUST & BANKING CORPORATION -71- 72 ML CLO XIX STERLING (Cayman) Ltd., NATIONSBANK, N.A. THE ROYAL BANK OF SCOTLAND, PLC SOCIETE GENERALE, SOUTHWEST AGENCY SOUTHERN PACIFIC BANK THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH -72- 73 WACHOVIA BANK, N.A. WESTDEUTSCHE LANDESBANK GIROZENTRALE VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST VAN KAMPEN CLO I, LIMITED By:VAN KAMPEN AMERICAN CAPITAL MANAGEMENT INC., as collateral manager -73- 74 VAN KAMPEN AMERICAN CAPITAL SENIOR INCOME TRUST THE TORONTO DOMINION BANK MELLON BANK, N.A., solely in its capacity as Trustee for the GENERAL MOTORS CASH MANAGEMENT MASTER TRUST, (as directed by Shenkman Capital Management, Inc.), and not in its individual capacity INDOSUEZ CAPITAL FUNDING II A Ltd. By: Indosuez Capital as Portfolio Advisor -74- 75 EXHIBIT A 1. Effective as of December 31, 1998, all of the existing Operating Leases from Starwood REIT, SLT RLP or their Subsidiaries to SLC OLP or its Subsidiaries are transferred such that the Corporation is the lessee under such Operating Leases. 2. Between January 4, 1999 and February 28, 1999, a newly created subsidiary of the Corporation ("Newco") is merged with and into Starwood REIT (with Starwood REIT being the surviving entity, so that after the merger, Starwood REIT shall become a direct subsidiary of the Corporation. In the merger, the common stock of Newco becomes the common shares of beneficial interest in Starwood REIT and the common shares of beneficial interest in Starwood REIT are converted into the Class B Shares of Starwood REIT. The Class B Shares are "paired" with the common stock of the Corporation pursuant to an amended pairing agreement. The Class A Exchangeable Preferred Shares and Class B Exchangeable Preferred Shares of Starwood REIT (the "EPS") remain outstanding as shares of Starwood REIT. In addition, the partnership interests of SLT RLP and SLC OLP remain outstanding. The organizational documents of Starwood REIT, the Corporation, SLT RLP and SLC OLP are amended and restated to reflect the foregoing. 3. After the completion of the merger but before the date on which Starwood REIT pays its first quarter dividend in 1999, Starwood REIT declares and pays to the Corporation sufficient dividends to maintain REIT status for 1998 and to avoid federal income tax. Starwood REIT will make an election under Section 858 of the Code. 4. The Capital Stock of the Preferred Stock Subsidiaries held by Starwood REIT will be exchanged for non-voting common stock in such entities. 5. The distribution provisions of the partnership agreements of SLT RLP and SLC OLP may be modified to match the dividends on the Class B Shares and the Corporation common shares (the "Base Distribution") plus a tax distribution equal to a percentage of the taxable income allocated to the partners in excess of the Base Distribution. EX-10.3 5 EX-10.3 1 EXHIBIT 10.3 AMENDED AND RESTATED SENIOR SECURED NOTE AGREEMENT BY AND AMONG STARWOOD HOTELS & RESORTS WORLDWIDE, INC., STARWOOD HOTELS & RESORTS, THE GUARANTORS AND LEHMAN COMMERCIAL PAPER INC., AS ARRANGER AND ADMINISTRATIVE AGENT, BT ALEX. BROWN INCORPORATED AND CHASE SECURITIES INC., AS SYNDICATION AGENTS, AND THE LENDERS DATED AUGUST 27, 1998 EFFECTIVE AUGUST 28, 1998 $3,500,000,000 2
TABLE OF CONTENTS PAGE ---- ARTICLE I. DEFINITIONS.......................................................1 Section 1.1. Defined Terms.................................................1 Section 1.2. Terms Generally..............................................28 Section 1.3. Accounting Terms; GAAP; Effect of Reorganization on Certain Definitions...............................................................28 ARTICLE II. THE LOANS.......................................................29 Section 2.1. Commitments..................................................29 Section 2.2. Repayment; Senior Secured Notes..............................31 Section 2.3. Interest; Commitment Fee.....................................32 Section 2.4. Redemption...................................................34 Section 2.5. Purchase Offers..............................................35 Section 2.6. Yield Protection.............................................37 Section 2.7. Breakage Costs...............................................39 Section 2.8. Taxes........................................................39 Section 2.9. Pro Rata Payments; Sharing of Setoffs........................40 Section 2.10. Replacement of Lender.......................................41 Section 2.11. Commitment Reductions.......................................41 ARTICLE III. CONDITIONS.....................................................42 Section 3.1. Effective Date...............................................42 Section 3.2. Conditions Precedent to All Tranche Two Loans................44 ARTICLE IV. REPRESENTATIONS AND WARRANTIES..................................44 Section 4.1. Representations and Warranties in the Acquisition Agreement and the Bank Credit Facility..............................................45
3 Section 4.2. Organization; Good Standing..................................45 Section 4.3. Due Authorization and Enforceability.........................45 Section 4.4. Affiliate Guaranty...........................................46 Section 4.5. No Conflicts.................................................46 Section 4.6. No Violation of Margin Regulation............................47 Section 4.7. Governmental Regulations.....................................47 Section 4.8. Full Disclosure..............................................47 Section 4.9. Financial Condition; Solvency................................47 Section 4.10. No Material Adverse Change..................................48 ARTICLE V. COVENANTS........................................................48 Section 5.1. Payment of Senior Secured Notes..............................48 Section 5.2. Maintenance of Office or Agency..............................48 Section 5.3. Reports......................................................48 Section 5.4. Compliance Certification.....................................49 Section 5.5. Taxes........................................................50 Section 5.6. Stay, Extension and Usury Laws...............................50 Section 5.7. Restricted Payments..........................................50 Section 5.8. Dividend and Other Payment Restrictions Affecting Subsidiaries..............................................................54 Section 5.9. Limitations on Incurrence of Indebtedness and Issuance of Disqualified Stock........................................................55 Section 5.10. Asset Sales.................................................58 Section 5.11. Transactions with Affiliates................................59 Section 5.12. Liens.......................................................59 Section 5.13. Corporate Existence.........................................60 Section 5.14. Offer to Repurchase Upon Change of Control..................61
- ii - 4 Section 5.15. Designation of Unrestricted Subsidiary......................61 Section 5.16. Limitation on Status as Investment Company..................61 Section 5.17. Special Covenants...........................................61 ARTICLE VI. SUCCESSORS......................................................62 Section 6.1. Merger, Consolidation, or Sale of Assets.....................62 Section 6.2. Successor Corporation Substituted............................62 ARTICLE VII. TRANSFER OF THE SENIOR SECURED NOTES...........................63 Section 7.1. Transfer of the Senior Secured Notes.........................63 Section 7.2. Registration of Transfer or Exchange.........................63 Section 7.3. Transfers by the Lenders.....................................63 ARTICLE VIII. EVENTS OF DEFAULT.............................................65 Section 8.1. Events of Default............................................65 Section 8.2. Acceleration.................................................67 Section 8.3. Rights and Remedies Cumulative...............................68 Section 8.4. Delay or Omission Not Waiver.................................68 Section 8.5. Waiver of Past Defaults......................................68 ARTICLE IX. GUARANTY AND INDEMNITY..........................................68 Section 9.1. Guaranty.....................................................68 Section 9.2. Joint and Several Indemnity..................................68 Section 9.3. Acceleration of Payment......................................69 Section 9.4. Guaranty of Payment, Independently Enforceable...............69 Section 9.5. Fraudulent Transfer Limitation...............................69 Section 9.6. Subordinated Liabilities.....................................70 Section 9.7. Prohibited Payments..........................................70
- iii - 5 Section 9.8. Prohibited Actions...........................................70 Section 9.9. Proceedings..................................................70 Section 9.10. Held in Trust...............................................71 Section 9.11. Reimbursement and Contribution Rights.......................71 Section 9.12. The Liability of each Guarantor.............................73 Section 9.13. Certain Waivers by Guarantors...............................75 Section 9.14. Waiver of Benefit of Anti-Deficiency Laws...................76 Section 9.15. Reinstatement...............................................77 Section 9.16. Authority of Guarantors or Borrower.........................77 Section 9.17. Condition of the Borrower and other Guarantors..............77 Section 9.18. Acceptance and Notice.......................................78 Section 9.19. Rights Cumulative...........................................78 Section 9.20. Notice of Events............................................78 Section 9.21. Set Off.....................................................78 Section 9.22. Notation....................................................79 ARTICLE X. SPECIAL COVENANTS................................................79 Section 10.1. Additional Loan Parties.....................................79 Section 10.2. Further Assurances..........................................79 Section 10.3. Security Documents..........................................79 Section 10.4. Permanent Financing.........................................80 ARTICLE XI. MISCELLANEOUS...................................................80 Section 11.1. Notices.....................................................80 Section 11.2. Waivers; Amendments.........................................80 Section 11.3. Expenses; Indemnity; Damage Waiver..........................81
- iv - 6 Section 11.4. Successors and Assigns......................................82 Section 11.5. Survival....................................................83 Section 11.6. Counterparts; Integration; Effectiveness....................83 Section 11.7. Severability...............................................83 Section 11.8. Right of Setoff.............................................83 Section 11.9. Governing Law; Jurisdiction; Service of Process.............84 Section 11.10. WAIVER OF JURY TRIAL.....................................84 Section 11.11. Additional Guarantors....................................85 Section 11.12. Agents...................................................85 Section 11.13. Headings..................................................86 Section 11.14. Obligations Absolute.....................................86 Section 11.15. Recourse...................................................86 ARTICLE XII. THE ADMINISTRATIVE AGENT.......................................86 Section 12.1. Appointment of Administrative Agent........................86 Section 12.2. Nature of Duties of the Administrative Agent...............87 Section 12.3. Lack of Reliance on the Administrative Agent...............87 Section 12.4. Certain Rights of the Administrative Agent.................88 Section 12.5. Reliance by the Administrative Agent.......................88 Section 12.6. Indemnification of the Administrative Agent................88 Section 12.7. Administrative Agent in its Individual Capacity............88 Section 12.8. Successor Administrative Agent.............................89 Section 12.9. Collateral; Remedies.......................................89 Section 12.10. Defaults..................................................89 Section 12.11. Miscellaneous.............................................89
- v - 7 AMENDED AND RESTATED SENIOR SECURED NOTE AGREEMENT dated as of August 27, 1998 (the "Agreement") by and among STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Borrower"), STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust ("Starwood REIT"), and the other Persons listed on Schedule A hereto (collectively, including Starwood REIT and together with each Person that at any time becomes a party hereto by a Guarantor Joinder, the "Guarantors"), the Persons listed on Schedule B hereto (collectively, and together with each Person that hereafter becomes a party hereto by Assignment and Acceptance, the "Lenders"), Lehman Commercial Paper Inc., as Administrative Agent, and BT Alex. Brown Incorporated and Chase Securities Inc., as Syndication Agents. RECITALS On February 23, 1998, certain of the Lenders made loans to the Borrower, which loans are evidenced by the Borrower's Senior Secured Increasing Rate Notes due 2003, in an aggregate principal amount of $2.5 billion pursuant to a Senior Secured Increasing Rate Note Agreement dated as of February 23, 1998 (as amended, the "Original Agreement") among the Borrower, the Guarantors and the Lenders (or their predecessors-in-interest), which Original Agreement is being amended and restated hereby. The Borrowers and the Guarantors have requested that certain Lenders severally lend to the Borrower during the six-month period beginning on the Effective Date one or more additional loans of up to the aggregate amounts set forth on Schedule B hereto for such Lenders and specified as "Tranche Two Loans," equal in the aggregate to $1.0 billion, on the terms and subject to the conditions set forth in this Agreement and evidenced by the Borrower's Senior Secured Notes due 2003, for the Borrower's general corporate purposes, including the repurchase of certain paired Capital Stock issued by the Borrower and Starwood REIT. The applicable Lenders are willing to make such additional loans, and the requisite Lenders are willing to amend and restate the Original Agreement, in each case on the terms and subject to the conditions set forth in this Agreement. In the arrangement of the credit extended under the Loans, Lehman Commercial Paper Inc. has acted as Arranger and Administrative Agent, and BT Alex. Brown Incorporated and Chase Securities, Inc. have acted as Syndication Agents. ACCORDINGLY, the parties hereto agree as follows: ARTICLE I. DEFINITIONS SECTION 1.1. DEFINED TERMS. As used in this Agreement: "ACCELERATION DATE" means any date prior to the Maturity Date on which the Loans are declared to be, or become, immediately due and payable pursuant to Section 8.2. "ACQUIRED DEBT" means, with respect to any specified Person, (a) Indebtedness of any other Person existing at the time such other Person is merged with or into or becomes a 8 Subsidiary of such specified Person, including Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Restricted Subsidiary of such specified Person, and (b) Indebtedness encumbering any asset acquired by such specified Person. "ACQUISITION" means the transactions contemplated in the Acquisition Agreement. "ACQUISITION AGREEMENT" means the Amended and Restated Agreement and Plan of Merger dated as of November 12, 1997, entered into by the Borrower, Starwood REIT, Chess Acquisition Corp. and ITT, as in effect on the date of this Agreement. "ADDITIONAL GUARANTOR" has the meaning specified in Section 11.11. "ADJUSTED MAXIMUM AMOUNT" has the meaning specified in Section 9.11(b). "ADMINISTRATIVE AGENT" means LCPI, acting in its capacity as administrative agent hereunder for the Lenders, together with its successors and assigns in such capacity. "AFFILIATE" means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control of such Person. Neither any Lender nor any Affiliate of a Lender shall be an Affiliate of any Loan Party for purposes of this Agreement. "AFFILIATE GUARANTY" means the guaranty set forth in Article IX. "AFFILIATE TRANSACTION" has the meaning specified in Section 5.11. "AGGREGATE UNREIMBURSED PAYMENTS" has the meaning specified in Section 9.11(b). "APPLICABLE MARGIN" means, for Tranche Two Loans, 2.75% per annum, and for Tranche One Loans, for any day in any Monthly Interest Period listed below (counted from the Original Closing Date), the percentage rate per annum set forth below for such Monthly Interest Period: 2 9
MONTHLY INTEREST PERIODS APPLICABLE MARGIN (P.A.) ------------------------ ------------------------ 1, 2 and 3 1.75% 4, 5 and 6 2.25 7, 8 and 9 2.75 10, 11 and 12 3.25 Thereafter 3.75
"ASSET SALE" means (a) the sale, conveyance, transfer or other disposition (whether in a single transaction or a series of related transactions) of assets or rights (including by way of a sale and leaseback) of the Borrower or Starwood REIT or any Restricted Subsidiary (each referred to in this definition as a "disposition") or (b) the issuance or sale of Equity Interests in any Restricted Subsidiary (other than Starwood REIT, after the Reorganization), whether in a single transaction or a series of related transactions, in each case, other than (i) a disposition of inventory or goods held in the ordinary course of business, (ii) the disposition of all or substantially all of the assets of the Borrower and Starwood REIT in a manner permitted pursuant to Article VI or any disposition that constitutes a Change of Control hereunder, (iii) any disposition that is a Restricted Payment or that is a dividend or distribution permitted under Section 5.7 or any Investment that is not prohibited thereunder or any disposition of cash or Cash Equivalents, (iv) any single disposition, or related series of dispositions, of assets with an aggregate fair market value of less than $5.0 million, (v) a transfer of assets among the Borrower, Starwood REIT or any Restricted Subsidiary, (vi) an issuance of Equity Interests by a Restricted Subsidiary to the Borrower, Starwood REIT or another Restricted Subsidiary, (vii) any sale, conveyance, transfer or other disposition of property that secures Non-Recourse Financing that is to or on behalf of the lender of such Non-Recourse Financing, (viii) any licensing of tradenames or trademarks or other intellectual property in the ordinary course of business by the Borrower, Starwood REIT or a Restricted Subsidiary, (ix)(A) the exchange of one or more lodging, gaming or leisure related properties and related assets held by the Borrower, Starwood REIT or any of their Restricted Subsidiaries for one or more lodging, gaming or leisure related properties and related assets of any other Person, provided, that if any other assets are received by the Borrower, Starwood REIT or any of their Restricted Subsidiaries, such other consideration is in cash or Cash Equivalents or in Investments that are not prohibited by Section 5.7 and any such cash or Cash Equivalents so received that shall be deemed to be Net Proceeds of an Asset Sale and applied in accordance with Section 5.10, and (B) the issuance of OP Units that are not Disqualified Stock as full or partial consideration for the acquisition of real estate properties and related assets, provided, that in the case of either (A) or (B), the Board of Directors has determined that the terms of any exchange or acquisition in excess of $50.0 million are fair and reasonable and that the fair market value of the assets received by the Borrower, Starwood REIT or a Restricted Subsidiary are equal to or greater than the fair market value of the assets exchanged or transferred. "ASSIGNED STARWOOD NOTE" means a promissory note in the amount of $2,127,996,246 assigned to Assigned Starwood Note LLC as part of the WD Disposition, as such note is in effect on the date of this Agreement. 3 10 "ASSIGNED STARWOOD NOTE LLC" means WD Investment, LLC, a Delaware limited liability company, (i) the non-member manager of which shall be ITT and (ii) the 100% member of which shall be WD Parent Corp. "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by a Lender and an assignee, and delivered to the Borrower, in the form of Exhibit A or any other form approved by the Borrower and the Required Lenders. "AVAILABILITY PERIOD" has the meaning specified in Section 2.1(b). "BANK CREDIT FACILITY" means the Credit Agreement, dated as of February 23, 1998, among the Borrower, Starwood REIT, SLT Realty Limited Partnership and Chess Acquisition Corp. (and ITT, as its successor by merger), certain additional borrowers, various lenders and LCPI, as Syndication Agent, and Bankers Trust Company and The Chase Manhattan Bank, as Administrative Agents, together with the related documents thereto (including any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented, replaced, refinanced or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder (but only if such increase in borrowings is permitted by Section 5.9) or adding or deleting Subsidiaries of the Borrower or Starwood REIT as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "BANKRUPTCY LAW" means Title 11, United States Code, or any similar federal or state law for the relief of debtors. "BENEFICIARY" means each Person that holds, beneficially owns or is entitled to enforce any Guaranteed Obligation. "BOARD" means the Board of Governors of the Federal Reserve System of the United States or any successor. "BOARD OF DIRECTORS" means the Board of Directors of the Borrower or the Board of Trustees of Starwood REIT or any authorized committee thereof. "BORROWER" means Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation. "BUSINESS DAY" means any day that is not (a) a Saturday or a Sunday, (b) any other day on which commercial banks in New York City are authorized or required by law to remain closed or (c) when used in connection with the determination or payment of interest with reference to the One-Month LIBO Rate, a day on which banks are not open for dealings in dollar deposits in the London interbank market. 4 11 "CAPITAL LEASE OBLIGATIONS" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "CAPITAL STOCK" means (a) in the case of a corporation, corporate stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (c) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "CASH EQUIVALENTS" means (a) United States dollars; (b)(i) direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America) or obligations fully guaranteed by the United States of America, (ii) obligations, debentures, notes or other evidence of indebtedness issued or guaranteed by any other agency or instrumentality of the United States, backed by the full faith and credit of the United States of America, (iii) interest-bearing demand or time deposits (which may be represented by certificates of deposit) issued by banks having general obligations rated (on the date of acquisition thereof) at least "A" by Standard & Poor's Ratings Services ("S&P") or "A2" by Moody's Investors Service, Inc. ("Moody's") (S&P and Moody's together with any other nationally recognized credit rating agency if neither of such corporations is then currently rating the pertinent obligations, a "Rating Agency") or the equivalent by another Rating Agency, if applicable, or, if not so rated, secured at all times, in the manner and to the extent provided by law, by collateral security in clause (i) or (ii) of this definition, of a market value of no less than the amount of monies so invested, (iv) commercial paper rated (on the date of acquisition thereof) at least "A-1" or "P-1" or the equivalent by any Rating Agency issued by any Person, (v) repurchase obligations for underlying securities of the types described in clause (i) or (ii) above, entered into with any commercial bank or any other financial institution having long-term unsecured debt securities rated (on the date of acquisition thereof) at least "A" or "A2" or the equivalent by any Rating Agency in connection with which such underlying securities are held in trust or by a third-part custodian, (vi) guaranteed investment contracts of any financial institution which has long-term debt rated (on the date of acquisition thereof) at least "A" or "A2" or the equivalent by any Rating Agency, (vii) obligations (including both taxable and nontaxable municipal securities) issued or guaranteed by, and any other obligations the interest on which is excluded from income for Federal income tax purposes issued by, any state of the United States of America or the District of Columbia or the Commonwealth of Puerto Rico or any political subdivision, agency, authority or instrumentality thereof, which issuer or guarantor has (A) short-term debt rated (on the date of acquisition thereof) at least "A-1" or "P-1" or the equivalent by any Rating Agency and (B) long-term debt rated (on the date of acquisition thereof) at least "A" or "A2" or the equivalent by any Rating Agency, (viii) investment contracts of any financial institution either (A) fully secured by (1) direct obligations of the United States, (2) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States or (3) securities or receipts evidencing ownership interest in obligations or specified portions thereof described in clause (1) or (2), in each case guaranteed as full faith and credit obligations 5 12 of the United States of America, having a market value at least equal to 102% of the amount deposited thereunder, or (B) with long-term debt rated (on the date of acquisition of such investment contract) at least "A" or "A2" or the equivalent by any Rating Agency and short-term debt rated (on the date of acquisition of such investment contract) at least "A-1" or "P-1" or the equivalent by any Rating Agency, (ix) a contract or investment agreement with a provider or guarantor (A) which provider or guarantor is rated (on the date of acquisition of such contract or investment agreement) at least "A" or "A2" or the equivalent by any Rating Agency (provided that if a guarantor is party to the rating, the guaranty must be unconditional and must be confirmed in writing prior to any assignment by the provider to another subsidiary of such guarantor), (B) providing that monies invested shall be payable without condition (other than notice) and without brokerage fee or other penalty, upon not more than two Business Days' notice for application when and as required and (C) stating that such contract or agreement is unconditional, expressly disclaiming any right of setoff and providing for immediate termination in the event of insolvency of the provider and termination upon demand of the Borrower or any of its secured lenders or their agents after any payment or other covenant default by the provider, or (x) any debt instruments of any Person which instruments are rated (on the date of acquisition thereof) at least "A," "A2," "A-1" or "P-1" or the equivalent by any Rating Agency; provided that in each case of clauses (i) through (x), such investments are denominated in United States dollars and maturing not more than 13 months from the date of acquisition thereof; (c) investments in any money market fund which is rated (on the date of acquisition thereof) at least "A" or "A2" or the equivalent by any Rating Agency; (d) investments in mutual funds sponsored by any securities broker-dealer of recognized national standing having an investment policy that requires substantially all the invested assets of such fund to be invested in investments described in any one or more of the foregoing clauses and having a rating of at least "A" or "A2" or the equivalent by any Rating Agency; or (e) investments in both taxable and nontaxable (i) periodic auction reset securities which have final maturities between one and 30 years from the date of issuance and are repriced through a dutch auction or other similar method every 35 days or (ii) auction preferred shares which are senior securities of leveraged closed end municipal bond funds and are repriced pursuant to a variety of rate reset periods, in each case having a rating (on the date of acquisition thereof) of at least "A" or "A2" or the equivalent by any Rating Agency. "CHANGE IN LAW" means (a) the adoption of any law, rule or regulation after the Original Closing Date, with respect to Tranche One Lenders and Tranche One Loans, or the date of this Agreement, with respect to Tranche Two Lenders and Tranche Two Loans, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Entity after the Original Closing Date, with respect to Tranche One Lenders and Tranche One Loans, or the date of this Agreement, with respect to Tranche Two Lenders and Tranche Two Loans or (c) compliance by any Lender (or by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Entity made or issued after the Original Closing Date, with respect to Tranche One Lenders and Tranche One Loans, or after the date of this Agreement, with respect to Tranche Two Lenders and Tranche Two Loans. 6 13 "CHANGE OF CONTROL" means the occurrence of any of the following: (a) the sale, lease or transfer, in one or a series of transactions, of all or substantially all of the assets of the Borrower and Starwood REIT and the Restricted Subsidiaries, taken as a whole (other than to the Borrower, Starwood REIT and/or one or more of the Restricted Subsidiaries); (b) either the Borrower or Starwood REIT becomes aware (by way of a report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice or otherwise) of the acquisition by any person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), including any group acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of 20% or more of the total voting power of the Voting Stock of the Borrower and Starwood REIT; (c) the first day within any two-year period on which a majority of the members of the Board of Directors of the Borrower are not Continuing Directors; (d) the adoption of a plan relating to liquidation or dissolution of either the Borrower or Starwood REIT (except liquidation of (i) Starwood REIT into the Borrower and (ii) the Borrower into Starwood REIT); and (e) from and after the Reorganization Date, Starwood REIT shall not for any reason be a Subsidiary of the Borrower; provided, however, that a "Change of Control" shall not include the Borrower's becoming the owner of 100% of the Class A Shares of Starwood REIT pursuant to the Reorganization. "CIGA" means CIGA SpA, an Italian company. "CLASS A EXCHANGEABLE PREFERRED SHARES" means the Class A Exchangeable Preferred Shares of the Borrower and Starwood REIT. "CLASS B EXCHANGEABLE PREFERRED SHARES" means the Class B Exchangeable Preferred Shares of Starwood REIT. "CLASS A SHARES" means the common shares of beneficial interest in Starwood REIT after the Reorganization. "CLASS B SHARES" means the new class of shares of beneficial interest of Starwood REIT to be paired with the common stock of the Borrower after the Reorganization. "CODE" means the Internal Revenue Code of 1986 and any regulation promulgated thereunder. "COLLATERAL" means all property upon which a Lien is at any time granted to or held by the Collateral Agent as security for any Senior Secured Liabilities. "COLLATERAL AGENT" means Bankers Trust Company, acting in its capacity as collateral agent for the holders of the Senior Secured Liabilities. "COMBINED ADJUSTED TOTAL ASSETS" means, with respect to the Borrower and Starwood REIT as of any date, the sum of (a) Combined Undepreciated Real Estate Assets on such date, (b) the book value, determined under GAAP, of all other tangible assets on such date 7 14 of the Borrower, Starwood REIT and the Restricted Subsidiaries on a combined, consolidated basis, and (c) 50% of the book value, determined under GAAP, of all intangible assets on such date of the Borrower, Starwood REIT and the Restricted Subsidiaries on a combined, consolidated basis. "COMBINED CASH FLOW" means, with respect to the Borrower and Starwood REIT for any period, Combined Net Income for such period plus (a) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing Combined Net Income), plus (b) provision for taxes based upon net income or net profits of the Borrower and Starwood REIT and the Restricted Subsidiaries to the extent such provision for taxes was deducted in computing Combined Net Income (excluding any gaming revenue taxes), plus (c) Combined Interest Expense for such period to the extent such expenses were deducted in computing Combined Net Income, plus (d) Combined Depreciation and Amortization Expense for such period to the extent such expenses were deducted in computing Combined Net Income, minus (e) non-cash items increasing such Combined Net Income for such period, in each case, on a combined basis for the Borrower and Starwood REIT and the Restricted Subsidiaries and determined in accordance with GAAP. To the extent Combined Cash Flow includes any fiscal quarter ending on or prior to March 31, 1998, Combined Cash Flow shall be the sum of (i) the actual Combined Cash Flow for each fiscal quarter completed that began on or after April 1, 1998 and (ii) $1.651 billion, as an assumed allowance for Combined Cash Flow for the 12 months ended March 31, 1998, but as such amount may be adjusted on a pro forma basis (as provided in the definition of "Fixed Charge Coverage Ratio") for acquisitions or dispositions after the Original Closing Date, times a fraction, the numerator of which is the number of fiscal quarters included in such calculation that ended on or prior to March 31, 1998 and the denominator of which is four. "COMBINED DEBT" means, with respect to the Borrower and Starwood REIT at any date, the aggregate principal amount of Indebtedness outstanding on such date of the Borrower, Starwood REIT and the Restricted Subsidiaries on a combined, consolidated basis determined in accordance with GAAP. "COMBINED DEPRECIATION AND AMORTIZATION EXPENSE" means, with respect to the Borrower and Starwood REIT for any period, the total amount of depreciation and amortization expense and other noncash expenses (excluding any noncash expense that represents an accrual, reserve or amortization of a cash expenditure for a past, present or future period) of the Borrower and Starwood REIT and the Restricted Subsidiaries for such period on a combined consolidated basis as defined in accordance with GAAP. "COMBINED FUNDS FROM OPERATIONS" means, with respect to the Borrower and Starwood REIT for any period, Combined Net Income for such period plus (a) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing Combined Net Income), plus (b) Combined Depreciation and Amortization Expense for such period to the extent such expenses were deducted in computing Combined Net Income, plus (c) amortization of debt issuance costs and deferred financing fees of the Borrower and its Restricted Subsidiaries on a combined consolidated basis to the extent deducted in computing Combined Net Income, minus (d) 8 15 non-cash items increasing such Combined Net Income for such period, in each case, on a combined basis for the Borrower and Starwood REIT and the Restricted Subsidiaries and determined in accordance with GAAP, and plus (e) the allocable portion, based upon the ownership percentage, of funds from operations of unconsolidated investments. "COMBINED INTEREST EXPENSE" means, with respect to any period, without duplication, the sum of (a) combined consolidated interest expense of the Borrower, Starwood REIT and the Restricted Subsidiaries for such period, whether paid or accrued, to the extent such expense was deducted in computing Combined Net Income (including original issue discount, non-cash interest payments (other than in Equity Interests that are not Disqualified Stock), the interest component of Capital Lease Obligations, and net payments (if any, whether positive or negative) pursuant to Hedging Obligations, but excluding amortization of debt issuance costs and deferred financing fees), (b) commissions, discounts and other fees and charges paid or accrued with respect to letters of credit and bankers' acceptance financing and (c) to the extent not included above, the maximum amount of interest which would have to be paid by the Borrower or Starwood REIT or any Restricted Subsidiary under a Guaranty of Indebtedness of any other Person if such Guaranty were called upon. Notwithstanding the foregoing, Combined Interest Expense shall include (and, to the extent not already reflected therein, Combined Interest Expense shall be increased by) an amount (not less than zero) equal to the aggregate amount of cash interest payments made during the respective period in respect of the Assigned Starwood Note less the amounts paid during such period by WD Parent Corp. and Assigned Starwood Note LLC in respect of taxes, normal overhead and the VNU Preferred Stock (net of amounts received during such period by WD Parent Corp. in respect of Preferred Stock owned by it). To the extent Combined Interest Expense is determined for any fiscal quarter ending on or prior to March 31, 1998, Combined Interest Expense shall be the sum of (i) the actual Combined Interest Expense for each fiscal quarter completed that began on or after April 1, 1998 and (ii) $650 million, as an assumed allowance for Combined Interest Expense for the 12 months ended March 31, 1998, as such amount may be adjusted on a pro forma basis (as provided in the definition of "Fixed Charge Coverage Ratio") for borrowings and repayments after the Original Closing Date, times a fraction, the numerator of which is the number of fiscal quarters included in such calculation that ended on or prior to March 31, 1998 and the denominator of which is four. "COMBINED NET INCOME" means, with respect to the Borrower and Starwood REIT for any period, the aggregate of the Net Income of the Borrower and Starwood REIT and the Restricted Subsidiaries for such period, on a combined consolidated basis, determined in accordance with GAAP; provided, however, that (a) the Net Income for such period of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting, shall be included only to the extent of the amount of dividends or distributions paid in cash (or to the extent converted into cash) to the referent Person or a Restricted Subsidiary thereof in respect of such period, (b) the Net Income of any Person acquired in a pooling of interests transaction shall not be included for any period prior to the date of such acquisition, (c) the Net Income for such period of any Restricted Subsidiary that is not a Guarantor shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of its Net Income is not at the date of determination permitted without any prior 9 16 governmental approval (which has not been obtained) or, directly or indirectly, by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, unless such restriction with respect to the payment of dividends or in similar distributions has been legally waived, and (d) the cumulative effect of a change in accounting principles shall be excluded. "COMBINED UNDEPRECIATED REAL ESTATE ASSETS" means, as of any date, the cost (being the original cost to the Borrower, Starwood REIT or any Restricted Subsidiary, plus capital improvements) of real estate assets of the Borrower, Starwood REIT and the Restricted Subsidiaries on such date, before depreciation and amortization of such real estate assets, determined on a combined, consolidated basis in conformity with GAAP. "COMMITMENT" means, with respect to each Lender, the commitment of such Lender to make a Loan under the Original Agreement on the Original Closing Date or one or more Tranche Two Loans hereunder on or after the Effective Date in the amount set forth on Schedule B, as the same may be reduced or terminated from time to time in accordance with the terms of this Agreement and as the same may be adjusted from time to time as a result of assignments to or from such Lender in accordance with the terms of this Agreement, and otherwise subject to the terms and conditions set forth herein. "COMMITMENT PERCENTAGE" means, with respect to each Tranche Two Lender, a fraction (expressed as a percentage) the numerator of which is the amount of such Lender's Tranche Two Commitment at such time and the denominator of which is the aggregate amount of all Lenders' Tranche Two Commitments at such time, provided, that if the Tranche Two Commitments have been terminated as of the date of determination, then the Commitment Percentage shall be determined as of the time immediately prior to such termination. "CONTINUING DIRECTOR" means, as of any date of determination, any member of the Board of Directors who (a) was a member of such Board of Directors on the date of this Agreement or (b) was nominated for election or elected to such Board of Directors with, or whose election to the Board of Directors was approved by, the affirmative vote of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election. "CREDIT FACILITY DOCUMENTS" means the Bank Credit Facility and each note, each banker's acceptance, the ITT acknowledgment, the guaranty of the Bank Credit Facility, the Pledge Agreement, each subordination agreement and any other guaranties, pledge agreements or additional security documents, in each case, as executed and delivered in accordance with the Bank Credit Facility as in effect on the Original Closing Date. "CREDIT FACILITY LIABILITIES" means all Obligations and other amounts owing to the agents, the Collateral Agent or any lender from time to time party to the Bank Credit Facility pursuant to the terms of the Bank Credit Facility or any other Credit Facility Document. "CUSTODIAN" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. 10 17 "DEFAULT" means any event that is, or after the passage of time or the giving of notice (or both) would be, an Event of Default. "DISCHARGE OF THE NOTE LIABILITIES" means that all obligations of the Lenders to extend credit under the Original Agreement and this Agreement have expired or been terminated and have been absolutely, unconditionally and irrevocably discharged and the Senior Secured Notes and all other Note Liabilities at any time created, incurred or outstanding (except Obligations for indemnification which are then contingent and in respect of which no claim or demand has then been made) have been fully, finally and indefeasibly paid in cash. "DISCLOSURE SCHEDULE" means the schedules attached to the Bank Credit Facility as of the Original Closing Date. "DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part on, or prior to, September 1, 2003; provided, however, that any Capital Stock which would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require the Borrower and/or Starwood REIT to repurchase or redeem such Capital Stock upon the occurrence of a Change of Control or an Asset Sale occurring prior to the final maturity of the Senior Secured Notes shall not constitute Disqualified Stock if the change of control provisions, event of loss provisions, or asset sale provisions, as the case may be, applicable to such Capital Stock specifically provide that the Borrower and Starwood REIT will not repurchase or redeem any such stock pursuant to such provisions prior to the Borrower's and Starwood REIT's compliance with the provisions of Section 5.10 and Section 5.14. "DOLLARS" or "$" means such lawful currency of the United States of America as may at the time be legal tender for the payment of debts therein. "EFFECTIVE DATE" means the date on which the conditions referred to in Section 3.1 are satisfied (or waived in accordance with Section 11.2). "ELIGIBLE HEDGING LIABILITIES" means Hedging Obligations that, pursuant to the Bank Credit Facility, are secured by the Lien of the Pledge Agreement on a pari passu basis with all other Credit Facility Liabilities. "EMPLOYEE STOCK BUYBACKS" has the meaning specified in Section 5.9. "ENGAGEMENT LETTERS" means the engagement agreements dated as of February 23, 1998 and August 17, 1998, each by and among the Borrower, Starwood REIT, Lehman Brothers and LCPI. "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). 11 18 "EVENT OF DEFAULT" means any event specified in Section 8.1. "EXCESS PROCEEDS" has the meaning specified in Section 5.10. "EXCHANGE ACT" means the Securities Exchange Act of 1934. "EXCHANGE ACT DOCUMENTS" means any and all reports and filings made by any Loan Party with the SEC pursuant to the Exchange Act after January 1, 1996 and prior to the date of this Agreement. "EXCLUDED DEFAULT" means the acceleration of not more than $225,000,000 in Existing Debt based or predicated upon the consummation of the Acquisition, if such Indebtedness is paid in full and discharged within five Business Days from the date of such acceleration. "EXCLUDED TAXES" means, with respect to any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender, any withholding tax that is imposed under the laws of the United States of America at the time such Foreign Lender becomes a party to this Agreement or becomes a Foreign Lender on amounts payable to such Foreign Lender under this Agreement. "EXISTING DEBT" means (a) the Class A Exchangeable Preferred Shares, the Class B Exchangeable Preferred Shares, the Preferred Partnership Units in both SLC Operating Limited Partnership and SLT Realty Limited Partnership issued and outstanding on the Original Closing Date or created in connection with the acquisition of Westin Hotels & Resorts Worldwide, Inc.; (b) 34.4 million savings shares of CIGA issued and outstanding on the Original Closing Date; and (c) approximately $3.3 billion of other Indebtedness of the Borrower and Starwood REIT and the Restricted Subsidiaries outstanding on the Original Closing Date, after giving effect to the acquisition of ITT (but excluding the Bank Credit Facility and the Senior Secured Notes and guaranties thereof). "FAIR SHARE" has the meaning specified in Section 9.11(b). "FEE LETTERS" means the letter agreements dated as of February 23, 1998 and August 17, 1998, each by and among the Borrower, Starwood REIT, Lehman Brothers and LCPI. "FINANCIAL STATEMENTS" means the unaudited combined consolidated balance sheets and statements of profits and losses of the Borrower, Starwood REIT and their Subsidiaries as they appear in the Exchange Act Documents. 12 19 "FIXED CHARGE COVERAGE RATIO" means, with respect to the Borrower and Starwood REIT for any period, the ratio of Combined Cash Flow for such period to the Fixed Charges for such period. In the event that the Borrower, Starwood REIT or any Restricted Subsidiary incurs, assumes, guarantees, defeases, discharges or redeems any Indebtedness (other than revolving credit borrowings) or issues Disqualified Stock or Subsidiary Preferred Stock (other than to the Borrower, Starwood REIT or any Restricted Subsidiary) subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee, defeasance, discharge or redemption of Indebtedness and the use of proceeds therefrom, or such issuance or redemption of Disqualified Stock or Subsidiary Preferred Stock, as if the same had occurred at the beginning of the applicable four-quarter period. For purposes of making the computation referred to above, acquisitions, dispositions and discontinued operations (as determined in accordance with GAAP) that have been made by the Borrower, Starwood REIT or any Restricted Subsidiary, including all mergers, consolidations and dispositions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be calculated on a pro forma basis assuming that all such acquisitions, dispositions, discontinued operations, mergers, consolidations (and the reduction of any associated fixed charge obligations resulting therefrom) had occurred on the first day of the four-quarter reference period. "FIXED CHARGES" means, with respect to the Borrower and Starwood REIT for any period, the sum, without duplication, of (a) Combined Interest Expense for such period, (b) all capitalized interest of the Borrower and Starwood REIT and the Restricted Subsidiaries and (c) all dividend payments, whether or not in cash, on any series of Preferred Stock (other than OP Units and Preferred Stock issued by the Borrower or Starwood REIT) of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests or dividends paid as an increase in liquidation preference on Preferred Stock, in each case, on a combined consolidated basis and in accordance with GAAP. "FOREIGN LENDER" means any Lender that is organized under the laws of a jurisdiction other than the United States of America, any State thereof or the District of Columbia. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, the statements and pronouncements of the Financial Accounting Standards Board and such other statements by such other entities as have been approved by a significant segment of the accounting profession, which are applicable at the date of determination. For the purposes of this Agreement, the term "combined consolidated" with respect to the Borrower and Starwood REIT or their Subsidiaries shall mean the Borrower and Starwood REIT consolidated with their respective Restricted Subsidiaries and combined together and shall not include any Unrestricted Subsidiary. 13 20 "GAMING AUTHORITY" means any agency, authority, board, bureau, commission, department, office or instrumentality of any nature whatsoever of the United States or foreign government, any state, province or any city or other political subdivision, whether now or hereafter existing, or any officer or official thereof, including the Nevada Gaming Commission, the New Jersey Casino Control Commission, the Division of Gaming Enforcement of the New Jersey Attorney General's office, the Nevada State Gaming Control Board, the Clark County Liquor and Gaming Licensing Board and any other agency with authority to regulate any gaming operation (or proposed gaming operation) owned, managed or operated by the Borrower, Starwood REIT or any of their Subsidiaries. "GAMING LICENSE" means every license, franchise or other authorization required to own, lease, operate or otherwise conduct gaming activities of the Borrower, Starwood REIT or any Restricted Subsidiary, including all such licenses granted under applicable Nevada or New Jersey law, and the regulations promulgated pursuant thereto, and other applicable federal, state, foreign or local laws. "GOVERNMENTAL ENTITY" means any government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality thereof, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. "GUARANTEED OBLIGATIONS" has the meaning specified in Section 9.1. "GUARANTOR JOINDER" means the act or agreement by which any Restricted Subsidiary becomes bound by this Agreement as a Guarantor hereunder. "GUARANTORS" means Starwood REIT and each of the Persons listed on Schedule A and each other Subsidiary of the Borrower or Starwood REIT that becomes a party to this Agreement by a Guarantor Joinder. "GUARANTY" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "HEDGING OBLIGATIONS" means, with respect to any Person, the Obligations of such Person under (a) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (b) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates. "INCUR" has the meaning specified in Section 5.9. "INDEBTEDNESS" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if 14 21 and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guaranty by such Person of any indebtedness of any other Person and liability, whether or not contingent, whether or not it appears on a balance sheet of such Person. The amount of any Indebtedness outstanding as of any date shall be (a) the accreted value thereof, in the case of any Indebtedness that does not require current payments of interest, and (b) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "INDEMNITEES" has the meaning specified in Section 11.3(b). "INDEMNIFIED TAXES" means all Taxes other than Excluded Taxes. "INDEPENDENT FINANCIAL ADVISOR" means an accounting, appraisal or investment banking firm of nationally recognized standing that is, in the judgment of the Board of Directors, (a) qualified to perform the task for which it has been engaged and (b) disinterested and independent with respect to the Borrower, Starwood REIT and their Subsidiaries and each Affiliate of the Borrower or Starwood REIT. "INTERCOMPANY MORTGAGE NOTE" means the subordinated Intercompany Mortgage Note in aggregate principal amount not to exceed $3,450,000,000 issued by the Borrower to Starwood REIT and contributed by Starwood REIT to SLT Realty Limited Partnership. "INTEREST PAYMENT DATE" means the last day of each Monthly Interest Period, the Maturity Date and the Acceleration Date. "INVESTMENTS" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of direct or indirect loans (including Guaranties of Indebtedness or other Obligations), advances or capital contributions (excluding commission, travel, entertainment, moving and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. "ITT" means ITT Corporation, a Nevada corporation. "ITT NOTES" means each of (a) ITT's 6-1/4% Notes due November 15, 2000, (b) ITT's 6-1/4% Notes due November 15, 2000, (c) ITT's 6-3/4% Notes due November 15, 2005, (d) ITT's 6-3/4% Notes due November 15, 2003, (e) ITT's 7-3/8% Debentures due November 15, 2005 and (f) ITT's 7-3/4% Debentures due November 15, 2025. "JOINT PROXY STATEMENT" means the Joint Proxy Statement/Prospectus dated January 14, 1998, delivered to shareholders of the Borrower, Starwood REIT and ITT. 15 22 "LCPI" means Lehman Brothers Commercial Paper Inc., a Delaware corporation. "LEHMAN BROTHERS" means Lehman Brothers Inc., a Delaware corporation. "LENDERS" means the Persons listed on Schedule B and each other Person that becomes a party hereto pursuant to an Assignment and Acceptance but does not include any such Person that ceases to be a party hereto by transferring all Loans outstanding to it to another Lender pursuant to an Assignment and Acceptance. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in any asset and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "LOAN PARTIES" means the Borrower and the Guarantors. "LOANS" means the loans made by the Lenders to the Borrower pursuant to this Agreement or the Original Agreement, including the Tranche One Loans and the Tranche Two Loans. "MARGIN REGULATIONS" means Regulation T, U or X of the Board of Governors of the Federal Reserve System and all official rulings and interpretations thereunder or thereof. "MARGIN STOCK" has the meaning assigned to such term in the Margin Regulations. "MATERIAL ADVERSE EFFECT" means any circumstance or event that might have a material adverse effect on (a) any Loan Party's ability to perform its obligations under any Note Document to which it is a party, (b) the validity or enforceability of any Note Document, (c) any Collateral, or the creation, perfection, priority, legality or enforceability of the Collateral Agent's Liens thereon or the benefits of the security afforded thereby, or (d) the combined consolidated financial condition, stockholders' equity, business or results of operations of the Borrower, Starwood REIT and their Subsidiaries, taken as a whole. "MATURITY DATE" means February 23, 2003. "MONTHLY INTEREST PERIOD" means the monthly period that began on the Original Closing Date, in the case of Tranche One Loans, or that begins on the date on which the applicable Tranche Two Loan is made hereunder, in the case of Tranche Two Loans, and ended or ends on the numerically corresponding date in the month next following thereafter and each subsequent monthly period that began or begins at the expiration of any such monthly period and ended or ends on the numerically corresponding date in the month next following thereafter, except that (a) if any such monthly period would end on a day other than a Business Day, such monthly period shall be extended to the next succeeding Business Day unless such 16 23 next succeeding Business Day falls in the next calendar month, in which case such monthly period shall end on the next preceding Business Day and (b) any such monthly period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day to the last Business Day of such monthly period) shall end on the last Business Day of such monthly period. "NET INCOME" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends, excluding, however, (a) any gain (or loss), together with any related provision for taxes on such gain (or loss), realized in connection with (i) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (ii) the disposition of any securities or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries, and (b) any extraordinary gain (or loss), together with any related provision for taxes on such extraordinary gain (but not loss). "NET PROCEEDS" means the aggregate cash proceeds received by the Borrower, Starwood REIT or any Restricted Subsidiary in respect of any Asset Sale, net of the direct costs relating to such Asset Sale (including legal, accounting and investment banking fees and expenses, employee severance and termination costs, any trade payables or similar liabilities related to the assets sold and required to be paid by the seller as a result thereof and sales, finder's or broker's commissions), and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements) or amounts required to be distributed by Starwood REIT in order to maintain its status as a REIT under the Code that result from the gain from such Asset Sale, amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that are the subject of such Asset Sale, all distributions and other payments required to be made to minority interest holders in a subsidiary or joint venture as a result of the Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets or any liabilities associated with the asset disposed of in such Asset Sale. "NEWCO" means a newly created, wholly-owned subsidiary of the Borrower to be merged with and into Starwood REIT pursuant to the Reorganization. "NEW DEBT" means the new Indebtedness and refinancings of existing Indebtedness, in an aggregate principal amount of up to $500,000,000, defined as "New Debt" in the Fourth Amendment to Credit Agreement dated as of July 15, 1998 relating to the Bank Credit Facility, as in effect on the date hereof. "NEW LENDING OFFICE" has the meaning specified in Section 2.8(e). "NON-RECOURSE FINANCING" means Indebtedness incurred in connection with the purchase or lease of personal or real property useful in the business of the Borrower, Starwood REIT or any Restricted Subsidiary and (a) as to which the lender upon default may seek recourse or payment against the Borrower, Starwood REIT or any Restricted Subsidiary only through the return or sale of the property or the equipment so purchased or leased, or in the case of any Indebtedness issued by a special purpose entity with no material assets other than the 17 24 assets so financed, only through foreclosure upon the assets or Capital Stock of such special purpose entity and (b) may not otherwise assert a valid claim for payment on such Indebtedness against the Borrower, Starwood REIT or any Restricted Subsidiary (other than as specified above) or any other property of the Borrower, Starwood REIT or any Restricted Subsidiary. "NON-RECOURSE INDEBTEDNESS" means Indebtedness or Disqualified Stock, as the case may be, or that portion of Indebtedness or Disqualified Stock, as the case may be, as to which none of the Borrower, Starwood REIT or any Restricted Subsidiary (a) provides credit support pursuant to any undertaking, agreement or instrument that would constitute Indebtedness or Disqualified Stock, as the case may be, or (b) is directly or indirectly liable. "NOTE DOCUMENTS" means this Agreement, the Original Agreement (as amended hereby), the Senior Secured Notes, the Pledge Agreement, the Engagement Letters, the Fee Letters, and all documents delivered on the Original Closing Date pursuant to the Original Agreement or on the Effective Date pursuant to this Agreement. "NOTE LIABILITIES" means all direct or indirect debts, liabilities and other obligations of the Borrower or any Guarantor of any and every type and description at any time arising under or in connection with this Agreement, the Original Agreement (as amended hereby), or any other Note Document to LCPI, to Lehman Brothers, to any Lender or to any Indemnitee or their respective successors, transferees or assigns, whether or not the right of such Person to payment in respect of such obligations and liabilities is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured and whether or not such claim is discharged, stayed or otherwise affected by any bankruptcy case or insolvency or liquidation proceeding, and shall include all liabilities for principal of and interest on the Loans and under the Senior Secured Notes and all other liabilities of the Borrower or any Guarantor under the Note Documents for any fees, costs, taxes, expenses, indemnification and other amounts payable thereunder. "NOTE REGISTER" has the meaning specified in Section 7.3(b). "OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing, or owing with respect to, any Indebtedness. "OFFER PERIOD" has the meaning specified in Section 2.5(a). "OFFER AMOUNT" has the meaning specified in Section 2.5(a). "OFFICER" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary, any Assistant Secretary or any Vice-President of such Person. "OFFICERS' CERTIFICATE" means a certificate signed on behalf of a Loan Party by two Officers (or if a limited liability company or partnership, two Officers of the managing member or general partner of such limited liability company or partnership) of such Loan Party, 18 25 one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of such Loan Party; but in the case of an Officers' Certificate of the Borrower and Starwood REIT, by one Officer of each of the Borrower and Starwood REIT, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Borrower or Starwood REIT. "ONE-MONTH LIBO RATE" means, for any Monthly Interest Period for any Loan, the rate per annum appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Required Lenders of the applicable Tranche from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Monthly Interest Period, as the rate for dollar deposits with a one-month maturity period. "OP UNITS" means limited partnership units in any limited partnership that is a Restricted Subsidiary and which limited partnership units by their terms may be exchanged into, or exercised or redeemed for, cash or the common stock of the Borrower and Starwood REIT. "ORIGINAL AGREEMENT" has the meaning specified in the Recitals hereto. "ORIGINAL CLOSING DATE" means February 23, 1998. "OTHER TAXES" means any and all current or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under any Note Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Note Document. "PAIRED COMMON SHARES" means the common stock of the Borrower and (a) prior to the Reorganization, the common shares of beneficial interest of Starwood REIT, and (b) upon and following consummation of the Reorganization, the Class B Shares of Starwood REIT. "PARTICIPANT" has the meaning specified in Section 7.3(c). "PAYMENT DEFAULT" has the meaning specified in Section 8.1(f). "PERCENTAGE SHARE" means, with respect to any Lender (and, where so specified, any Tranche), that Lender's interest in the applicable facility, calculated as follows: (a) for Tranche One, divide the principal amount of that Lender's outstanding Tranche One Loans by the total principal amount of all Tranche One Loans outstanding at the time; 19 26 (b) for Tranche Two, divide the aggregate amount of that Lender's Tranche Two Commitment and Tranche Two Loans by the total amount of all Tranche Two Commitments and Tranche Two Loans outstanding at the time; (c) in all other cases, divide the aggregate amount of that Lender's Tranche One Loans, Tranche Two Loans and Tranche Two Commitment by the aggregate amount of all Tranche One Loans, Tranche Two Loans and Tranche Two Commitments then outstanding. "PERFECTED" means, as to the Collateral Agent's Lien in any of the Collateral in respect of any and all outstanding Senior Secured Liabilities, that (a) a creditor on a simple contract could not acquire a judicial lien upon such Collateral that is superior to the Lien of the Collateral Agent thereon, and (b) the Collateral Agent's Lien in such Collateral would be perfected and not avoidable if a Proceeding were commenced under Bankruptcy Law in which the owner of such Collateral is the debtor. "PERMITTED INVESTMENTS" means (a) Investments in the Borrower, Starwood REIT or any Restricted Subsidiary; (b) Investments in Cash Equivalents; (c) Investments by the Borrower, Starwood REIT or any Restricted Subsidiary in a Person, if as a result of such Investment (i) such Person becomes a Restricted Subsidiary or (ii) such Person is merged, combined or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Borrower, Starwood REIT or a Restricted Subsidiary; (d) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Borrower and Starwood REIT or for OP Units (that are not Disqualified Stock); (e) receivables owing to the Borrower, Starwood REIT or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, that such trade terms may include such concessionary trade terms as the Borrower, Starwood REIT or any Restricted Subsidiary deems reasonable under the circumstances; (f) payroll, relocation, housing, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (g) loans or advances to employees of the Borrower, Starwood REIT or their Restricted Subsidiaries (1) to fund the exercise price of options granted under employment agreements and the Borrower's and Starwood REIT's stock option plans or agreements or (2) for any other purpose including in connection with relocation not to exceed $50.0 million in the aggregate at any one time outstanding under this clause (g); (h) stock, obligations or securities received in settlement of debts created in the ordinary course of business or in satisfaction of judgments; (i) other Investments in any Person (other than in an Affiliate of the Borrower or Starwood REIT) or in any Unrestricted Subsidiary having a fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (i) that are at the time outstanding, not to exceed 5% of the combined consolidated total assets of the Borrower and Starwood REIT and the Restricted Subsidiaries; and (j) Investments in any person which Investment is made with Equity Interests (other than Disqualified Stock) of the Borrower and Starwood REIT or in OP Units (that are not Disqualified Stock). 20 27 "PERMITTED LIENS" means (a) Liens in favor of the Borrower, Starwood REIT or a Restricted Subsidiary; (b) Liens securing the Senior Secured Notes and other Note Liabilities; (c) Liens securing Credit Facility Liabilities incurred pursuant to clause (a) of Section 5.9 and any additional Indebtedness permitted to be incurred thereunder pursuant to clause (i) of Section 5.9 and Liens securing Hedging Obligations that are Eligible Hedging Liabilities and are permitted to be incurred under clause (f) of Section 5.9, but only if the Note Liabilities (and, if required, the ITT Notes) are secured equally and ratably with such Credit Facility Liabilities and Eligible Hedging Liabilities; provided, that in the circumstances, and to the extent, provided in the Bank Credit Facility, cash (and Cash Equivalents) collateral may be delivered from time to time in accordance with the requirements of the Bank Credit Facility without equally and ratably securing the Note Liabilities; (d) Liens in existence on the Original Closing Date, attaching to property owned by the Borrower, Starwood REIT or a Restricted Subsidiary on the Original Closing Date and securing only Indebtedness that was outstanding on the Original Closing Date and Liens on the Collateral under the Pledge Agreement securing obligations on, or with respect to, Hedging Obligations permitted under Section 5.9 and the ITT Notes equally and ratably with the Senior Secured Liabilities; (e) Liens on property of a Person existing at the time such Person became a Restricted Subsidiary, is merged into or combined with or into, or wound up into, one of the Borrower and Starwood REIT or any Restricted Subsidiary of the Borrower and Starwood REIT if such Liens were in existence prior to the contemplation of such acquisition, merger or consolidation or winding up and do not extend to any other assets other than those of the Person acquired by, merged into or combined with one of the Borrower and Starwood REIT or such Restricted Subsidiary; (f) Liens on property existing at the time of acquisition thereof by the Borrower and Starwood REIT or any Restricted Subsidiary if such Liens were in existence prior to the contemplation of such acquisition; (g) Liens upon property of any Person securing Refinancing Indebtedness, if (i) when it was incurred, such Refinancing Indebtedness was permitted to be incurred under clause (d) in Section 5.9 and (ii) when incurred, such Refinancing Indebtedness was secured by Liens not materially more extensive than the Liens securing the Indebtedness so refinanced; (h) Liens securing Indebtedness that, when incurred, was permitted to be incurred under clause (g) in Section 5.9; (i) Liens securing Indebtedness that, when incurred, was permitted to be incurred under the first paragraph of Section 5.9; (j) Liens on real property and related assets securing the Intercompany Mortgage Note; (k) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business and which obligations are not expressly prohibited by this Agreement; (l) Liens constituting or reflecting the interests of landlords or lessors; (m) (1) Liens for taxes, assessments or governmental charges or claims or (2) statutory Liens of landlords, and carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business, in the case of each of (1) and (2), with respect to amounts that either (A) are not yet delinquent or (B) are being contested in good faith by appropriate proceedings as to which appropriate reserves or other provisions have been made in accordance with GAAP; (n) easements, rights-of-way, navigational servitudes, restrictions, minor defects or irregularities in title and other similar charges or encumbrances which do not interfere in any material respect with the ordinary conduct of business of the Borrower and Starwood REIT and the Restricted Subsidiaries; (o) a leasehold mortgage in favor of a party financing a third-party lessee of the Borrower, Starwood REIT or a Restricted 21 28 Subsidiary, but only if neither the Borrower nor Starwood REIT nor any Restricted Subsidiary is liable for the payment of any principal of, or interest or premium on, such financing; (p) licenses of patents, trademarks and other intellectual property rights granted by the Borrower, Starwood REIT or a Restricted Subsidiary in the ordinary course of business and not interfering in any material respect with the ordinary conduct of the business of the Borrower, Starwood REIT and the Restricted Subsidiaries; (q) any attachment or judgment Lien not constituting an Event of Default; (r) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (s) Liens on assets of the Borrower, Starwood REIT and the Restricted Subsidiaries (other than on assets constituting Collateral) securing collateralized mortgage backed securities transactions otherwise permitted hereunder in an aggregate principal amount not to exceed $1,000,000,000 at any time outstanding; and (t) Liens on cash or Cash Equivalents not exceeding $135,000,000 securing obligations incurred in connection with the sale of the UBS Shares. "PERMITTED PAYMENT" means any payment on account of Subordinated Liabilities made in cash in conformity with the Borrower's and Starwood REIT's ordinary cash management practices for the businesses conducted by the Borrower, Starwood REIT and their respective Subsidiaries, if no Event of Default has occurred and is continuing at the time such payment is made or would result therefrom. "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or government or any agency or political subdivision thereof or any other entity. "PLEDGE AGREEMENT" means that certain Pledge and Security Agreement, dated as of February 23, 1998, by and among the Borrower, Starwood REIT, the Guarantors and Bankers Trust Company, as collateral agent. "POST-PETITION INTEREST AND EXPENSE CLAIMS" means any and all claims of any holder of Guaranteed Obligations (a) for interest on any Note Liabilities determined for any period of time occurring after the commencement of any Proceeding at the contract rate (including any applicable post-default increase therein) set forth in this Agreement and the Senior Secured Notes or (b) for cost and expense reimbursements or indemnification on the terms set forth in this Agreement or any other Note Document for costs and expenses incurred and indemnification rights accrued at any time after the commencement of any such Proceeding, in each case to the extent such claim accrues or becomes payable in accordance with the provisions of this Agreement or any other Note Document (or would have accrued or become payable if enforceable or allowable in such Proceeding), whether or not such claim is enforceable, allowable or allowed in such Proceeding and even if such claim is disallowed therein. "PREFERRED PARTNERSHIP UNITS" means the Class A Units of SLT Realty Limited Partnership, a Delaware limited liability partnership, and the Class A Units and Class B Units of SLC Operating Limited Partnership, a Delaware limited liability partnership. 22 29 "PREFERRED STOCK" means any Equity Interest with preferential right of payment of dividends or upon liquidation, dissolution or winding up. "PREPAYMENT DATE" has the meaning specified in Section 2.4(c). "PROCEEDING" means any voluntary or involuntary insolvency, bankruptcy, receivership, custodianship, liquidation, dissolution, reorganization, assignment for the benefit of creditors, appointment of a custodian, receiver, trustee or other officer with similar powers or any other proceeding for the liquidation, dissolution or other winding up of a Person (including any such proceeding under the Bankruptcy Law). "PURCHASE OFFER" has the meaning specified in Section 2.5. "PURCHASE DATE" has the meaning specified in Section 2.5(a). "RECORD DATE" means the 10th day of each calendar month. "REFERENCE RATE" means, for any day in any Monthly Interest Period, the One-Month LIBO Rate determined two Business Days prior to the commencement of such Monthly Interest Period, except that if as of the first day of such Monthly Interest Period the Borrower and the applicable Lenders have received a Reference Rate Changeover Notice that has not been withdrawn by written notice of such withdrawal delivered to the Borrower and the applicable Lenders by the Required Lenders of the applicable Tranche, then the Reference Rate for such Monthly Interest Period shall be the Three-Month Treasury Bill Alternative Rate determined as of the first Business Day prior to the commencement of such Monthly Interest Period. "REFERENCE RATE CHANGEOVER NOTICE" means a certificate delivered to the Borrower and the applicable Lenders prior to the first day of any Monthly Interest Period by Lenders holding at least 25% in outstanding Senior Secured Notes of the applicable Tranche stating that such Lenders have determined (which determinations, if made in good faith, shall be conclusive and binding upon the Loan Parties and the Lenders) and have notified the Borrower that as of the date such notice is given, (a) by reason of circumstances affecting the London interbank market, adequate and reasonable means do not exist for ascertaining the One-Month LIBO Rate for such Monthly Interest Period, (b) funding in the London interbank market is not available to first-class banks organized under the laws of the United States or the State of New York, (c) the One-Month LIBO Rate determined or to be determined for such Monthly Interest Period does not adequately and fairly reflect the cost that would be incurred by first-class banks organized under the laws of the United States or by first-class banks organized under the laws of the State of New York, if such banks were to seek funding of one-month time deposits in the London interbank market as of the second Business Day prior to the commencement of such Monthly Interest Period, or (d) maintenance or continuation of any such funding in the London interbank market by first-class banks organized under the laws of the United States or by first-class banks organized under the laws of the State of New York has become unlawful or impermissible for such banks by compliance, in good faith, with any law, governmental rule, regulation or order of any central bank or other Governmental Entity or 23 30 quasi-governmental authority (whether or not having the force of law and whether or not failure to comply therewith would be unlawful or would result in costs or penalties). "REFERENCE RATE INTEREST" has the meaning specified in Section 2.6(e). "REFINANCING INDEBTEDNESS" has the meaning specified in Section 5.9(d). "REINVESTMENT PERIOD" has the meaning specified in Section 5.10. "RELATED PARTIES" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, attorneys, agents and advisors of such Person and such Person's Affiliates. "REORGANIZATION" means a transaction whereby (i) Newco is merged with and into Starwood REIT, with Starwood REIT being the surviving entity so that after the merger Starwood REIT is a direct subsidiary of the Borrower; (ii) the common stock of Newco becomes the Class A Shares; (iii) the common shares of beneficial interest of Starwood REIT are converted into the Class B Shares; (iv) the Class B Shares are paired with the common stock of the Borrower; (v) the existing Class A Exchangeable Preferred Shares and Class B Exchangeable Preferred Shares of Starwood REIT remain outstanding as shares of Starwood REIT; and (vi) the organizational documents of Starwood REIT and the Corporation are amended (including by way of an amendment and restatement) to effectuate the foregoing, provided, that (A) after giving effect to the Reorganization, the Borrower shall own all of the issued and outstanding Class A Shares, which shares shall represent 100% of the equity interests in Starwood REIT other than the equity interests represented by the Class B Shares, which shall be paired with the shares of common stock of the Borrower, and the Class A Exchangeable Preferred Shares and the Class B Exchangeable Preferred Shares, (B) the terms of the Class B Shares shall provide that the same shall be, at the option of the Borrower at any time when one or more material Events of Default and other events of default under the Bank Credit Facility have continued in existence beyond a cure period to be determined, exchanged for shares of common stock of the Borrower, (C) the Class A Shares shall not constitute Margin Stock, and (D) consummation of the Reorganization shall not have a Material Adverse Effect or constitute a default under the Bank Credit Facility. "REORGANIZATION DATE" means the date upon which the merger of Newco into Starwood REIT is consummated. "REQUIRED LENDERS" means, at any time, Lenders whose combined Percentage Shares are greater than 50%. "RESTRICTED INVESTMENT" means (a) an Investment other than a Permitted Investment or (b) any sale, conveyance, lease, transfer or other disposition of assets at less than fair market value to an Unrestricted Subsidiary, provided that the amount of such Restricted Investment under this clause (b) shall be such difference in value. "RESTRICTED PAYMENTS" has the meaning specified in Section 5.7. 24 31 "RESTRICTED SUBSIDIARY" means, at any time, any direct or indirect Subsidiary of the Borrower or Starwood REIT that is not then an Unrestricted Subsidiary. If any Unrestricted Subsidiary ceases to be an Unrestricted Subsidiary, such Subsidiary shall automatically become a Restricted Subsidiary. The term " Restricted Subsidiary" without a reference to a parent Person shall mean a Restricted Subsidiary of either the Borrower or Starwood REIT. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933. "SECURITIES PROCEEDS" means any cash proceeds of the sale of any security of the Borrower, Starwood REIT or any Subsidiary of either of them (including any sale of collateralized mortgage backed securities, but excluding the Indebtedness hereunder, Indebtedness under the Bank Credit Facility and New Debt), net of the direct costs relating to such sale (including legal, accounting and investment banking fees and expenses), and any taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements). "SENIOR SECURED LIABILITIES" means Credit Facility Liabilities, Note Liabilities and Eligible Hedging Liabilities. "SENIOR SECURED NOTES" means the Borrower's Tranche One Notes and Tranche Two Notes. "SIGNIFICANT SUBSIDIARY" means any Subsidiary of either the Borrower or Starwood REIT that would be a "significant subsidiary" of the Borrower and Starwood REIT, taken as a whole, as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation was in effect on the Original Closing Date, except that the level of significance shall be 10% rather than 20% as stated in such definition. "STARWOOD REIT" means Starwood Hotels & Resorts, a Maryland real estate investment trust. "SUBORDINATED INDEBTEDNESS" means any Indebtedness of the Company or Starwood REIT or any Restricted Subsidiary which by its terms is expressly subordinated in right of payment to the Senior Secured Notes or any guaranty thereof. "SUBORDINATED LIABILITIES" has the meaning specified in Section 9.6. "SUBSIDIARY" means, with respect to any Person, (i) any corporation, association, or other business entity (other than a partnership) of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time of determination owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person or a combination thereof and (ii) any partnership of which more than 50% of the partnership's capital accounts, distribution rights or general or limited partnership interests are owned or controlled, directly or indirectly, by such Person or one or 25 32 more of the other Subsidiaries of such Person or a combination thereof. The term "Subsidiary" without a reference to a parent Person shall mean a Subsidiary of either the Borrower or Starwood REIT. "SUBSIDIARY PREFERRED STOCK" means any Preferred Stock issued by a Restricted Subsidiary (excluding (1) any OP Units that are not Disqualified Stock and (2) the Preferred Stock of Starwood REIT after consummation of the Reorganization). "TAXES" means any and all current or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Entity. "T-BILL DIFFERENTIAL" means, as to any Monthly Interest Period that commences when any event has occurred pursuant to which the Reference Rate for any Loan outstanding during such Monthly Interest Period is the Three-Month Treasury Bill Alternative Rate, the excess, if any, (as determined in good faith by Required Lenders of the applicable Tranche or, if no determination is made by such Required Lenders, then by the Lenders giving a Reference Rate Changeover Notice or otherwise giving notice of or affected by such event) of (i) the One-Month LIBO Rate over (ii) the Three-Month Treasury Bill Alternative Rate, determined on average for the last ten Business Days prior to the occurrence of such event for which the One-Month LIBO Rate and the Three-Month Treasury Bill Alternative Rate can be reliably ascertained. "THREE-MONTH TREASURY BILL ALTERNATIVE RATE" means, at any time for any Monthly Interest Period, the sum of (a) the T-Bill Differential determined for such Monthly Interest Period plus (b) the rate per annum equal to the secondary market yield to maturity rate for three-month United States Treasury bills as of the Monday immediately preceding the first day of such Monthly Interest Period, as such secondary market yield to maturity rate is published from time to time by the Board in Federal Reserve Statistical Release H.15 (519) (or any successor to or substitute for such publication providing rate quotations comparable to those currently provided therein as to secondary market yield to maturity rates for United States Treasury bills, as determined by the Required Lenders of the applicable Tranche from time to time). "TRANCHE" means the facility and commitments used in making a particular type of Loan hereunder. There are two Tranches: Tranche One Loans and Tranche Two Loans. "TRANCHE ONE LENDER" means each Lender to which one or more Tranche One Loans are owed. "TRANCHE ONE LOANS" means the Loans made by the Tranche One Lenders (or their predecessors-in-interest) under the Original Agreement, in the aggregate original principal amount of $2,500,000,000. All of such Tranche One Loans remain (to the extent not repaid) outstanding hereunder. "TRANCHE ONE NOTES" means the Borrower's Senior Secured Increasing Rate Notes due 2003 in substantially the form of Exhibit B-1. 26 33 "TRANCHE TWO COMMITMENT" means the commitment of each applicable Lender to make Tranche Two Loans in accordance with and subject to the terms and conditions of this Agreement. As of the Effective Date, the aggregate principal amount of all of the Tranche Two Commitments is $1,000,000,000 and the individual Tranche Two Commitment of each Tranche Two Lender is set forth on Schedule B. "TRANCHE TWO LENDER" means each Lender which has a Tranche Two Commitment or to which one or more Tranche Two Loans are owed. "TRANCHE TWO LOANS" means the Loans made by the Tranche Two Lenders pursuant to Section 2.1(b). "TRANCHE TWO NOTES" means the Borrower's Senior Secured Notes due 2003 in substantially the form of Exhibit B-2. "TRANSACTIONS" means the Acquisition and the financing thereof and other transactions occurring on the Effective Date or the Original Closing Date contemplated by the Acquisition Agreement, this Agreement and the Bank Credit Facility. "TRANSACTION DOCUMENTS" means the Acquisition Agreement, the Note Documents, and the Credit Facility Documents. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939. "UBS SHARES" means the 2,185,000 Paired Common Shares of Starwood REIT and the Borrower sold on October 14, 1997 to an affiliate of Union Bank of Switzerland in a private placement. "UNRESTRICTED SUBSIDIARY" means any entity that would have been a Restricted Subsidiary of the Borrower or Starwood REIT but for its designation as an "Unrestricted Subsidiary" in accordance with the provisions of this Agreement and any Subsidiary of such entity, so long as it remains an Unrestricted Subsidiary in accordance with the terms of this Agreement. "VNU" means VNU International B.V. "VNU PREFERRED STOCK" means preferred stock issued by WD Parent Corp. to VNU prior to the date of this Agreement. "VOTING STOCK" means, with respect to any Person that is a corporation, any class or series of capital stock of such Person that is ordinarily entitled to vote in the election of directors thereof at a meeting of stockholders called for such purpose, without the occurrence of any additional event or contingency, and with respect to any other Person that is a limited liability company, membership to manage the operations or business of the limited liability company. "WD PARENT CORP." means WD Parent, Inc., a Delaware corporation. 27 34 "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness or Disqualified Stock, as the case may be, at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding principal amount of such Indebtedness or Disqualified Stock, as the case may be. "WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person, all of the Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person. SECTION 1.2. TERMS GENERALLY. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation." The word "will" shall be construed to have the same meaning and effect as the word "shall." Unless the context requires otherwise (a) any definition of or reference to any law, agreement, instrument or other document herein shall be construed as referring to such law, agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any exceptions and restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors, transferees and assigns, (c) the words "herein," "hereof" and "hereunder," and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) unless otherwise specified, all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, whether real, personal or mixed and of every type and description. SECTION 1.3. ACCOUNTING TERMS; GAAP; EFFECT OF REORGANIZATION ON CERTAIN DEFINITIONS. (a) GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time. If the Borrower notifies the Lenders that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision or if the Required Lenders notify the Borrower that they request an amendment to any provision hereof for such purpose (in each case regardless of whether any such notice is given before or after such change in GAAP or in the application thereof), then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change became effective until such notice is withdrawn or such provision is amended in accordance herewith. 28 35 (b) EFFECT OF REORGANIZATION ON CERTAIN DEFINITIONS. Effective upon consummation of the Reorganization, each reference herein to "combined" or "combined consolidated" amounts or financial statements with respect to Starwood REIT and the Borrower shall be deemed modified to refer to "consolidated" amounts or financial statements, as applicable, with respect to the Borrower and its subsidiary, Starwood REIT, and the other Restricted Subsidiaries of the Borrower (but shall not include any Unrestricted Subsidiary). ARTICLE II. THE LOANS SECTION 2.1. COMMITMENTS. (a) TRANCHE ONE LOANS. The Borrower acknowledges that each Tranche One Lender (or its predecessor-in-interest) made a Tranche One Loan to the Borrower on the Original Closing Date, which is evidenced by one or more Senior Secured Notes issued pursuant to the Original Agreement. Such Tranche One Loans, in an aggregate original principal amount of $2,500,000,000, shall (to the extent not repaid) remain outstanding pursuant to the terms and conditions of this Agreement. (b) TRANCHE TWO LOANS. Subject to the terms and conditions set forth herein, each Lender with a Tranche Two Commitment severally (and not jointly) agrees to make one or more Loans to the Borrower, from the Effective Date through the date which is six months after the Effective Date (the "Availability Period"), in an aggregate amount not to exceed such Lender's Tranche Two Commitment. (c) MULTIPLE FUNDINGS; NO REBORROWING. The Tranche Two Loans are available for one or more fundings during the Availability Period. Each Lender's obligation to make Tranche Two Loans hereunder shall expire and be discharged upon funding of such Lender's Tranche Two Commitment, and no Lender shall be obligated to make any Tranche Two Loans hereunder after the last day of the Availability Period. When repaid, the Loans may not be reborrowed. (d) FUNDING BRANCH OR OFFICE. Each Lender at its option may maintain funding of its Loan by causing any domestic or foreign branch or Affiliate of such Lender to maintain funding of such Loan. The exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. (e) PROCEDURE FOR BORROWINGS. (i) REQUESTS FOR LOANS. To request a borrowing of Tranche Two Loans (each, a "Borrowing"), the Borrower shall deliver to the Administrative Agent a written notice, substantially in the form of Exhibit F (a "Notice of Borrowing"). Each Notice of Borrowing shall specify the aggregate principal amount of the Tranche Two Loans requested to be made by all Tranche Two Lenders at such time, the Business Day on which the Borrower requests that such Loans be made and the Borrower's instructions regarding 29 36 disbursement of such Loans. Notices of Borrowing for Tranche Two Loans shall be received by the Administrative Agent not later than 11:00 a.m. New York time on the third Business Day prior to the date of the proposed Borrowing. Each Notice of Borrowing shall be in an aggregate amount for all Lenders of not less than $50,000,000 ($100,000,000 in the case of the initial borrowing of Tranche Two Loans hereunder) or an integral multiple of $50,000,000 in excess thereof. The Borrower shall specify in each Notice of Borrowing whether the conditions for the requested Borrowing are satisfied. Once given, a Notice of Borrowing is irrevocable by and binding on the Borrower. The Borrower shall provide to the Administrative Agent a list, with specimen signatures, of officers authorized to request Loans. The Administrative Agent is entitled to rely upon such list until it is replaced by the Borrower. The Administrative Agent shall give each Tranche Two Lender prompt notice by telephone or facsimile transmission of a Notice of Borrowing. (ii) MANDATORY REQUEST FOR LOANS. If the Borrower has not borrowed $250,000,000 or more in aggregate principal amount of Tranche Two Loans by September 30, 1998 and there is no Default or Event of Default on such date, the Borrower shall be deemed to have delivered to the Administrative Agent a Notice of Borrowing requesting a Borrowing of Tranche Two Loans in an aggregate amount (the "Deemed Borrowing Amount") equal to the difference between $250,000,000 and the aggregate amount of Tranche Two Loans otherwise borrowed hereunder on or prior to such date (after giving effect to any Borrowings requested to be made on such date under paragraph (i) above), with each Tranche Two Lender's Tranche Two Loan thereunder to be in an amount equal to such Tranche Two Lender's Commitment Percentage of the Deemed Borrowing Amount and September 30, 1998 (or the next succeeding Business Day, if such day is not a Business Day) as the date on which such Tranche Two Loans are to be made. (iii) DISBURSEMENT OF LOANS. If the conditions set forth in Section 3.1 are satisfied (or waived in accordance with Section 11.2), each Tranche Two Lender will fund its Tranche Two Loan by remitting to or for the account of the Borrower, no later than 2:00 p.m. New York time on the date of the proposed Borrowing as set forth in the Notice of Borrowing, an amount in Dollars equal to its Commitment Percentage of the aggregate principal amount of requested Tranche Two Loans as set forth in the Notice of Borrowing in compliance with paragraph (i) or (ii) above, provided, however, that in no event shall such amount exceed the unutilized amount of such Lender's Tranche Two Commitment. The proceeds of Loans shall be transmitted by each Lender by wire transfer of immediately available funds and otherwise as reasonably requested by the Borrower in its Notice of Borrowing, provided, that if the Borrower does not specify instructions in writing regarding disbursement of Loans deemed requested pursuant to a Notice of Borrowing under paragraph (ii) above, the Borrower hereby agrees that the proceeds of such Loans shall be 30 37 disbursed in accordance with the disbursement instructions attached hereto as Schedule C. (f) SEVERAL OBLIGATIONS. The Tranche Two Commitments are several and no Lender shall be responsible for any other Lender's failure to make Loans. (g) USE OF PROCEEDS. The Borrower represents and warrants that it used the proceeds of the Tranche One Loans solely to fund the Acquisition, refinance Indebtedness and pay fees and expenses related thereto. The Borrower shall use the proceeds of the Tranche Two Loans solely for its general corporate purposes, including repurchases of the Paired Common Shares of the Borrower and Starwood REIT to the extent permitted hereunder. SECTION 2.2. REPAYMENT; SENIOR SECURED NOTES. (a) PROMISE TO PAY. The Borrower hereby unconditionally promises to pay to each Lender on the earlier of the Maturity Date or the Acceleration Date, in Dollars and at any place of payment in the Borough of Manhattan in the City of New York identified in or designated pursuant to Section 2.2(b), the then unpaid principal amount of each Loan outstanding to such Lender, together with all interest then accrued and unpaid thereon. (b) PLACE, TIME AND MANNER OF PAYMENT. The Borrower shall make each payment required to be made by it hereunder or under any other Note Document prior to 1:00 p.m., New York City time, on the date when due, in immediately available funds, without setoff or counterclaim. Any amounts received after such time on any date shall be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments due to any Lender shall be made to such place of payment within the Borough of Manhattan in the City of New York as may be set forth by such Lender in Schedule B or in the Assignment and Acceptance by which it became a Lender or by a written notice delivered to the Borrower by such Lender from time to time. It shall not be necessary for any Lender to present, exhibit, or permit notation of payment on, such Lender's Senior Secured Note as a condition of any payment thereunder. If any payment under any Note Document is due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments under each Note Document shall be made in Dollars. (c) NO MITIGATION OR EXCUSE. The Loans shall be absolutely and unconditionally payable in Dollars in the Borough of Manhattan in the City of New York on the earlier of the Maturity Date or the Acceleration Date, without regard to any other event or circumstances whatsoever, whether or not foreseen or foreseeable and whether imposed by Act of God, by force majeure or by law, order, decree or as a consequence of any risk, casualty, loss, act, omission or wrongful conduct or any other cause, whether or not lawful, as to all of which the Borrower and the Guarantors hereby assume all risk. (d) SENIOR SECURED NOTES. On the Effective Date, the Borrower shall duly authorize, execute and deliver to each Tranche Two Lender, to evidence the Borrower's 31 38 obligation to repay the Tranche Two Loans made by such Lender, a Senior Secured Note payable to the order of such Lender in the amount of such Lender's Tranche Two Commitment hereunder. Thereafter from time to time, with respect to Tranche One Notes and Tranche Two Notes: (i) at the request of any Lender upon any transfer of Loans or Tranche Two Commitments by Assignment and Acceptance, the Borrower will issue one or more new Senior Secured Notes as necessary to give effect to such transfer and any interest in the Loans and Tranche Two Commitments, as applicable, retained by the transferor, in an aggregate amount equal to the principal amount of Loans and (without duplication) the Tranche Two Commitment held by the transferor immediately prior to giving effect to the transfer and against appropriate evidence of cancellation or surrender of the Senior Secured Note or notes then outstanding to the transferor, and (ii) upon request by any Lender, the Borrower will (without any lost instrument bond or indemnity, unless such bond or indemnity is reasonably requested by the Borrower) issue a Senior Secured Note to such Lender in replacement of any outstanding Senior Secured Note payable to such Lender, if such Lender certifies that such outstanding Senior Secured Note was defaced, despoiled, misplaced, lost or stolen and has not been endorsed and delivered to any Person. SECTION 2.3. INTEREST; COMMITMENT FEE. (a) EURODOLLAR BORROWINGS. Except as otherwise provided in Section 2.3(h) or Section 2.3(b), all outstanding Loans shall bear interest for each day in each Monthly Interest Period for the applicable Loan at the Reference Rate determined for such Monthly Interest Period plus the Applicable Margin for the applicable Loan determined for such Monthly Interest Period. (b) INTEREST AFTER EVENT OF DEFAULT. Notwithstanding the provisions of Section 2.3(a), for each day in any Monthly Interest Period on which any amount due for principal of or interest on any Loan remains unpaid and, in addition, for each day in any Monthly Interest Period on which any Event of Default has occurred and is continuing, any and all outstanding Loans (whether or not then due and payable) shall bear interest, after as well as before judgment, at a rate per annum equal to 2% per annum plus the Reference Rate determined for such Monthly Interest Period plus the Applicable Margin for the applicable Loan determined for such Monthly Interest Period. (c) OTHER OBLIGATIONS. All other Note Liabilities at any time outstanding and due and payable shall bear interest for each day at the highest rate of interest that is (or, if Loans were outstanding, would be) applicable to all or any portion of the Loans for such day pursuant to Section 2.3(a) or, when applicable, Section 2.3(b). 32 39 (d) PAYMENT OF INTEREST. Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan, except that, in any event, (A) interest accrued as set forth in Section 2.3(b) shall be payable on demand, and (B) in the event of any voluntary or mandatory redemption or required repurchase of any Loan, accrued interest on the principal amount repaid or repurchased shall be payable on the date of such repayment or repurchase, together with any compensation due in respect of such repayment or repurchase pursuant to Section 2.7. (e) COMPUTATION OF INTEREST. All interest hereunder shall be computed on the basis of actual days elapsed and a year of 360 days. Interest shall be calculated to accrue from and including the most recent date to which interest has been paid or provided for (or from and including the date on which such Loan was made if no interest has been paid) to, but not including, the date of payment. (f) RECORD DATE. All interest accrued in any Monthly Interest Period shall become due and payable on the Interest Payment Date for such Monthly Interest Period to the applicable Lenders determined of record at the close of business on the Record Date immediately preceding such Interest Payment Date. (g) DETERMINATION OF REFERENCE RATE. The Required Lenders of the applicable Tranche may at any time or from time to time make all determinations necessary to fix the Reference Rate for each applicable Monthly Interest Period and, absent manifest error, each such determination by such Required Lenders shall be final, conclusive and binding. Once set for any Monthly Interest Period, the Reference Rate shall be applicable for each day during such Monthly Interest Period. (h) ILLEGALITY. If at any time any Lender determines (which determination shall, if made in good faith, be final, conclusive and binding upon all parties) that the funding or continuation of its Loan as a borrowing priced by reference to the One-Month LIBO Rate has become unlawful or impermissible by compliance by such Lender in good faith with any law, governmental rule, regulation or order of any central bank or other Governmental Entity or quasi-governmental authority (whether or not having the force of law and whether or not failure to comply therewith would be unlawful or would result in costs or penalties), then, and in any such event, such Lender may give notice of such determination, in writing, to the Borrower and each Lender. When such notice is given by a Lender, such Lender's Loan shall immediately, or if permitted by applicable law, no later than the date permitted thereby, upon at least one Business Day's written notice to the Borrower and the Lenders, be converted so as to bear interest at all times in each Monthly Interest Period thereafter at the Three-Month Treasury Bill Alternative Rate determined for such Monthly Interest Period plus the Applicable Margin determined for such Monthly Interest Period. If, at any time after a Lender gives notice under this Section 2.3(h), such Lender determines that it may lawfully fund and maintain its Loans by reference to the One-Month LIBO Rate, such Lender shall promptly give notice of such determination in writing to the Borrower and each other Lender and, effective at the commencement of the Monthly Interest Period next following thereafter, such Lender's Loan shall bear interest at the Reference Rate determined for such Monthly Interest Period plus the Applicable Margin determined for such Monthly Interest Period. 33 40 (i) COMMITMENT FEE. The Borrower shall pay in arrears to each Tranche Two Lender, on the last Business Day of each month during which any Tranche Two Commitments are outstanding hereunder, a fee (the "Commitment Fee") calculated at a rate per annum of one-half of one percent (0.5%) on the average unused portion of such Tranche Two Lender's Tranche Two Commitment at the end of each day during the Availability Period. SECTION 2.4. REDEMPTION. (a) RIGHT TO REDEEM. Upon three Business Days' prior written notice to each of the Lenders, the Borrower may redeem the Senior Secured Notes at any time in whole or from time to time in part in any amount that is an integral multiple of $10 million, without premium or penalty, by paying to each Lender an amount equal to 100% of such Lender's pro rata share of the aggregate principal amount of Senior Secured Notes to be redeemed, plus accrued and unpaid interest thereon to the Prepayment Date. (b) INDEMNITY. The Loan Parties jointly and severally agree to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of default by the Borrower in making any prepayment or redemption after the Borrower has given a notice thereof in accordance with the provisions of Section 2.4(c). Such indemnification may include an amount equal to such Lender's actual loss and expenses incurred (excluding lost profits) in connection with, or by reason of, any of the foregoing events. A certificate as to any amounts payable pursuant to this Section 2.4(b) submitted to the Borrower by any Lender shall be conclusive, final and binding in the absence of manifest error. This Section 2.4(b) shall survive the termination of this Agreement and the payment of the Senior Secured Notes and all other Note Liabilities. (c) EFFECT OF NOTICE OF PREPAYMENT. The Borrower shall notify the Lenders in writing at their addresses shown in the Note Register of any date set for redemption (each such day, a "Prepayment Date") of Senior Secured Notes. Once such notice is sent or mailed, the Senior Secured Notes called for redemption, prepayment or repurchase shall become due and payable on the Prepayment Date set forth in such notice. Such notice may not be conditional. (d) PARTIAL REDEMPTION. In the event that less than all of the Senior Secured Notes are to be redeemed, the Borrower shall redeem a pro rata portion of the Senior Secured Notes of all Tranches held by each Lender. (e) REDEMPTION REQUIRED BY GAMING AUTHORITY. If any Gaming Authority requires that a Lender or beneficial owner of the Senior Secured Notes must be licensed, qualified or found suitable under any applicable gaming laws in order to maintain any gaming license or franchise of the Borrower, Starwood REIT or any Restricted Subsidiary under any applicable gaming laws, and the Lender or beneficial owner fails to apply for a license, qualification or finding of suitability within 30 days after being requested to do so by such Gaming Authority (or such lesser period that may be required by such Gaming Authority) or if such Lender or beneficial owner is not so licensed, qualified or found suitable, the Borrower shall have the right, at its option, (i) to require such Lender or beneficial owner to dispose of 34 41 such Lender's or beneficial owner's Senior Secured Notes within 30 days of receipt of such finding by the applicable Gaming Authority (or such earlier date as may be required by the applicable Gaming Authority) or (ii) to call for redemption of the Senior Secured Notes of such Lender or beneficial owner at a redemption price equal to the lesser of the principal amount thereof or the price at which such Lender or beneficial owner acquired the Senior Secured Notes, together with, in either case, accrued and unpaid interest, if any, to the earlier of the date of redemption or, the date of the finding of unsuitability by such Gaming Authority. The Borrower shall not be required to pay or reimburse any Lender or beneficial owner of Senior Secured Notes who is required to apply for any such license, qualification or finding of suitability for the costs of the licensure or investigation for such qualification or finding of suitability. Such expenses shall be the obligation of such Lender or beneficial owner. (f) MANDATORY REDEMPTION. On each date after the Effective Date on which the Borrower, Starwood REIT or any Subsidiary of either of them receives any Securities Proceeds, the Borrower shall redeem or repay, in an amount equal to the amount of such Securities Proceeds, first the Tranche One Notes, second, to the extent then required under the Bank Credit Facility, the Tranche I Term Loans (as defined in the Bank Credit Facility as in effect on the date hereof), and third, the Tranche Two Notes, in the manner provided in the Bank Credit Facility (in the case of the Tranche I Term Loans) or in this Section 2.4 (in the cases of the Tranche One Notes and the Tranche Two Notes); provided, however, that, if and to the extent required under the Fifth Amendment to Credit Agreement dated as of the date hereof relating to the Bank Credit Facility, the Tranche I Term Loans shall be redeemed or repaid prior to the Tranche One Notes. SECTION 2.5. PURCHASE OFFERS. In the event that, pursuant to Section 5.10 or 5.14 hereof, the Borrower shall be required to commence an offer to all Lenders to purchase Senior Secured Notes (a "Purchase Offer"), it shall follow the procedures specified below: (a) OFFER PERIOD AND PURCHASE DATE. The Purchase Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Borrower shall purchase at the purchase price (as determined in accordance with Section 5.10 or Section 5.14, as the case may be) the principal amount of Senior Secured Notes required to be purchased pursuant to Section 5.10 or 5.14, as the case may be (the "Offer Amount"), or, if less than the Offer Amount has been tendered, the principal amount of all Senior Secured Notes tendered in response to the Purchase Offer. Payment for any Senior Secured Notes so purchased shall be made in the same manner as interest payments are made. (b) INTEREST PAYMENTS. If the Purchase Date is on or after a Record Date and on or before the related Interest Payment Date, any accrued and unpaid interest to the Purchase Date shall be paid on the Purchase Date to the Lender in whose name a Senior Secured Note is registered on the Note Register at the close of business on such Record Date, and no additional interest shall be payable to Lenders who tender Senior Secured Notes pursuant to the Purchase Offer. 35 42 (c) OFFER NOTICE. Upon the commencement of a Purchase Offer, the Borrower shall send, by first class mail, a notice to each of the Lenders. The notice shall contain all instructions and materials necessary to enable the Lenders to tender Senior Secured Notes pursuant to the Purchase Offer. The Purchase Offer shall be made to all Lenders. The notice, which shall govern the terms of the Purchase Offer, shall state: (i) that the Purchase Offer is being made pursuant to this Section 2.5 and Section 5.10 or Section 5.14, as the case may be, and the length of time the Purchase Offer shall remain open, (ii) the Offer Amount, the purchase price and the Purchase Date, (iii) that any Senior Secured Note not tendered or accepted for payment shall continue to accrue interest, (iv) that, unless the Borrower defaults in making such payment, any Senior Secured Note accepted for payment pursuant to the Purchase Offer shall cease to accrue interest after the Purchase Date, (v) that Lenders electing to have a Senior Secured Note purchased pursuant to any Purchase Offer shall be required to tender the Senior Secured Note to a depositary appointed by the Borrower at an address in the Borough of Manhattan in the City of New York specified in the notice at least three Business Days before the Purchase Date, (vi) that Lenders shall be entitled to withdraw their election if the Borrower or the depositary, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Lender, the principal amount of the Senior Secured Note the Lender tendered for purchase and a statement that such Lender is withdrawing his election to have such Senior Secured Note purchased, and (vii) that, if the aggregate principal amount of Senior Secured Notes tendered by Lenders exceeds the Offer Amount, the Senior Secured Notes shall be selected for purchase ratably (in proportion to the relative amounts tendered for purchase), and that Lenders whose Senior Secured Notes were purchased only in part shall be issued new Senior Secured Notes equal in principal amount to the unpurchased portion of the Senior Secured Notes that were tendered. (d) ACCEPTANCE AND PAYMENT. On or before the Purchase Date, the Borrower shall accept for payment the Offer Amount of Senior Secured Notes or portions thereof tendered pursuant to the Purchase Offer, ratably (in proportion to the relative amounts tendered for purchase) if more than the Offer Amount has been tendered or, if less than the Offer Amount has been tendered, all Senior Secured Notes tendered, and shall deliver to the 36 43 Lenders an Officers' Certificate stating that such Senior Secured Notes or portions thereof were accepted for payment by the Borrower in accordance with the terms of this Section 2.5. The Borrower or the Depository, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Lender an amount equal to the purchase price of the Senior Secured Notes tendered by such Lender and accepted by the Borrower for purchase, and the Borrower shall promptly issue a new Senior Secured Note and mail or deliver such new Senior Secured Note to such Lender, in a principal amount equal to any unpurchased portion of the Senior Secured Note that was tendered. Any Senior Secured Note not so accepted shall be promptly mailed or delivered by the Borrower to the Lender that is the holder thereof. The Borrower shall notify each Lender of the results of the Purchase Offer on the Purchase Date. (e) COMPLIANCE. If applicable, the Borrower shall comply with the requirements of Rule 14e-1 under the Exchange Act, and any other securities laws and regulations thereunder to the extent such laws or regulations are applicable in connection with the repurchase of the Senior Secured Notes pursuant to a Purchase Offer. (f) APPLICATION OF OTHER PROVISIONS. Other than as specifically provided in this Section 2.5, any purchase pursuant to this Section 2.5 shall be made pursuant to the provisions of Sections 2.4 to the extent applicable. (g) RETIREMENT OF REPURCHASED NOTES. Senior Secured Notes purchased by the Borrower pursuant to a Purchase Offer shall be retired and may not be reissued. SECTION 2.6. YIELD PROTECTION. (a) INCREASED COSTS. If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any holding company of any Lender (except any such reserve requirement reflected in the One-Month LIBO Rate), or (ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or any Loans outstanding to such Lender, and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Loan or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. (b) CAPITAL COSTS. If any Lender determines that any Change in Law regarding capital requirements increases or could reasonably be expected to have the effect of increasing the amount or cost of capital required or expected to be maintained by such Lender 37 44 or any corporation controlling such Lender, or reduces or could reasonably be expected to have the effect of reducing the rate of return on such capital, and such Lender reasonably determines that the amount or cost of such capital is increased, or the rate of return thereon is reduced, by or based upon the existence or funding of such Lender's commitment to make or maintain loans under this Agreement and other commitments of this type, to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then the Borrower shall pay to such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender in the light of such circumstances, to the extent that such Lender in good faith determines such increase in capital, or reduction in the rate of return, to be allocable to the existence or funding of its commitment. (c) PROOF OF COSTS. A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in Section 2.6(a) or Section 2.6(b), shall be delivered to the Borrower and shall be final, conclusive and binding, absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. (d) LOOK-BACK LIMIT. The Borrower shall not be required to compensate a Lender pursuant to this Section 2.6 for any increased costs or reductions incurred more than 90 days prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor, except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 90-day period referred to above shall be extended to include the period of retroactive effect thereof. Subject to the foregoing, no failure or delay on the part of any Lender to demand compensation pursuant to this Section 2.6 shall constitute a waiver of such Lender's right to demand such compensation. (e) EURODOLLAR RESERVE COMPENSATION. If in any Monthly Interest Period applicable to such Lender, Lender is required to maintain any reserves (including any marginal, special, emergency or supplemental reserves) for any eurocurrency funding or otherwise in respect of the Senior Secured Notes, then upon demand by such Lender the Borrower will pay such Lender on the Interest Payment Date for such Monthly Interest Period additional interest in an amount equal, for each day on which such reserves are required to be maintained by such Lender, to the difference between (i) interest for such day at the One-Month LIBO Rate determined for such Monthly Interest Period (the "Reference Rate Interest") multiplied by a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate amount (expressed as a decimal) certified by such Lender in a notice delivered to the Borrower, to be the reserve percentage (including any marginal, special, emergency or supplemental reserves) established by the Board and in effect as to such Lender for such day for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board), including all reserve percentages imposed pursuant to such Regulation D, and (ii) the Reference Rate Interest for such day. 38 45 SECTION 2.7. BREAKAGE COSTS. In the event of the payment of any principal of any Loan other than on the last day of a Monthly Interest Period applicable thereto (including as a result of any required or voluntary prepayment or any required purchase offer or any Event of Default), the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. Such loss, cost or expense to any Lender shall be the amount determined by such Lender to be the excess, if any and only if a positive number, of (a) the amount of interest that would have accrued on the principal amount of such Loan had such event not occurred, at the One-Month LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Monthly Interest Period therefor, over (b) the amount of interest that would accrue on such principal amount for such period at the One-Month LIBO Rate determined as of the second Business Day preceding the date of such event. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section 2.7 shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. SECTION 2.8. TAXES. (a) PAYMENTS FREE FROM TAXES. Any and all payments by or on account of any obligation of the Borrower hereunder or under any other Note Document shall be made free and clear of and without deduction for any Indemnified Taxes. If, nevertheless, the Borrower shall be required to deduct any Indemnified Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.8) each Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Entity in accordance with applicable law. (b) PAYMENT OF OTHER TAXES. In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Entity in accordance with applicable law. (c) TAX INDEMNITY. The Borrower shall indemnify Lehman Brothers and its Affiliates and each Lender, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes paid by any of them on or with respect to any payment by or on account of any obligation of the Borrower hereunder or under any other Note Document (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 2.8) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Entity. A certificate as to the amount of such payment or liability delivered to the Borrower by the applicable Indemnified Person shall be conclusive absent manifest error. (d) DELIVERY OF RECEIPT. As soon as practicable after any payment of Indemnified Taxes by the Borrower to a Governmental Entity, the Borrower shall deliver to the affected Person the original or a certified copy of a receipt issued by such Governmental Entity evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to such Person. 39 46 (e) FOREIGN LENDER CERTIFICATION. Any Foreign Lender shall deliver to the Borrower two copies of either United States Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Foreign Lender's claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest," a Form W-8, or any subsequent versions thereof or successors thereto (and, if such Foreign Lender delivers a Form W-8, a certificate representing that such Foreign Lender is not a bank for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code)), properly completed and duly executed by such Foreign Lender claiming complete exemption from, U.S. Federal withholding tax on payments by the Borrower under this Agreement and the other Note Documents. Such forms shall be delivered by each Foreign Lender on or before the date it becomes a party to this Agreement (or, in the case of a transferee that is a participation holder on or before the date such participation holder becomes a Transferee hereunder) and on or before the date, if any, such Foreign Lender changes its applicable lending office by designating a different lending office (a "New Lending Office"). In addition, each Foreign Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Foreign Lender. Notwithstanding any other provision of this Section 2.8(e), a Foreign Lender shall not be required to deliver any form pursuant to the preceding sentence of this Section 2.8(e) that such Foreign Lender is not legally able to deliver. (f) EFFECT OF FAILURE TO COMPLY. The Borrower shall not be required to indemnify any Foreign Lender or to pay any additional amounts to any Foreign Lender in respect of U.S. Federal withholding tax pursuant to Section 2.8(a) or Section 2.8(c) to the extent that the obligation to pay such additional amounts would not have arisen but for a failure by such Foreign Lender to comply with the provisions of Section 2.8(e). Should a Lender become subject to Taxes because of its failure to deliver a form required hereunder, Borrower shall, at Lender's expense, take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes. SECTION 2.9. PRO RATA PAYMENTS; SHARING OF SETOFFS. (a) RATABLE PAYMENTS. The Borrower shall make all payments then due (including by virtue of a voluntary prepayment) on the Senior Secured Notes concurrently, without preference of one Lender over another. (b) DISPROPORTIONATE PAYMENTS. If any Lender shall receive from the Borrower or any Guarantor or shall otherwise obtain, by exercising any right of setoff or counterclaim or otherwise, any payment in respect of any principal of or interest on its Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and accrued interest thereon than the proportion received by any other Lender in respect of its Loans and accrued interest thereon then owed and due, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest then owed and due on their respective Loans without giving effect to any such 40 47 disproportionate payment. If any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest. The provisions of this Section 2.9(b) shall not be construed to apply to any payment made by the Borrower at any time when no Event of Default has occurred and is continuing on account of any Note Liabilities other than the principal of or interest on Senior Secured Notes. The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. SECTION 2.10. REPLACEMENT OF LENDER. If any Lender gives notice of illegality pursuant to Section 2.3(h) or requests compensation under Section 2.6, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.8, then the Borrower may, at its sole expense and effort, upon notice to such Lender and each other Lender, require such Lender to assign and transfer all (but not less than all) Senior Secured Notes held by it, without recourse and pursuant to an Assignment and Acceptance (in accordance with and subject to the restrictions contained in Section 7.3), to an assignee that shall assume all of such Lender's obligations under this Agreement (which assignee may be another Lender willing to accept such assignment), but (in each case) only if (a) such Lender has received payment of an amount equal to 100% of the principal balance and all accrued and unpaid interest outstanding on such Senior Secured Notes and all other Note Liabilities outstanding to such Lender, from the assignee (to the extent of such outstanding principal and accrued interest) or the Borrower (in the case of all other Note Liabilities) and (b) in the case of any such assignment resulting from a claim for compensation under Section 2.6 or payments required to be made pursuant to Section 2.8, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and transfer if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and transfer cease to apply. SECTION 2.11. COMMITMENT REDUCTIONS. (a) The commitment to make Tranche One Loans of each Tranche One Lender automatically reduced to zero on the Original Closing Date after the Tranche One Loans were made, and such commitments may not be reinstated. (b) On the earliest to occur of (1) September 30, 1998, if the Borrower has not borrowed at least $250,000,000 in Tranche Two Loans on or prior to such date, (2) the last day of the Availability Period, after giving effect to any Tranche Two Loans made on such date, (3) the occurrence of a Change of Control, (4) the Maturity Date and (5) the Acceleration Date, the Tranche Two Commitment, if any, of each Lender shall automatically reduce to zero and may not be reinstated. (c) The Borrower may reduce or terminate the Tranche Two Commitments at any time and from time to time in whole or in part; provided, that such reduction shall be of 41 48 an identical percentage of each Tranche Two Lender's Tranche Two Commitment. Each such reduction of Tranche Two Commitments must be in an aggregate amount for all Tranche Two Lenders of not less than $50,000,000 (and in increments of $50,000,000 in excess thereof). If the Borrower reduces the Tranche Two Commitments pursuant to this Section 2.11(c) to an aggregate amount less than $50,000,000, then all of the Tranche Two Commitments shall be reduced to zero and may not be reinstated. Once reduced, no portion of the Tranche Two Commitments may be reinstated. (d) On each date after the Effective Date on which the Borrower, Starwood REIT or any Subsidiary of either of them receives any Securities Proceeds in excess of the amount of Securities Proceeds required to be applied on such date as set forth in Section 2.4(f) ("Securities Excess Proceeds"), each Tranche Two Lender's Tranche Two Commitment shall be reduced in an amount equal to such Lender's Commitment Percentage of the amount of such Securities Excess Proceeds and may not be reinstated. ARTICLE III. CONDITIONS SECTION 3.1. EFFECTIVE DATE. The effectiveness of this amendment and restatement of the Original Agreement and the obligation of each Tranche Two Lender to make Tranche Two Loans are subject to the satisfaction or waiver by the Required Lenders on or prior to August 31, 1998 of the following conditions precedent: (a) NOTE AGREEMENT. The Borrower shall have delivered to the Lenders counterparts of this Agreement duly executed by each Person identified therein as a signatory party thereto. (b) SENIOR SECURED NOTES. The Borrower shall have delivered to each Tranche Two Lender, or the designee of each such Lender, a Tranche Two Note duly executed by the Borrower made payable to the order of such Lender in the amount of such Lender's Tranche Two Commitment, with the Confirmation of Guaranty thereon duly executed by Starwood REIT. (c) ENGAGEMENT LETTER AND FEE LETTER. The Borrower shall have delivered to LCPI the Engagement Letters and the Fee Letters, duly executed by each party thereto. (d) CREDIT FACILITY DOCUMENTS. The Borrower shall have delivered to each Lender copies (certified by an officer of the Borrower to be true, correct and complete) of all other Transaction Documents and all certificates, opinions and reports delivered thereunder. (e) CLOSING CERTIFICATE. The Borrower shall have delivered to the Lenders a certificate in substantially the form of Exhibit C, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of the Borrower and attaching the documents described therein. (f) OPINIONS OF COUNSEL. The Borrower shall have delivered to the Lenders opinions of counsel in form satisfactory to the Administrative Agent. 42 49 (g) PLEDGE AGREEMENT SHARING ENTITLEMENT NOTICE. The Borrower shall have delivered to the Lenders a Notice of Pledge Agreement Entitlement in substantially the form of Exhibit E duly executed by the Borrower and Starwood REIT, with the Confirmation of Receipt and Approval appended thereto duly executed by the Persons named thereon. (h) CONSENTS. Required Lenders (taking into account only outstanding Tranche One Loans) shall have consented to this amendment and restatement of the Original Agreement and the requisite lenders under the Bank Credit Facility shall have consented to the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, including the making of the Tranche Two Loans and the use of the proceeds thereof for each of the purposes specified in Section 2.1(g). (i) LEGAL MATTERS. LCPI shall have received such other documents as it or its special counsel, Latham & Watkins, may reasonably request. (j) FEES AND COSTS. LCPI shall have received payment of all fees, expense reimbursements and other amounts due and payable under the Note Documents. (k) OTHER MATTERS. The Borrower shall not have been notified in writing by Required Lenders that: (i) Any law, litigation or legal, judicial or administrative proceeding is in effect, pending or threatened that substantially restricts or seeks injunctive or compensatory relief in respect of the Transactions or that could reasonably be expected to adversely affect the ability of the parties to consummate, the Transactions or to have a Material Adverse Effect, (ii) Any consents or approvals required to be obtained from any Governmental Entity or, except as disclosed in the Disclosure Schedule, any other Person in connection with the Transactions or for the Borrower or any Guarantor to conduct business, pay its liabilities and perform its contractual obligations following the Effective Date has not been obtained or is not in full force and effect, or any applicable waiting period or appeal period has not expired, or any burdensome conditions have been imposed with respect thereto, or any action by any Governmental Entity is pending or threatened that could reasonably be expected to restrain, prevent or impose burdensome conditions on the Transactions or such conduct of business, payment of liabilities and performance of contractual obligations, (iii) An event has occurred at any time after January 14, 1998, or any information has been disclosed to the Lenders after the date of this Agreement relating to any event that occurred or condition that existed at any time, that has or could reasonably be expected to result in a Material Adverse Effect, (iv) Any representation, warranty or factual statement made by 43 50 any Loan Party in any of the Transaction Documents is in any material respect not true and correct, or (v) A Default has occurred and is continuing. (l) OTHER CONDITIONS. Each of the additional conditions precedent set forth on Schedule D hereto shall have been satisfied or waived. The obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 11.2) at or prior to 3:00 p.m., New York City time, on August 31, 1998. If such conditions are not so satisfied or waived by such time, each Lender's obligation to make Loans hereunder shall terminate and this amendment and restatement shall not become effective. The execution and delivery of this Agreement by the Borrower on the Effective Date shall constitute a representation and warranty by the Borrower and each Guarantor to the effect that the applicable conditions precedent set forth in this Article III are satisfied on the Effective Date. SECTION 3.2. CONDITIONS PRECEDENT TO ALL TRANCHE TWO LOANS. The obligation of each Tranche Two Lender to fund any requested Tranche Two Loan is subject to the following additional conditions precedent, and each Notice of Borrowing and each acceptance of the proceeds of a Tranche Two Loan shall constitute a representation and warranty by the Borrower that such conditions are satisfied: (a) REPRESENTATIONS AND WARRANTIES. All representations and warranties contained in this Agreement and the other Note Documents shall be true and correct in all material respects on and as of the date of such Notice of Borrowing and on and as of the date such Loan is made, as if then made, other than representations and warranties that expressly relate solely to an earlier date; (b) NO DEFAULTS. No Default or Event of Default shall have occurred and be continuing, or would result from the making of the requested Loan; and (c) NO ADVERSE CHANGE. No event or condition shall have occurred since January 14, 1998 which has had or would reasonably be expected to have a Material Adverse Effect. ARTICLE IV. REPRESENTATIONS AND WARRANTIES Each Loan Party hereby agrees with, and represents and warrants to, LCPI and the Lenders that, as of the Original Closing Date, the Effective Date and the date of the making of each Tranche Two Loan hereunder (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date), in each case except as otherwise set forth in the Disclosure Schedule: 44 51 SECTION 4.1. REPRESENTATIONS AND WARRANTIES IN THE ACQUISITION AGREEMENT AND THE BANK CREDIT FACILITY. Each of the representations and warranties made by any Loan Party contained in the Bank Credit Facility or in the Acquisition Agreement or any other Transaction Document, as set forth therein on the Original Closing Date without regard to any subsequent waiver thereof or amendment thereto, was true and correct in all material respects on the Original Closing Date and is hereby incorporated herein by reference as if set forth at length herein. Each of the representations and warranties made by any Loan Party contained in the Bank Credit Facility, as set forth therein on the Effective Date without regard to any waiver thereof or amendment thereto after the Effective Date, is and shall be true and correct in all material respects on the Effective Date and on the date of the making of each Tranche Two Loan hereunder and is hereby incorporated herein by reference as if set forth at length herein. A true copy of the Disclosure Schedule is attached hereto as Schedule 4.1. SECTION 4.2. ORGANIZATION; GOOD STANDING. Each Loan Party has been duly incorporated, duly organized or duly constituted and is a validly existing corporation, limited partnership, real estate investment trust or limited liability company in good standing under the laws of its jurisdiction of organization, with corporate, trust, partnership or other necessary power and authority to own, lease and operate its properties and conduct its business as it is being conducted and is duly qualified to do business and is in good standing as a foreign corporation, trust, limited partnership, or limited liability company in all jurisdictions in which it owns, leases or operates substantial properties or in which the conduct of its business requires such qualification except where the failure to so qualify will not cause a Material Adverse Effect. SECTION 4.3. DUE AUTHORIZATION AND ENFORCEABILITY. (a) TRANSACTION DOCUMENTS. Each of the Transaction Documents (i) has been duly authorized, executed and delivered by each Loan Party that is a party thereto and (ii) constitutes a valid and binding obligation of such Loan Party enforceable against it in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforceability of creditors' rights generally and by general principles of equity (whether arising under a proceeding at law or in equity). (b) SENIOR SECURED NOTES. The Senior Secured Notes have been duly authorized by the Borrower and, when executed and delivered to any Lender pursuant to the terms of this Agreement against funding of the applicable Loan made by such Lenders, are valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms, except as enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforceability of creditors' rights generally and by general principles of equity (whether arising under a proceeding at law or in equity). (c) LOAN PARTIES. Except for Subsidiaries that are Loan Parties, no Subsidiary of the Borrower or Starwood REIT has guaranteed any Credit Facility Obligation or 45 52 has granted or agreed to grant or become subject to any Lien securing any Credit Facility Obligation. (d) PLEDGE AGREEMENT BENEFITS. The Senior Secured Notes constitute Obligations that are Senior Secured Note Obligations pursuant to subclause (v) of Section 1(a) of the Pledge Agreement. The principal of and interest on the Senior Secured Notes and the loans and indebtedness evidenced thereby and all other Note Liabilities are and shall be secured by all security interests and liens upon all collateral security granted to Bankers Trust Company as Collateral Agent pursuant to the Pledge Agreement, on the terms and conditions therein set forth. (e) COLLATERAL. Neither the Borrower nor Starwood REIT nor any of their Subsidiaries has agreed to secure, or has granted or become subject to any Lien securing, any Credit Facility Obligations, except pursuant to the Pledge Agreement. The Senior Secured Liabilities are, and any Indebtedness incurred to refinance the Senior Secured Notes is permitted under the Bank Credit Facility to be and shall be, equally and ratably secured by all Collateral under the Pledge Agreement. All actions required under the Pledge Agreement to extend the benefit of the collateral security thereunder to the Note Liabilities have been duly and effectually taken and completed. (f) SUBORDINATION. No Indebtedness or other liabilities owed by one of the Borrower, Starwood REIT or their Subsidiaries to one or more of the others of them has been contractually subordinated to the payment of any Credit Facility Liabilities, except Indebtedness and other liabilities that are subordinated, to at least the same extent, to the payment of the Note Liabilities. SECTION 4.4. AFFILIATE GUARANTY. The Affiliate Guaranty has been duly authorized by each Guarantor and is a valid and binding obligation of each Guarantor, enforceable against each of them in accordance with its terms, except as enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforceability of creditors' rights generally and by general principles of equity (whether arising under a proceeding at law or in equity). SECTION 4.5. NO CONFLICTS. (a) NO VIOLATION. Neither the execution and delivery of any Transaction Document nor the consummation of any of the Transactions nor compliance with the terms and provisions hereof or thereof (i) violates or will violate any law or regulation or any order or decree of any court or Governmental Entity applicable to any Loan Party or any Restricted Subsidiary or by which any of their respective properties or assets may be bound, (ii) constitutes or will constitute a breach or a violation of, any of the terms or provisions of, or a default under, the organizational documents (including any certificate of incorporation or bylaws) or any other corporate or organizational restriction, as applicable, of any Loan Party or any Restricted Subsidiary or (iii) conflicts with or will result in the breach of, or constitutes a default under, any contract to which a Loan Party or any Restricted Subsidiary is a party or by which any of 46 53 them or any of their respective assets may be bound, except in the case of clause (iii) where such breach, violation or conflict will not cause a Material Adverse Effect. (b) NO UNOBTAINED APPROVALS. No consent, approval, authorization or order of, or any registration or filing with, any Governmental Entity that has not been obtained or made is or will be required in connection with the execution and delivery of the Transaction Documents by any Loan Party or the consummation of the Transactions. SECTION 4.6. NO VIOLATION OF MARGIN REGULATION. None of the transactions contemplated by this Agreement (including the use of the proceeds from the issuance of the Senior Secured Notes and the pledge of the Class A Shares following the Reorganization) will violate or result in a violation of Section 7 of the Exchange Act, or any rule or regulation issued pursuant thereto, including the Margin Regulations. SECTION 4.7. GOVERNMENTAL REGULATIONS. No Loan Party or Subsidiary of a Loan Party is or will be subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate Commerce Act or to any other Federal or state statute or regulation limiting its ability to incur Indebtedness for borrowed money. SECTION 4.8. FULL DISCLOSURE. None of the Exchange Act Documents, none of the representations, warranties and factual statements made by any Loan Party in any of the Transaction Documents and no other information, report, Financial Statement or certificate delivered or to be delivered to LCPI, Lehman Brothers or the Lenders in connection with the Note Documents or in connection with or in anticipation of the Transactions contains or will contain, as of the date thereof, any untrue statement of material fact or omitted or omits or will omit to state a material fact necessary to make such statements not misleading in light of the circumstances in which such statements were made. It is understood, however, that to the extent the Exchange Act Documents or any such information, report, Financial Statement or certificate includes projections, such projections are based upon good faith estimates and assumptions believed to be reasonable at the time made and are not to be viewed as facts. Actual results during the period or periods covered by such projections may differ from the projected results. SECTION 4.9. FINANCIAL CONDITION; SOLVENCY. Giving due effect to rights of reimbursement and contribution reserved under the Affiliate Guaranty, (a) the fair value of the assets of each Loan Party exceeds its debts and liabilities, direct, subordinated, contingent or otherwise, (b) the present fair salable value of the property of each Loan Party is greater than the amount that will be required to satisfy its probable liability on its debts and other liabilities, direct, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (c) each Loan Party is able to pay its debts and liabilities, direct, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) no Loan Party will have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted following the Effective Date. No Loan Party intends to incur debts beyond its ability to pay such debts as they mature, taking into account the timing and amounts of cash to be 47 54 received by it and the timing and amounts of cash to be payable on or in respect of its Indebtedness. SECTION 4.10. NO MATERIAL ADVERSE CHANGE. No event has occurred since January 14, 1998 that has had, or could reasonably be expected to have, a Material Adverse Effect. ARTICLE V. COVENANTS So long as any of the principal of or interest on the Senior Secured Notes shall be unpaid or any Tranche Two Commitment remains outstanding, the Borrower and each of the Guarantors covenants and agrees with the Lenders as follows: SECTION 5.1. PAYMENT OF SENIOR SECURED NOTES. The Borrower shall pay or cause to be paid the principal of and interest on the Senior Secured Notes at the rates and on the dates and in the manner provided in this Agreement and the Senior Secured Notes. SECTION 5.2. MAINTENANCE OF OFFICE OR AGENCY. (a) MAINTENANCE OF OFFICE OR AGENCY. The Loan Parties shall maintain an office or agency where Senior Secured Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Borrower or the Guarantors in respect of the Senior Secured Notes and this Agreement may be served. The Loan Parties shall give prompt written notice to the Lenders of the location, and any change in the location, of such office or agency. (b) OTHER OFFICES OR AGENCIES. The Borrower may also from time to time designate one or more other offices or agencies where the Senior Secured Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Borrower shall give prompt written notice to the Lenders of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 5.3. REPORTS. The Borrower and Starwood REIT shall provide to the Lenders, within 15 days after they file them with the SEC, copies of their annual report and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rule or regulation prescribe) which the Borrower or Starwood REIT is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that the Borrower or Starwood REIT may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the SEC, the Borrower and Starwood REIT shall continue to provide each Lender with, without cost to any Lender, (a) within 90 days after the end of each fiscal year, annual reports on Form 10-K (or any successor form) containing the information required to be contained therein (or required in such successor form); (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year, reports on Form 48 55 10-Q (or any successor form); and (c) promptly from time to time after the occurrence of an event required to be therein reported, such other reports on Form 8-K (or any successor form) containing the information required to be contained therein (or required in any successor form). The Borrower and Starwood REIT shall in all cases, without cost to each recipient, provide copies of such information to the Lenders and shall make available such information to prospective purchasers and to securities analysts and broker-dealers upon their request. In addition, the Borrower and Starwood REIT shall, for so long as any Senior Secured Notes remain outstanding, furnish to the Lenders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Notwithstanding anything to the contrary herein, no Lender and no other Person shall have any duty to review such document for purposes of determining compliance with any provisions of this Agreement. SECTION 5.4. COMPLIANCE CERTIFICATION. (a) OFFICERS' CERTIFICATE. The Borrower and Starwood REIT shall deliver to each Lender, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Borrower and Starwood REIT and their Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers of the Borrower and Starwood REIT with a view to determining whether each Loan Party is in compliance with this Agreement and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge each Loan Party is in compliance with each and every covenant contained in this Agreement and is not in default in the performance or observance of any of the terms, provisions and conditions of this Agreement (or, if a Default or Event of Default shall exist, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Loan Parties are taking or propose to take with respect thereto) and that to the best of his or her knowledge no event has occurred that remains in existence by reason of which payments on account of the principal of or interest, if any, on the Senior Secured Notes is prohibited or if such event exists, a description of the event and what action the Loan Parties are taking or propose to take with respect thereto. (b) AUDITORS' STATEMENT. So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 5.3 shall be accompanied by a written statement of the Borrower's and Starwood REIT's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that any Loan Party is in violation of any provisions of Article V or Article VI or, if any such violation exists, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) NOTICE OF DEFAULT. The Borrower and Starwood REIT shall, so long as any of the Senior Secured Notes are outstanding, deliver to each Lender, within ten Business Days after any Officer becomes aware of any Default or Event of Default or any event of default under any document, instrument or agreement representing Indebtedness of the 49 56 Borrower or Starwood REIT, an Officers' Certificate specifying such Default, Event of Default or event of default and what action the Borrower and Starwood REIT are taking or propose to take with respect thereto. SECTION 5.5. TAXES. The Borrower and Starwood REIT shall pay, and shall cause each Restricted Subsidiary to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment would not have any Material Adverse Effect. SECTION 5.6. STAY, EXTENSION AND USURY LAWS. Each of the Borrower and the Guarantors covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Agreement; and each of the Borrower and the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to any Lender, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 5.7. RESTRICTED PAYMENTS. The Borrower and Starwood REIT will not, and will not permit any Restricted Subsidiary to, directly or indirectly: (i) declare or pay any dividend or make any distribution on account of any of the Borrower's or Starwood REIT's or any Restricted Subsidiary's Equity Interests (including any payment in connection with any merger or consolidation involving either of the Borrower or Starwood REIT) or to the direct or indirect holders of either of the Borrower's or Starwood REIT's Equity Interests in their capacity as such (other than (A) dividends or distributions by the Borrower or Starwood REIT payable in Equity Interests (other than Disqualified Stock) of the Borrower and/or Starwood REIT (or accretions thereon); or (B) dividends or distributions paid to the Borrower or Starwood REIT or a Restricted Subsidiary); (ii) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving either of the Borrower or Starwood REIT) any Equity Interests of the Borrower, Starwood REIT or any Restricted Subsidiary (other than any such Equity Interests owned by the Borrower, Starwood REIT or any Restricted Subsidiary); (iii) make any payment on or with respect to or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness of the Borrower, Starwood REIT or any Restricted Subsidiary (other than, in each case, scheduled interest and principal payments with respect to any such Subordinated Indebtedness); (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (b) the Borrower would, after giving pro forma effect to such Restricted Payment as if such Restricted Payment had been made at the beginning of the applicable 50 57 four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the first paragraph of Section 5.9 (applying only clauses (1) and (2) and not clause (3) thereof); and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Borrower, Starwood REIT and the Restricted Subsidiaries after the Original Closing Date (excluding Restricted Payments permitted by clauses (ii), (iii), (vi), (ix), (x), (xii), (xiii), (xiv) and (xv) of the next succeeding paragraph and including the other Restricted Payments permitted by the next paragraph), is less than the sum of (X) an amount equal to (1) for as long as, and for the period during which, Starwood REIT qualifies as a REIT under the Code, 90% (or, for the portion of any such period from and after the Reorganization Date, 50%) of the Combined Funds From Operations of the Borrower and Starwood REIT for the period (taken as one accounting period) from December 31, 1997 to the end of the Borrower's and Starwood REIT's most recently ended fiscal quarter for which internal financial statements are available (or, in the case such Combined Funds From Operations for such period is a deficit, minus 100% of such deficit), plus (2) for as long as and for the period during which Starwood REIT does not qualify as a REIT under the Code, 50% of the Combined Net Income of the Borrower and Starwood REIT for the period (taken as one accounting period) commencing at the end of the fiscal quarter during which it failed to qualify as a REIT under the Code to the end of the Borrower's and Starwood REIT's most recently ended fiscal quarter for which internal financial statements are available (or, in the case such Combined Net Income for such period is a deficit, minus 100% of such deficit), plus (Y) without duplication, 100% of the aggregate net cash proceeds received by the Borrower or Starwood REIT since the Original Closing Date from capital contributions (other than from the Borrower, Starwood REIT or any Restricted Subsidiary) or the issue or sale of Equity Interests (other than Disqualified Stock) or debt securities of the Borrower or Starwood REIT that have been converted into or exchanged for such Equity Interests of the Borrower or Starwood REIT (other than Equity Interests or such debt securities of the Borrower or Starwood REIT sold to the Borrower, Starwood REIT or a Restricted Subsidiary and other than Disqualified Stock or debt securities that have been converted into or exchanged for Disqualified Stock, excluding any Equity Interests or debt securities that have been converted into Equity Interests, the proceeds of which were applied, directly or indirectly, to the costs or expenses of the Acquisition), plus (Z) to the extent not otherwise included in Combined Funds From Operations or Combined Net Income, as the case may be, 100% of the cash dividends or distributions or the amount of the cash principal and interest payments received since the Original Closing Date by the Borrower, Starwood REIT or any Restricted Subsidiary from any Unrestricted Subsidiary or in respect of any Restricted Investment (other than dividends or distributions to pay obligations of or with respect to such Unrestricted Subsidiary such as income taxes) until the entire amount of the Investment in such Unrestricted Subsidiary has been received or the entire amount of such Restricted Investment has been returned, as the case may be, and 50% of such amounts thereafter. In the event that the Borrower or Starwood REIT converts an Unrestricted Subsidiary to a Restricted Subsidiary, the Borrower and Starwood REIT may add back to this clause (c) the aggregate amount of any Investment in such Subsidiary that was a Restricted Payment at the time of such Investment, with such Investment to be valued at the lower of book value or fair market value at the time of conversion. 51 58 The foregoing provisions will not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at the date of declaration such payment would have complied with the provisions of this Agreement; (ii) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Borrower, Starwood REIT or any Restricted Subsidiary, in each case, in exchange for, or out of the proceeds of, the substantially concurrent sale or issuance (other than to the Borrower, Starwood REIT or a Restricted Subsidiary) of Equity Interests of the Borrower or Starwood REIT (other than any Disqualified Stock); provided that the amount of any net cash proceeds from the sale of such Equity Interests shall be excluded from clause (c) (Y) of the preceding paragraph; (iii) the defeasance, redemption, repurchase, retirement or other acquisition of any Subordinated Indebtedness of the Borrower, Starwood REIT or any Restricted Subsidiary in exchange for, or out of the proceeds of, the substantially concurrent sale or issuance (other than to the Borrower, Starwood REIT or a Restricted Subsidiary) of Subordinated Indebtedness of the Borrower, Starwood REIT or such Restricted Subsidiary or Equity Interests of the Borrower or Starwood REIT (other than Disqualified Stock); provided, however, that (1) the principal amount of such Subordinated Indebtedness incurred pursuant to this clause (iii) shall not exceed the principal amount of the Subordinated Indebtedness so redeemed, repurchased, retired or otherwise acquired (plus the amount of reasonable expenses incurred and any premium paid in connection therewith), (2) such Subordinated Indebtedness shall have a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Subordinated Indebtedness being redeemed, repurchased, retired or otherwise acquired, (3) such Subordinated Indebtedness shall be subordinate in right of payment to the Senior Secured Notes and Affiliate Guaranty on terms at least as favorable to the Lenders in respect of the Senior Secured Notes and the Affiliate Guaranty as those contained in the documentation governing the Subordinated Indebtedness being redeemed, repurchased, retired or otherwise acquired and (4) the net cash proceeds from the sale of any Equity Interests issued pursuant to this clause (iii) shall be excluded from clause (c) (Y) of the preceding paragraph; (iv) any redemption or purchase by the Borrower, Starwood REIT or any Restricted Subsidiary of Equity Interests or Subordinated Indebtedness of the Borrower or Starwood REIT required by a Gaming Authority in order to preserve a material Gaming License; provided, that so long as such efforts do not jeopardize any material Gaming License, the Borrower, Starwood REIT or such Restricted Subsidiary shall have diligently tried to find a third-party purchaser for such Equity Interests or Subordinated Indebtedness and no third-party purchaser acceptable to the applicable Gaming Authority was 52 59 willing to purchase such Equity Interests or Subordinated Indebtedness within a time period acceptable to such Gaming Authority; (v) for so long as Starwood REIT is a REIT under the Code for Federal income tax purposes, Starwood REIT may make cash distributions to its shareholders in amount necessary to maintain its status as a REIT under the Code; (vi) intercompany payments, including without limitation, debt repayments, between or among the Borrower, Starwood REIT and their Restricted Subsidiaries or the payment of any dividend by a Subsidiary of the Borrower or Starwood REIT to the Borrower, Starwood REIT or any Restricted Subsidiary as the holder of its Equity Interests; (vii) the repurchase of shares of, or options to purchase, common stock of either of the Borrower or Starwood REIT from employees, former employees, directors or former directors of the Borrower or Starwood REIT or any Restricted Subsidiary (or permitted transferees of such individuals), pursuant to the terms of the agreements (including employment agreements) or plans (or amendments thereto), in each case, as in effect on the date of this Agreement and as approved by the Board of Directors under which such individuals purchase or sell, or are granted the option to purchase or sell, shares of such common stock (the "Employee Stock Buybacks"); (viii) repurchases of Capital Stock of the Borrower or Starwood REIT deemed to occur upon exercise of stock options if such Capital Stock represents a portion of the exercise price of such options; (ix) WD Parent Corp. to pay regularly scheduled cash dividends on the VNU Preferred Stock at a rate not to exceed 6% per annum and any mandatory redemptions thereunder; (x) WD Parent Corp. to otherwise redeem outstanding shares of VNU Preferred Stock; (xi) the purchase of UBS Shares prior to December 31, 1998 for an aggregate consideration of up to $200,000,000; (xii) other Restricted Payments not to exceed $135 million in the aggregate in any calendar year pursuant to this clause (xii); (xiii) the purchase for cash of up to $1.0 billion of the Paired Common Shares of the Borrower and Starwood REIT; (xiv) the acquisition or retirement for value of Equity Interests in Newco and Starwood REIT pursuant to the Reorganization; and 53 60 (xv) Restricted Investments of up to $350,000,000 outstanding at any one time, provided, that at the time of, and after giving effect to, any Restricted Payment permitted under clauses (ii) (to the extent that any Equity Interests are redeemed, retired or acquired from the cash proceeds from the sale or issuance of Equity Interests), (iii) (to the extent that any Subordinated Indebtedness is defeased, redeemed, retired, repurchased or otherwise acquired from the cash proceeds from the sale or issuance of other Subordinated Indebtedness or Equity Interests), (v), (vii), (ix), (x), (xi), (xii), (xiii), (xiv) and (xv) no Event of Default (and, in the case of clauses (xiii), (xiv) and (xv), no Default) shall have occurred and be continuing or would occur as a consequence thereof. For purposes of determining the amount of Restricted Investments outstanding at any time, all Restricted Investments shall be valued at their fair market value at the time made, and no adjustments will be made for subsequent changes in fair market value. Not later than the date of filing any quarterly or annual report, the Borrower and Starwood REIT shall deliver to each Lender an Officers' Certificate stating that each Restricted Payment made in the prior fiscal quarter was permitted and setting forth the basis upon which the calculations required by this Section 5.7 were computed, which calculations may be based upon the Borrower's and Starwood REIT's latest available financial statements. SECTION 5.8. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Borrower and Starwood REIT shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary to (a) (i) pay dividends or make any other distributions to the Borrower or Starwood REIT or any Restricted Subsidiary (A) on their Capital Stock or (B) with respect to any other interest or participation in, or measured by, its profits, or (ii) pay any Indebtedness owed to the Borrower, Starwood REIT or any Restricted Subsidiary (other than in respect of the subordination of such Indebtedness to the Senior Secured Notes, the Affiliate Guaranty or any other Indebtedness incurred pursuant to the terms of this Agreement, as the case may be), (b) make loans or advances to the Borrower, Starwood REIT or any Restricted Subsidiary or (c) sell, lease, or transfer any of their properties or assets to the Borrower, Starwood REIT or any Restricted Subsidiary, except (in each case) for such encumbrances or restrictions existing under or by reason of (1) contractual encumbrances or restrictions in effect on the Original Closing Date, (2) the Bank Credit Facility (and any related security agreements) and any Guaranties thereof, this Agreement, the Senior Secured Notes, the Affiliate Guaranty, indebtedness incurred pursuant to clause (h) and (j) of Section 5.9 and any related security agreements, (3) this Agreement, the Senior Secured Notes and the Affiliate Guaranty, (4) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Borrower, Starwood REIT or any Restricted Subsidiary as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, (5) by reason of customary non-assignment provisions in leases entered into in the 54 61 ordinary course of business, (6) purchase money obligations for property acquired in the ordinary course of business or secured indebtedness permitted to be incurred and secured hereby that impose restrictions of the nature discussed in clause (c) above on the property so acquired or which secures such indebtedness, (7) applicable law or any applicable rule or order of any Gaming Authority, (8) customary restrictions imposed by asset sale or stock purchase agreements relating to the sale of assets or stock by the Borrower, Starwood REIT or any Restricted Subsidiary, (9) any encumbrances or restrictions imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (1) through (8) above, provided, that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Borrower and Starwood REIT, no more restrictive with respect to such dividend and other payment restrictions than those contained in the dividend or other payment restrictions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing, or (10) customary encumbrances or restrictions, pursuant to the terms of Preferred Stock permitted to be issued pursuant to Section 5.9, on the payment of dividends or distributions on the other Capital Stock of the issuer of such Preferred Stock. SECTION 5.9. LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK. The Borrower and Starwood REIT shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to (collectively, "incur" and correlatively, an "incurrence" of) any Indebtedness (including Acquired Indebtedness) or any shares of Disqualified Stock or Subsidiary Preferred Stock; provided, however, that the Borrower, Starwood REIT or a Restricted Subsidiary may incur Indebtedness or issue shares of Disqualified Stock or Subsidiary Preferred Stock if: (1) the Fixed Charge Coverage Ratio for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date of such incurrence would have been at least 2.0 to 1.0 determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock had been issued, as the case may be, and application of proceeds had occurred at the beginning of such four-quarter period, (2) Combined Debt is no greater than 60% of Combined Adjusted Total Assets, determined on a pro forma basis after giving effect to such incurrence, and (3) the aggregate principal amount of (A) all Indebtedness of the Borrower and Starwood REIT that is secured by any Lien on any property of the Borrower or Starwood REIT plus (B) all Disqualified Stock issued by any Restricted Subsidiary other than Starwood REIT plus (C) all other outstanding Subsidiary Preferred Stock plus (D) all Indebtedness of any Restricted Subsidiary other than Starwood REIT (whether or not secured by a Lien), 55 62 excluding (X) (so long as they are equally and ratably secured) the Bank Credit Facility and the Senior Secured Notes and Guaranties thereof, (Y) other Guaranties of Indebtedness of the Borrower or Starwood REIT and (Z) any such Indebtedness, Disqualified Stock or Subsidiary Preferred Stock that is owed to or held by the Borrower, Starwood REIT or any Restricted Subsidiary, does not exceed 40% of Combined Adjusted Total Assets, determined on a pro forma basis after giving effect to such incurrence. The foregoing limitations will not apply to: (a) the incurrence by the Borrower, Starwood REIT or any Restricted Subsidiary of Indebtedness under the Bank Credit Facility and any Guaranties thereof in an aggregate principal amount not to exceed at any one time $3,100,000,000, less the aggregate amount of all principal repayments and mandatory prepayments of term loans outstanding thereunder made after the Original Closing Date and the amount of all reductions to revolving loan commitments made after the Original Closing Date (in each case to the extent that all required repayments in respect of such revolving loan commitment reductions have actually been made), but excluding any principal repayments or prepayments or commitment reductions to the extent same are made in connection with the incurrence of refinancing indebtedness, whether in whole or in part, under the Bank Credit Facility or a successor Bank Credit Facility; (b) the incurrence by the Borrower, Starwood REIT or any Restricted Subsidiary of any Existing Debt; (c) the incurrence by the Borrower, Starwood REIT or any Restricted Subsidiary of Indebtedness represented by the Senior Secured Notes and the Affiliate Guaranty; (d) the incurrence by the Borrower, Starwood REIT or any Restricted Subsidiary of Indebtedness (the "Refinancing Indebtedness") issued in exchange for, or the proceeds of which are used to extend, refinance, renew, replace, substitute or refund Indebtedness referred to in the first paragraph of this covenant or in clauses (b), (c), this clause (d), (h) or (j); provided, however, that (1) the principal amount of such Refinancing Indebtedness shall not exceed the principal amount of Indebtedness (or, in the case of Indebtedness with original issue discount, the accreted value of such Indebtedness) so extended, refinanced, renewed, replaced, substituted or refunded (plus the amount of reasonable expenses incurred and any premium paid in connection therewith), (2) if the Indebtedness being extended, refinanced, renewed, replaced, substituted or refunded is subordinate in right of payment to the Senior Secured Notes, such Refinancing Indebtedness shall be subordinate in right and priority of payment to the Senior Secured Notes and the Affiliate Guaranty on terms at least as favorable to the Lenders in respect of Senior Secured Notes and the Affiliate Guaranty as those contained in the documentation governing any subordinated Indebtedness being extended, refinanced, renewed, replaced, substituted or refunded, and (3) the Refinancing Indebtedness shall have a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being extended, refinanced, renewed, replaced, substituted or refunded; 56 63 (e) (1) intercompany Indebtedness between or among the Borrower, Starwood REIT and any Restricted Subsidiary; provided, however, the obligations to pay principal, interest or other amounts under such intercompany Indebtedness is subordinated to the payment in full of the Senior Secured Notes and the Affiliate Guaranty or (2) Disqualified Stock or Subsidiary Preferred Stock issued to the Borrower, Starwood REIT or any Restricted Subsidiary; (f) Hedging Obligations that are incurred (1) for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is not prohibited by the terms of this Agreement to be outstanding or (2) for the purpose of fixing or hedging currency exchange rate risk with respect to any currency exchanges; (g) to the extent that such incurrence does not result in the incurrence by the Borrower, Starwood REIT or any Restricted Subsidiary of any obligation for the payment of borrowed money of others, Indebtedness incurred solely in respect of performance bonds, completion guarantees and similar obligations (other than standby letters of credit or bankers acceptances); provided, that such Indebtedness was incurred in the ordinary course of business of the Borrower, Starwood REIT or a Restricted Subsidiary; (h) Acquired Indebtedness, provided that (i) such Indebtedness was not incurred in connection with or in contemplation of the acquisition by which such Acquired Indebtedness was acquired, and (ii) such Acquired Indebtedness does not exceed 100% of the total value of the assets or of the entity so acquired; (i) the incurrence by the Borrower, Starwood REIT or any Restricted Subsidiary of additional Indebtedness not otherwise permitted hereunder in an aggregate amount at any time outstanding not to exceed $500 million; and (j) the guaranty by the Borrower, Starwood REIT or any Restricted Subsidiary of Indebtedness of the Borrower, Starwood REIT or a Restricted Subsidiary that was permitted to be incurred by another provision of this covenant. The Borrower and Starwood REIT shall not permit any of their Unrestricted Subsidiaries to incur any Indebtedness (including Acquired Indebtedness) or issue any shares of Disqualified Stock, other than Non-Recourse Indebtedness; provided, however, that if any such Unrestricted Subsidiary ceases to remain an Unrestricted Subsidiary, such event shall be deemed to constitute the incurrence of the Indebtedness in such Subsidiary by a Restricted Subsidiary. For purposes of determining compliance with this Section 5.9, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Indebtedness permitted in clauses (a) through (j) above or is entitled to be incurred pursuant to the first paragraph of this Section 5.9, the Borrower and Starwood REIT shall, in their sole discretion, classify such item of Indebtedness in any manner that complies with this Section 5.9 and such item of Indebtedness will be treated as having been incurred pursuant to only such clause or clauses or pursuant to the first paragraph hereof. Accrual of interest, the accretion of accreted 57 64 value or principal and the payment of interest in the form of additional Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes of this Section 5.9. The Borrower covenants and agrees that the Note Liabilities will at all times rank pari passu in right of payment with all other senior indebtedness of the Borrower and the Guarantors, including all Obligations under the Bank Credit Facility, and that the Note Liabilities will at all times be senior in right of payment to all Indebtedness of the Borrower and the Guarantors which is contractually subordinated to any other Indebtedness of the Borrower or any Guarantor. SECTION 5.10. ASSET SALES. The Borrower and Starwood REIT shall not, and shall not permit any Restricted Subsidiary to, consummate an Asset Sale, unless (a) no Default or Event of Default exists or is continuing immediately prior to or after giving effect to such Asset Sale, (b) the Borrower, Starwood REIT, or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined by an Officer for any Asset Sale of less than $50.0 million and as determined by the Board of Directors for any Asset Sale in excess of $50.0 million and, in each case, as set forth in an Officers' Certificate delivered to the Lenders annually) of the assets sold or otherwise disposed of and (c) at least 75% of the consideration therefor received by the Borrower, Starwood REIT or any Restricted Subsidiary, as the case may be, is in the form of cash or Cash Equivalents or Investments that are not prohibited to be made under Section 5.7; provided, however, that the amount of (A) any liabilities (as shown on the Borrower's, Starwood REIT's, or such Restricted Subsidiary's, as the case may be, most recent balance sheet or in the notes thereto) of the Borrower, Starwood REIT, or such Restricted Subsidiary, as the case may be (other than liabilities that are by their terms expressly subordinated to the Senior Secured Notes and the Affiliate Guaranty), that are assumed by the transferee of any such assets and (B) any notes or other obligations received by the Borrower, Starwood REIT or any Restricted Subsidiary, as the case may be, from such transferee that are converted by the Borrower, Starwood REIT or such Restricted Subsidiary, as the case may be, into cash (to the extent of the cash received) within 5 Business Days following the closing of such Asset Sale, shall be deemed to be cash only for purposes of satisfying clause (y) of this Section 5.10 and for no other purpose. Within 365 days after the Borrower's, Starwood REIT's or any Restricted Subsidiary's receipt of the Net Proceeds of any Asset Sale (the "Reinvestment Period"), such Person may apply the Net Proceeds from such Asset Sale (i) to permanently reduce Credit Facility Liabilities (in such manner as to reduce the amount available under Section 5.9(a)) or other Indebtedness that is not Subordinated Indebtedness or (ii) in an investment in any one or more business, capital expenditure or other tangible asset of the Borrower, Starwood REIT or any Restricted Subsidiary, in each case, engaged, used or useful in the business, in each case, with no concurrent obligation to make an offer to purchase any Senior Secured Notes. Pending the final application of any such Net Proceeds, the Borrower, Starwood REIT or such Restricted Subsidiary may temporarily reduce Credit Facility Liabilities, if any, or otherwise invest such Net Proceeds in Cash Equivalents. Any Net Proceeds from the Asset Sale that are not invested or used to repay Indebtedness or as working capital within the Reinvestment Period as provided in the first sentence of this paragraph shall be deemed to constitute "Excess Proceeds." When the aggregate 58 65 amount of Excess Proceeds exceeds $50.0 million, the Borrower shall, subject to any repayment obligations owed to the lenders under the Bank Credit Facility, make a Purchase Offer to all Lenders in respect of Senior Secured Notes to purchase the maximum principal amount of Senior Secured Notes, that is an integral multiple of $1,000, that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the aggregate principal amount thereof, in each case, plus accrued and unpaid interest to the date fixed for the closing of such offer, in accordance with the procedures set forth in Section 2.5. To the extent that the aggregate amount of Senior Secured Notes tendered pursuant to a Purchase Offer is less than the applicable Excess Proceeds, the Borrower may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Senior Secured Notes tendered by Lenders exceeds the amount of Excess Proceeds, the Senior Secured Notes to be purchased shall be prepaid in accordance with Section 2.5. Upon completion of any such Purchase Offer, the amount of Excess Proceeds shall be deemed reset at zero. SECTION 5.11. TRANSACTIONS WITH AFFILIATES. The Borrower and Starwood REIT shall not, and shall not permit any Restricted Subsidiary to, sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into any contract, agreement, understanding, loan, advance or guaranty with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (a) such Affiliate Transaction is on terms that are no less favorable to the Borrower, Starwood REIT or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Borrower, Starwood REIT or such Restricted Subsidiary with an unrelated Person and (b) the Borrower delivers to the Lenders (i) with respect to any Affiliate Transaction involving aggregate payments in excess of (A) $5.0 million, an Officers' Certificate certifying that such Affiliate Transaction complies with clause (a) above, or (B) $10.0 million, a resolution adopted by a majority of the disinterested directors of the Board of Directors approving such Affiliate Transaction and set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (a) above or if there are no disinterested members of the Board of Directors, an opinion as to the fairness to the Borrower, Starwood REIT or such Restricted Subsidiary from a financial point of view issued by an Independent Financial Advisor. The foregoing provisions shall not apply to the following: (1) any employment, indemnification, noncompetition or confidentiality agreement entered into by any of the Borrower, Starwood REIT or any of their Restricted Subsidiaries with their employees or directors in the ordinary course of business; (2) the payment of reasonable fees to directors of the Borrower, Starwood REIT or their Restricted Subsidiaries who are not employees of the Borrower, Starwood REIT or their Restricted Subsidiaries; (3) transactions between or among the Borrower, Starwood REIT and/or any of their Restricted Subsidiaries; (4) with respect to the Borrower, Starwood REIT and any Restricted Subsidiary, Restricted Payments permitted under Section 5.7; or (5) the transactions contemplated by Schedule 9.06 in the Disclosure Schedule. SECTION 5.12. LIENS. (a) The Borrower and Starwood REIT shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly create, incur, assume or suffer to exist any Lien on any asset owned as of the Original Closing Date or thereafter acquired by the Borrower, 59 66 Starwood REIT or any such Restricted Subsidiary, or any income or profits therefrom, or assign or convey any right to receive income therefrom, except, in each case, Permitted Liens. (b) The Borrower and Starwood REIT shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly create, incur, assume or suffer to exist any Lien on any of their property or assets securing any Obligations with respect to the Bank Credit Facility or any Guaranty thereof, unless all Obligations under this Agreement and the Senior Secured Notes or the Affiliate Guaranty, as the case may be, are equally and ratably secured until such time as the Obligations with respect to the Bank Credit Facility and any Guaranty thereof are not so secured; provided, that in the circumstances and to the extent provided in the Bank Credit Facility, cash (and Cash Equivalents) collateral may be delivered from time to time in accordance with the requirements of the Bank Credit Facility without equally and ratably securing the Note Liabilities. (c) The Borrower and Starwood REIT shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or assume any Lien on the Collateral described in the Pledge Agreement, except for the Lien of the Pledge Agreement. The Borrower and Starwood REIT shall not, and shall not permit any Restricted Subsidiary to, permit or consent to any Indebtedness becoming an Obligation secured by the Lien of the Pledge Agreement except for Credit Facility Liabilities, the Senior Secured Liabilities, Eligible Hedging Liabilities or the Senior Secured Notes or Affiliate Guaranty, the ITT Notes and any refinancings thereof. SECTION 5.13. CORPORATE EXISTENCE. (a) MAINTAIN EXISTENCE. Subject to Article V and Article VI, each of the Borrower and Starwood REIT and each of the other Guarantors shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate, trust or limited liability company existence, and the corporate, limited liability company, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Borrower, Starwood REIT, any such other Guarantor or any such Subsidiary and (ii) the material rights (charter and statutory), licenses and franchises of the Borrower, Starwood REIT, the other Guarantors and their respective Subsidiaries; provided, however, that the Borrower, Starwood REIT and the other Guarantors shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of their respective Subsidiaries, if the Boards of Directors of the Borrower and Starwood REIT shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Borrower, Starwood REIT, the other Guarantors and their Subsidiaries, taken as a whole, and that the loss thereof would not have a Material Adverse Effect. (b) PAIRED SHARE STATUS. Each of the Borrower and Starwood REIT shall do or cause to be done all things necessary to maintain its "paired share" status such that all holders of the Common Stock of the Borrower and Starwood REIT own the same proportionate interest in both Borrower and Starwood REIT. 60 67 (c) REORGANIZATION. Notwithstanding anything in this Section 5.13 to the contrary, each of the Borrower and Starwood REIT shall be permitted to consummate the Reorganization. SECTION 5.14. OFFER TO REPURCHASE UPON CHANGE OF CONTROL. Upon the occurrence of a Change of Control, the Borrower shall make an offer to each Lender of Senior Secured Notes to purchase all or any part (equal to $1,000 or an integral multiple thereof) of the Senior Secured Notes held by each such Lender pursuant to a Purchase Offer at an Offer Amount in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest to the date of purchase. Such Purchase Offer shall be made in accordance with the procedures set forth in Article II hereof. The Borrower shall commence such Purchase Offer by mailing the notice set forth in Section 2.5(c) to the Lenders in respect of Senior Secured Notes. SECTION 5.15. DESIGNATION OF UNRESTRICTED SUBSIDIARY. The Boards of Directors of the Borrower and Starwood REIT may designate any Restricted Subsidiary to be an Unrestricted Subsidiary; provided, that (a) at the time of designation, the Investment by either of the Borrower or Starwood REIT and any Restricted Subsidiary in such Subsidiary (other than Permitted Investments) shall be deemed a Restricted Investment (to the extent not previously included as a Restricted Investment) made on the date of such designation in the amount of the fair market value of such Investment as determined in good faith by the Board of Directors, (b) since the Original Closing Date, such Unrestricted Subsidiary has not acquired any assets from the Borrower, Starwood REIT or any Restricted Subsidiary other than as permitted by the provisions of this Agreement, including Sections 5.7 and 5.10; (c) at the time of designation, no Default or Event of Default has occurred and is continuing or results immediately after such designation or as a result of any Restricted Investment made in such Subsidiary at the time of such designation; (d) at the time of designation, such Subsidiary has no Indebtedness other than Non-Recourse Indebtedness of such Subsidiary; and (e) such Subsidiary does not own any Equity Interests in a Restricted Subsidiary. A Subsidiary shall cease to be an Unrestricted Subsidiary and shall become a Restricted Subsidiary if either (i) at any time while it is a Subsidiary of the Borrower or Starwood REIT (A) such Subsidiary acquires any assets from the Borrower, Starwood REIT or any Restricted Subsidiary other than as permitted by this Agreement, including Sections 5.7 and 5.10 hereof; (B) such Subsidiary has any Indebtedness other than Non-Recourse Indebtedness of such Subsidiary; or (C) such Subsidiary owns any Equity Interests in a Restricted Subsidiary of the Borrower or Starwood REIT; or (ii) the Boards of Directors of the Borrower and Starwood REIT designates such Unrestricted Subsidiary to be a Restricted Subsidiary and no Default or Event of Default occurs or is continuing immediately after such designation. SECTION 5.16. LIMITATION ON STATUS AS INVESTMENT COMPANY. None of the Borrower, Starwood REIT or the Restricted Subsidiaries shall become subject to registration as an "investment company" (as that term is defined in the Investment Company Act of 1940). SECTION 5.17. SPECIAL COVENANTS. The Borrower and Starwood REIT shall, and shall cause each of the Restricted Subsidiaries to, comply with Article X. 61 68 ARTICLE VI. SUCCESSORS SECTION 6.1. MERGER, CONSOLIDATION, OR SALE OF ASSETS. Neither the Borrower nor Starwood REIT shall consolidate or merge with or into or wind up into (whether or not such entity is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions to, any Person unless (a) the Borrower or Starwood REIT, as the case may be, is the surviving Person or the Person formed by or surviving any such consolidation or merger (if other than the Borrower or Starwood REIT) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a Person organized or existing under the laws of the United States, any state thereof, the District of Columbia, or any territory thereof; (b) the Person formed by or surviving any such consolidation or merger (if other than the Borrower or Starwood REIT) or the Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Borrower and Starwood REIT under this Agreement pursuant to a supplemental agreement or other documents or instruments in form reasonably satisfactory to the Required Lenders; (c) immediately after such transaction no Default or Event of Default exists; (d) such transaction will not result in the loss or suspension or material impairment of any material Gaming License; (e) the Borrower or Starwood REIT or any Person formed by or surviving any such consolidation or merger, or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made shall, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the clauses (1) and (2) (but not clause (3)) of first paragraph of Section 5.9; and (f) such transactions would not require any Lender (other than any Person acquiring the Borrower or Starwood REIT or their assets or any Affiliate thereof) to obtain a gaming license or be qualified under the laws of any applicable gaming jurisdiction; provided, that such Lender would not have been required to obtain a gaming license or be qualified under the laws of any applicable gaming jurisdiction in the absence of such transactions. Notwithstanding the foregoing, the Borrower and Starwood REIT or Starwood REIT and Newco may consolidate or merge with or wind up into each other without meeting the requirements set forth in clause (e) above. SECTION 6.2. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Borrower or Starwood REIT in accordance with Section 6.1 hereof, the successor corporation formed by such consolidation or into or with which one of the Borrower or Starwood REIT is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Agreement referring to the "Borrower" or "Starwood REIT," as the case may be, shall refer instead to the successor corporation and not to the Borrower or Starwood REIT, as the case may be), and may exercise every right and power of a Loan Party under this Agreement with the same effect as if such successor Person had been named as such Loan Party 62 69 herein; provided, that the surviving entity or acquiring corporation shall (a) assume all of the obligations of the acquired Person incurred under this Agreement and the Senior Secured Notes, (b) acquire and own and operate, directly or through Restricted Subsidiaries, all or substantially all of the properties and assets then constituting the assets of the Borrower or Starwood REIT, as the case may be, or any of their Restricted Subsidiaries, as the case may be, (c) have been issued, or have a combined Subsidiary which has been issued, Gaming Licenses to operate the acquired casino operations and entities substantially in the manner and scope operated prior to such transaction, which Gaming Licenses are in full force and effect, (d) be in compliance fully with Section 6.1 and (e) the Borrower and Starwood REIT have delivered to the Lenders an Officers' Certificate and opinion of counsel, subject to customary assumptions and exclusions, stating that the proposed transaction complies with this Agreement; provided further, however, that the predecessor Person shall not be relieved from the obligation to pay the principal of and interest on the Senior Secured Notes. ARTICLE VII. TRANSFER OF THE SENIOR SECURED NOTES SECTION 7.1. TRANSFER OF THE SENIOR SECURED NOTES. Each Lender represents and agrees that it is acquiring the Senior Secured Notes for its own account and that it will not, directly or indirectly, transfer, sell, assign, pledge or otherwise dispose of such Senior Secured Notes unless such transfer, sale, assignment, pledge or other disposition is made pursuant to an available exemption from registration under, or otherwise in compliance with, the Securities Act. Each of the Lenders also represents and warrants to the Borrower that it is an "accredited investor" (as that term is defined in Rule 501 of Regulation D under the Securities Act). Subject to the foregoing, each Loan Party agrees that each Lender will be free to sell or transfer all or any part of the Senior Secured Notes to any third party and to pledge any or all of the Senior Secured Notes to any commercial bank, federal reserve bank or other institutional lender. SECTION 7.2. REGISTRATION OF TRANSFER OR EXCHANGE. Against receipt of evidence of cancellation, discharge or surrender of any Senior Secured Note by a Lender for registration of transfer or exchange, the Borrower and Starwood REIT will execute and deliver in exchange therefor a new Senior Secured Note or Senior Secured Notes of the same aggregate tenor and principal amount, registered in such names and in such denominations as such Lender may request. The Borrower will pay any stamp tax or governmental charge imposed in respect of any such transfer. SECTION 7.3. TRANSFERS BY THE LENDERS. (a) ASSIGNMENT BY LENDERS. Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Tranche Two Commitment and the Loans at the time owing to it), without the consent of any Loan Party or any other Lender, but in compliance with all applicable laws; provided, however, that no interest in the Tranche Two Commitments or any Loans may be sold, assigned or otherwise transferred except with the prior consent of Lehman Commercial Paper, Inc., as the Administrative Agent (which consent shall not unreasonably be withheld or 63 70 delayed). Except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Tranche Two Commitment or Loans, the amount of the Tranche Two Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $10 million unless the Borrower otherwise consents. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement with respect to the applicable Tranche. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance. Upon recording thereof pursuant to Section 7.3(b), from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.6, 2.7, 2.8, 2.9 and 11.3). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 7.3(a) shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 7.3(c). (b) NOTE REGISTER. The Administrative Agent shall keep a copy of each Assignment and Acceptance delivered to it and maintain a register of the names and addresses of each Lender, its Tranche Two Commitment, if any, and the principal amount of the Loans owing to it pursuant to the terms hereof from time to time (the "Note Register"). Upon its receipt of each duly executed and completed Assignment and Assumption Agreement, the Administrative Agent will give prompt notice thereof to the Borrower, deliver to the Borrower a copy of the Assignment and Assumption Agreement and modify the Register to give effect to such Assignment and Assumption Agreement. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Note Register as provided in this Section 7.3(b). Within ten (10) Business Days after its receipt of such notice, the Borrower shall execute and deliver to the applicable Lenders one or more new Senior Secured Notes in accordance with Section 2.2(d). The entries in the Note Register shall be rebuttably presumed to be correct, absent manifest error, and the Administrative Agent, the Loan Parties and the Lenders may treat each Person whose name is recorded in the Note Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Note Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (c) PARTICIPATIONS. Any Lender may, without the consent of any Person, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Tranche Two Commitment and the Loans owing to it), but in such event (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible 64 71 to the other parties hereto for the performance of such obligations and (iii) the Loan Parties and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce the Note Documents and to approve any amendment, modification or waiver of any provision of the Note Documents, except that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in clauses (i) through (vii) in Section 11.2(b) that affects such Participant. Subject to Section 7.3(d), the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.6, 2.7, 2.8 and 2.9 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 7.3(a). To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 11.8 as though it were a Lender, if such Participant agrees to be subject to Section 2.10 as though it were a Lender. (d) PARTICIPANT NOT ENTITLED TO A GREATER PAYMENT. A Participant shall not be entitled to receive any greater payment under Section 2.6, 2.7 or 2.8 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the receipt of a greater payment pursuant to the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.8 unless (i) the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.8(e) as though it were a Lender and (ii) such Participant is eligible for exemption from the withholding tax referred to therein, following compliance with Section 2.8(e). (e) PLEDGE OR ASSIGNMENT AS SECURITY. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section 7.3 shall not apply to any such pledge or assignment of a security interest. No such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. ARTICLE VIII. EVENTS OF DEFAULT SECTION 8.1. EVENTS OF DEFAULT. An "Event of Default" with respect to the Senior Secured Notes occurs if: (a) the Borrower defaults in payment when due and payable, upon redemption or otherwise, of principal on any of the Senior Secured Notes; (b) the Borrower defaults for 30 days or more in the payment when due of interest on any of the Senior Secured Notes or in the payment when due of any other Note Liability; 65 72 (c) the Borrower fails to offer to purchase, or fails to purchase the Senior Secured Notes, in each case when required under Section 5.10 or Section 5.14 or under an offer made pursuant to Section 2.5; (d) the Borrower, Starwood REIT or any other Guarantor fails to comply with Section 5.7 or Section 5.9; (e) any of the Borrower, Starwood REIT or any other Guarantor for 45 days after receipt of written notice from Lenders holding at least 25% in outstanding principal amount of Senior Secured Notes fails to comply with any of their other agreements under this Agreement or any other Note Document; (f) default (except an Excluded Default) under any mortgage, indenture or instrument under which there is issued or by which there is secured or evidenced any Indebtedness for money borrowed by any of the Borrower, Starwood REIT or any Restricted Subsidiary or the payment of which is guaranteed by the Borrower, Starwood REIT or any Restricted Subsidiary, whether such Indebtedness or Guaranty existed as of the Original Closing Date, now exists or is created after the Effective Date, which default (i) is caused by a failure to pay when due (giving effect to any grace period or waiver related thereto) any principal or interest of such Indebtedness (a "Payment Default") or (ii) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which a Payment Default then exists or with respect to which the maturity thereof has been so accelerated or which has not been paid at maturity, aggregates $50.0 million or more; (g) failure by any of the Borrower, Starwood REIT or any of their Restricted Subsidiaries to pay final judgments aggregating in excess of $50.0 million, which final judgments remain unpaid, undischarged and unstayed for a period of more than 60 consecutive days (and is not fully covered by a reputable and solvent insurance company); (h) the repudiation by any of the Borrower, Starwood REIT or any of their Subsidiaries of their obligations under, or any judgment or decree by a court or governmental agency of competent jurisdiction declaring the unenforceability of, (i) the Affiliate Guaranty in any respect for any reason that, in each case, would materially and adversely impair the benefits to the Lenders in respect of the Senior Secured Notes or (ii) the Pledge Agreement; (i) any representation, warranty or factual statement made by the Borrower or Starwood REIT or any of their Subsidiaries in this Agreement (including those incorporated by reference herein) or in any of the other Credit Facility Documents or the Note Documents is in any material respect not true and correct on the date as of which made or deemed made and failure by any of the Borrower, Starwood REIT or other applicable Guarantor for 45 days after receipt of written notice from Lenders holding at least 25% in outstanding principal amount of Senior Secured Notes to cure such breach, if such breach is susceptible of cure; 66 73 (j) any of the Borrower, Starwood REIT, any other Guarantor that is a Significant Subsidiary or any group of Guarantors that would together constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property, or (iv) makes a general assignment for the benefit of its creditors; or (k) any proceeding is commenced involuntarily against the Borrower, Starwood REIT or another Guarantor that is a Significant Subsidiary or any group of Guarantors that would together constitute a Significant Subsidiary in a court of competent jurisdiction under any Bankruptcy Law and: (i) such proceeding is not dismissed within 60 days thereafter; (ii) an order for relief is entered in such proceeding; (iii) the court in such proceeding appoints a Custodian of any of the Borrower, Starwood REIT or another Guarantor that is a Significant Subsidiary or any group of Guarantors that would together constitute a Significant Subsidiary of the Borrower or Starwood REIT or for all or substantially all of the property of any of the Borrower or Starwood REIT or a Guarantor that is a Significant Subsidiary or any group of Guarantors that would together constitute a Significant Subsidiary; or (iv) the court in such proceeding orders the liquidation of the Borrower, Starwood REIT or a Guarantor that is a Significant Subsidiary of any Borrower or Starwood REIT or any group of Guarantors that would together constitute a Significant Subsidiary. SECTION 8.2. ACCELERATION. If an Event of Default (other than an Event of Default as to the Borrower or Starwood REIT specified in Sections 8.1(j) and (k)) occurs and is continuing, the Lenders holding at least 25% in principal amount of the then outstanding Senior Secured Notes by written notice to the Borrower, may declare the unpaid principal of and any accrued interest on all the Senior Secured Notes to be due and payable. Upon such declaration the principal and interest shall be due and payable immediately. If an Event of Default specified in Section 8.1(j) or (k) occurs as to the Borrower or Starwood REIT, such an amount shall ipso facto become and be immediately due and payable without any declaration or other act or notice on the part of any Lender. 67 74 SECTION 8.3. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein conferred upon or reserved to the Lenders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent or subsequent assertion or employment of any other appropriate right or remedy. SECTION 8.4. DELAY OR OMISSION NOT WAIVER. No delay or omission by any Lender to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Agreement or by law to the Lenders may be exercised from time to time, and as often as may be deemed expedient, by the Lenders. SECTION 8.5. WAIVER OF PAST DEFAULTS. Subject to Section 11.2, the Required Lenders by written notice to the Borrower may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal or interest that has become due solely because of the acceleration) have been cured or waived. ARTICLE IX. GUARANTY AND INDEMNITY SECTION 9.1. GUARANTY. Each Guarantor hereby absolutely and unconditionally guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of (a) the principal of and interest on the Senior Secured Notes and all other Note Liabilities now outstanding or hereafter arising under or in connection with this Agreement or any other Note Document, whether for principal of or interest on any Loan or for the principal of or interest on any other credit extended by any Lender or for fees, taxes, additional compensation, expense reimbursements, indemnification or otherwise, (b) each other debt, liability or obligation of the Borrower or any Guarantor now outstanding or hereafter arising under this Agreement or any other Note Document, and (c) any and all Post-Petition Interest and Expense Claims arising in respect of any of the foregoing (the Senior Secured Notes and all other Note Liabilities and all such other debts, liabilities and obligations and Post-Petition Interest and Expense Claims, collectively, are the "Guaranteed Obligations"). SECTION 9.2. JOINT AND SEVERAL INDEMNITY. Each Guarantor hereby agrees, jointly and severally with each other Guarantor, to pay and assume all risk of, and to defend, indemnify and hold harmless each Beneficiary and all of its Related Parties from and against, any and all claims, damages, liabilities, losses, costs and expenses (including all fees and disbursements of legal counsel, whether or not suit is brought) arising from, based on or relating in any manner to (a) any inaccuracy in or breach of any of the representations and warranties set forth in this Agreement or any other Note Document or any failure by any Loan Party to perform or observe, or any breach of, any of the covenants and agreements set forth in this Agreement or any other Note Document, in each case whether or not such inaccuracy, failure or breach was caused by the Borrower or a Guarantor or any other Person or resulted 68 75 from an Act of God or otherwise and whether or not such inaccuracy, failure or breach is otherwise within the control of the Borrower or such Guarantor or any other Person, or (b) any and all Post-Petition Interest and Expense Claims, whether or not allowed or enforceable in any bankruptcy case or insolvency, reorganization, receivership, dissolution or liquidation proceeding and even if disallowed or not enforceable therein. SECTION 9.3. ACCELERATION OF PAYMENT. If (a) any Event of Default occurs and notice of demand for payment under this Section 9.3 is given by the Required Lenders to any Guarantor, or (b) any Guarantor becomes a debtor in any bankruptcy case or the subject of any insolvency, reorganization, receivership, dissolution or liquidation proceeding commenced voluntarily by such Guarantor or (if it remains pending for more than 60 days or such Guarantor consents to entry of an order for relief therein) commenced involuntarily against such Guarantor, then (in each such event) all liability of such Guarantor under this Agreement that is not then due and payable shall thereupon become and be immediately due and payable, without notice or demand. SECTION 9.4. GUARANTY OF PAYMENT, INDEPENDENTLY ENFORCEABLE. Each Guarantor (a) guarantees that the Guaranteed Obligations will be paid in accordance with the terms of this Agreement and the other Note Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights and claims of any holder of Guaranteed Obligations against the Borrower or any other Guarantor with respect thereto and even if any such rights or claims are modified, reduced or discharged in any bankruptcy case or insolvency, reorganization, receivership, dissolution or liquidation proceeding or otherwise and (b) agrees that such guaranty is a guaranty of payment when due and not of collectibility. The obligations of each Guarantor under this Agreement are independent of the Guaranteed Obligations, and a separate actions or actions may be brought and prosecuted against each Guarantor to enforce this Agreement, whether or not any action is brought against the Borrower or any other Guarantor and whether or not the Borrower or any other Guarantor is joined in any such action or actions. SECTION 9.5. FRAUDULENT TRANSFER LIMITATION. Each Guarantor represents and warrants that, on the date it becomes bound as a Guarantor hereunder and after giving effect to the liability incurred by it under this Agreement and the rights granted to it in Section 9.11, (a) the fair value of the assets of each Loan Party, at a fair valuation, will exceed its debts and liabilities, subordinated, contingent or otherwise; (b) the present fair saleable value of the property of each Loan Party will be greater than the amount that will be required to pay the probable liability of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (c) each Loan Party will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) each Loan Party will not have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted following such date. If, notwithstanding the foregoing, enforcement of the liability of any Guarantor under this Agreement for the full amount of the Guaranteed Obligations would be an unlawful or voidable transfer under any applicable fraudulent conveyance or fraudulent transfer law or any comparable law, then the liability of such Guarantor hereunder shall be reduced to the highest amount for which such 69 76 liability may then be enforced without giving rise to an unlawful or voidable transfer under any such law. SECTION 9.6. SUBORDINATED LIABILITIES. Each Guarantor hereby agrees that any and all present and future debts, liabilities and obligations of every type and description (whether for money borrowed, on intercompany accounts, for provision of goods or services, under cash management arrangements or tax sharing, management or contribution agreements, for reimbursement, contribution or otherwise on account of this Agreement or any other agreement of such Guarantor by which any Indebtedness or other liability is guaranteed or on account of any payment made under this Agreement or any such other agreement, or on account of any other transaction, agreement, occurrence or event and whether absolute or contingent, secured or unsecured, direct or indirect, matured or unmatured, liquidated or unliquidated, created directly or acquired from another, or sole, joint, several or joint and several) now outstanding or hereafter incurred, arising or owed to such Guarantor by the Borrower, by Starwood REIT or by any of their Subsidiaries (collectively, the "Subordinated Liabilities") shall be, and hereby are, postponed and subordinated to the prior payment of all Guaranteed Obligations in full and in cash. SECTION 9.7. PROHIBITED PAYMENTS. Until Discharge of the Note Liabilities, no Guarantor will demand, sue for, accept or receive, or cause or permit any other Person to make, any payment on or transfer of property on account of any Subordinated Liabilities, except a Permitted Payment. SECTION 9.8. PROHIBITED ACTIONS. Until Discharge of the Note Liabilities, no Guarantor will, without the prior written consent of the Required Lenders, commence or join with any other Person in commencing any bankruptcy case or insolvency, reorganization, receivership, dissolution or liquidation proceeding of or against the Borrower, Starwood REIT or any of their Subsidiaries. SECTION 9.9. PROCEEDINGS. In any bankruptcy, insolvency, reorganization, receivership, dissolution or liquidation proceeding by, against or affecting the Borrower, Starwood REIT or any of their Subsidiaries: (a) PRIORITY OF PAYMENT. The holders of Senior Secured Liabilities shall be entitled to receive payment of all amounts due or to become due on or in respect of the Senior Secured Liabilities (including all Post-Petition Interest and Expense Claims), in full and in cash, before any Guarantor is entitled to receive any payment or distribution of any kind or character, whether in cash, property or securities or otherwise, on account of any of the Subordinated Liabilities. (b) TURNOVER OF PAYMENTS AND DISTRIBUTIONS. The holders of Senior Secured Liabilities (including Post-Petition Interest and Expense Claims) shall be entitled to receive, for application to the payment thereof, all payments and distributions of any kind or character, whether in cash, property or securities or otherwise (including any such payment or distribution which may be payable or deliverable by reason of the payment of any other debt or liability of the Borrower or any Subsidiary of the Borrower or any Guarantor being subordinated to the 70 77 payment of the Subordinated Liabilities), which may be payable or deliverable in respect of the Subordinated Liabilities, or any Lien securing Subordinated Liabilities, in any such case or proceeding. (c) DISALLOWED POST-PETITION INTEREST AND EXPENSE CLAIMS. Each Guarantor expressly acknowledges and agrees that, pursuant to the provisions of Section 9.9(b), any such payment or distribution payable or deliverable in respect of Subordinated Liabilities will be turned over to, and will become the property of, the holders of Senior Secured Liabilities until the holders of Senior Secured Liabilities have received payment in full and in cash of all Senior Secured Liabilities, including any and all Post-Petition Interest and Expense Claims that are not enforceable, allowable or allowed in such case or proceeding and as to which, as a consequence, such Guarantor will not have any subrogation claim in such case or proceeding. Each Guarantor acknowledges and agrees that all such Post-Petition Interest and Expense Claims shall be included in the Senior Secured Liabilities and shall be paid from any such payment or distribution because it is the intention of the Guarantors and Beneficiaries that the Senior Secured Liabilities shall be determined and shall be guaranteed and paid by each Guarantor without regard to any rule of law or order which may relieve Borrower or any other obligor, or the estate in any such case or proceeding, of liability therefor. (d) CLAIMS IN BANKRUPTCY. Each Guarantor will file all claims against the Borrower or any Subsidiary of the Borrower or any Guarantor in any case under the Bankruptcy Law and in each other insolvency, reorganization, receivership, dissolution or liquidation proceeding in which the filing of claims is required or permitted by law upon any of the Subordinated Liabilities and will assign to the holders of Senior Secured Liabilities all rights of such Guarantor thereunder. If any Guarantor does not file any such claim at least 30 days prior to any applicable claims bar date, each holder of Senior Secured Liabilities is hereby authorized (but shall not be obligated), as attorney-in-fact for such Guarantor with full power of substitution, to file such claim or proof thereof in the name of such Guarantor. SECTION 9.10. HELD IN TRUST. If any payment, transfer or distribution is made to any Guarantor upon any Subordinated Liabilities or any Lien securing Subordinated Liabilities that is not permitted to be made under this Article IX or that the holders of Senior Secured Liabilities are entitled to receive under this Article IX, such Guarantor shall receive and hold the same in trust, as trustee for the benefit of the holders of Senior Secured Liabilities, and shall forthwith transfer and deliver the same to the holders of Senior Secured Liabilities, in precisely the form received (except for any required endorsement), for application to the payment of Senior Secured Liabilities. SECTION 9.11. REIMBURSEMENT AND CONTRIBUTION RIGHTS. The Guarantors desire to agree upon and allocate among themselves, in a fair and equitable manner, their rights of reimbursement and contribution when any payment is made by one of the Guarantors under this Agreement. Accordingly: (a) REIMBURSEMENT CLAIMS AGAINST THE BORROWER. Each Guarantor reserves the right to claim reimbursement from the Borrower for the entire amount of any payment made by such Guarantor on account of Guaranteed Obligations pursuant to this Agreement, but each 71 78 Guarantor agrees that its claim for such reimbursement shall not arise until, and is subject in all respects to, Discharge of the Note Liabilities and the prior payment of all Guaranteed Obligations in full and in cash. Accordingly, each Guarantor agrees not to assert, sue upon, collect or otherwise enforce against the Borrower (by set-off or otherwise) any claim for reimbursement on account of any payment made by such Guarantor hereunder, until Discharge of the Note Liabilities and the prior payment of all Guaranteed Obligations in full and in cash. (b) CONTRIBUTION AMONG SUBSIDIARY GUARANTORS. The Guarantors agree that if the Borrower at any time fails to pay any reimbursement that has become due and payable to any Guarantor as contemplated in Section 9.11(a) and such failure continues for a period of 60 days after Discharge of the Note Liabilities and payment of all outstanding Guaranteed Obligations in full and in cash, then if and to the extent any such unreimbursed payment due to such Guarantor under this Agreement is such that the Aggregate Unreimbursed Payments of such Guarantor are greater than its Fair Share of the Aggregate Unreimbursed Payments of all Guarantors, such Guarantor shall be entitled to a contribution from each other Guarantor in the amount necessary to cause each Guarantor's Aggregate Unreimbursed Payments to equal its Fair Share. For these purposes: (i) "Fair Share" means, with respect to a Guarantor as of any date of determination, an amount equal to (A) the ratio of (1) the Adjusted Maximum Amount of such Guarantor to (B) the Adjusted Maximum Amounts of all Guarantors, multiplied by (2) the Aggregate Unreimbursed Payments of all Guarantors. (ii) "Adjusted Maximum Amount" means, with respect to a Guarantor as of any date of determination, the maximum aggregate amount of the liability of such Guarantor under this Agreement limited to the extent required under Section 9.5 (except that, for purposes solely of this calculation, any assets or liabilities arising by virtue of any rights to or obligations of reimbursement or contribution under this Section 9.11 shall not be counted as assets or liabilities of such Guarantor). (iii) "Aggregate Unreimbursed Payments" means, with respect to a Guarantor as of any date of determination, the aggregate net amount of all payments made on or before such date by such Guarantor under this Agreement for which reimbursement by the Borrower to such Guarantor is then due and payable as contemplated in Section 9.11(a) but has not been paid to such Guarantor. The allocation and right of contribution among the Guarantors set forth in this Section 9.11(b) shall not in any respect limit the Guarantors' liability under this Agreement to the holders of the Guaranteed Obligations. (c) REIMBURSEMENT AND CONTRIBUTION RIGHTS UNSECURED. All rights of reimbursement reserved in Section 9.11(a) shall be unsecured obligations of the Borrower, and 72 79 all contribution rights arising under Section 9.11(b) shall be unsecured obligations of the Guarantors. (d) RELEASE OF ALL OTHER REIMBURSEMENT, SUBROGATION, AND CONTRIBUTION RIGHTS. Each Guarantor hereby waives, releases and discharges, absolutely, unconditionally, irrevocably and forever, all rights of recourse, reimbursement, contribution or indemnity and all other claims that such Guarantor might otherwise have or acquire against the Borrower, Starwood REIT or any other Guarantor or any other Person liable for the payment of any of the Guaranteed Obligations (including the owner of any interest in collateral subject to a Lien securing any of the Guaranteed Obligations) and all rights of subrogation that such Guarantor might otherwise have or acquire against any Beneficiary by reason of any payment made by such Guarantor under this Agreement or otherwise as a result of or in connection with this Agreement, whether such rights or claims are conferred by agreement, implied or created by law or otherwise, except only the reimbursement rights reserved by such Guarantor in Section 9.11(a) and the contribution rights granted to such Guarantor under Section 9.11(b). (e) NO CLAIMS. Neither the execution and delivery of this Agreement by any Guarantor nor any payment by any Guarantor under this Agreement shall give rise to any claim (as that term is defined in the Bankruptcy Code) in favor of such Guarantor against the Borrower or Starwood REIT or any of their Subsidiaries, except as set forth in Section 9.11(a) and Section 9.11(b). (f) SUBORDINATION OF SECTION 9.11 RIGHTS. All rights and claims reserved in or arising under this Section 9.11 shall be included among the Subordinated Liabilities. Until Discharge of the Note Liabilities, no Guarantor will assert, exercise or enforce against any other Guarantor any right or claim arising under this Section 9.11. SECTION 9.12. THE LIABILITY OF EACH GUARANTOR. (a) ABSOLUTE AND UNCONDITIONAL. The liability of each Guarantor under this Agreement shall be absolute and unconditional. (b) NOT LIMITED. Subject only to Section 9.5, the liability of each Guarantor under this Agreement shall be unlimited in amount. (c) IRREVOCABLE AND CONTINUING. The liability of each Guarantor under this Agreement shall constitute an irrevocable and continuing offer and agreement guaranteeing payment of any and all Guaranteed Obligations and granting indemnification and subordination as herein set forth and shall extend to all Guaranteed Obligations and indemnified matters and Subordinated Liabilities whether now outstanding or created or incurred at any future time, whether or not created or incurred pursuant to any agreement presently in effect or hereafter made, until Discharge of the Note Liabilities. To the extent any contingent Obligation survives the expiration or termination of the Note Documents and the repayment of the Note Liabilities that are then due, each Guarantor's liability under this Agreement shall likewise survive. (d) JOINT AND SEVERAL. The liability of each Guarantor under this Agreement shall be the joint and several obligation of each Guarantor and may be freely enforced against 73 80 each Guarantor, for the full amount of the Guaranteed Obligations and all other liabilities of such Guarantor hereunder, without regard to whether enforcement is sought or available against any other Guarantor. (e) NOT AFFECTED OR IMPAIRED. The liability of each Guarantor under this Agreement shall not be affected or impaired in any manner by (a) the failure of any Person to become or remain a Guarantor hereunder or the failure of any holder of Guaranteed Obligations to preserve, protect or enforce any right to require any Person to become or remain a Guarantor hereunder, (b) any lack of validity or enforceability of this Agreement or any other Note Document or any other agreement, instrument or document relating thereto, (c) any change in the time, manner or place of payment of, or in any other term of, any of the Guaranteed Obligations, or any other amendment or waiver of or any consent to departure from the terms of any Note Document, including any extension or renewal of the Guaranteed Obligations (whether or not for longer than the original period) and any increase in the Guaranteed Obligations resulting from the extension of additional credit to the Borrower or otherwise, (d) any taking, failure to take, failure to create, perfect or ensure the priority of, or exchange, release or termination or lapse of any Lien securing any Guaranteed Obligations, or any taking, failure to take, release or amendment or waiver of or consent to departure from any other guaranty of, any of the Guaranteed Obligations, (e) any manner or order of sale or other enforcement of any Lien securing any of the Guaranteed Obligations or any manner or order of application of the proceeds of any such Lien to the payment of the Guaranteed Obligations or any failure to enforce any Lien or to apply any proceeds thereof, (f) any change, restructuring or termination of the corporate structure or existence of the Borrower, or Starwood REIT or any of their Subsidiaries or Affiliates or any other Person, or (g) any other circumstance which might otherwise constitute a defense (except the defense of payment) available to, or a discharge of, a surety or guarantor. (f) REMAINS VALID AND ENFORCEABLE. The liability of each Guarantor under this Agreement shall remain valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than indefeasible payment in full of the Guaranteed Obligations), including the occurrence of any of the following, whether or not any Guarantor shall have had notice or knowledge of any of them: (a) any failure or omission to assert or enforce or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising under the Note Documents, at law, in equity or otherwise) with respect to the Guaranteed Obligations or any agreement relating thereto, or with respect to any other guaranty of or security for the payment of the Guaranteed Obligations; (b) any rescission, waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including provisions relating to events of default) of this Agreement, any of the other Note Documents or any agreement or instrument executed pursuant thereto, or of any other guaranty or security for the Guaranteed Obligations, in each case whether or not in accordance with the terms of this Agreement, such Note Document or any agreement relating to such other guaranty or security; (c) the Guaranteed Obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect; (d) the application of payments received from 74 81 any source to the payment of any liability other than the Guaranteed Obligations, even though any Beneficiary might have elected to apply such payment to any part or all of the Guaranteed Obligations; (e) any Beneficiary's consent to the change, reorganization or termination of the corporate structure or existence of the Borrower or Starwood REIT or any of their Subsidiaries and to any corresponding restructuring of the Guaranteed Obligations; (f) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Guaranteed Obligations; (g) any defenses, set-offs or counterclaims which the Borrower or any other Loan Party or any other Guarantor may allege or assert against any Beneficiary in respect of the Guaranteed Obligations, including, for example, failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction and usury; and (h) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of any Guarantor as an obligor in respect of the Guaranteed Obligations. (g) RELEASED ONLY BY A SIGNED WRITING. The liability of each Guarantor under this Agreement and each right, remedy, interest or power granted herein or arising hereunder may be released only by a writing signed by the Beneficiary against which enforcement of such release is sought. (h) DISCHARGE UPON SALE OF GUARANTOR. If (i) all outstanding Equity Interests issued by any Guarantor and owned by any Loan Party are at any time sold to any Person not an Affiliate of the Borrower or Starwood REIT (including by merger or consolidation) in any transaction which (A) is not prohibited by this Agreement or (B) is otherwise consented to by the Required Lenders and (ii) at the time such transaction is consummated any and all liabilities of such Guarantor under any and all guaranties of any other Indebtedness of any Loan Party (including all liabilities of such Guarantor in respect of the Bank Credit Facility) are discharged and released, then the liability of such Guarantor under this Agreement shall automatically be discharged and released without any further action by any Beneficiary or any other Person effective as of the time such transaction is consummated. SECTION 9.13. CERTAIN WAIVERS BY GUARANTORS. Each Guarantor hereby waives and agrees not to assert or take advantage of: (a) PRIOR RESORT TO ANY OTHER PERSON, PROPERTY OR RIGHT. Any right to require any holder of Guaranteed Obligations to proceed against or exhaust its recourse against the Borrower, Starwood REIT, any other Guarantor or any other Person liable for any of the Guaranteed Obligations or against any Lien securing any of the Guaranteed Obligations or against any other Person or property, before demanding and enforcing payment of the Guaranteed Obligations from any Guarantor under this Agreement; (b) CERTAIN DEFENSES. Any defense that may arise by reason of (i) the incapacity, lack of authority, death or disability of the Borrower, Starwood REIT, any other Guarantor or any other Person, (ii) the revocation or repudiation of any of the Note Documents by the Borrower, Starwood REIT, any other Guarantor or any other Person, (iii) the unenforceability in whole or in part of the Note Documents or any other instrument, document or agreement, (iv) the failure of any holder of Guaranteed Obligations to file or enforce a claim 75 82 against any Person liable for any of the Guaranteed Obligations or in any bankruptcy case or insolvency, receivership, dissolution or liquidation proceeding, (v) any election made by any holder of Guaranteed Obligations as to any right or remedy granted or available to it under Bankruptcy Law, or (vi) any other borrowing or grant of a security interest under any provision of Bankruptcy Law; (c) NOTICES AND DEMANDS. Presentment, demand for payment, protest, notice of discharge, notice of acceptance of this Agreement, notice of the incurrence of, or any default in respect of, any Guaranteed Obligation, and all other indulgences and notices of every type or nature, including, to the maximum extent permitted by law, notice of the disposition of any collateral security; (d) ELECTION OF REMEDIES. Any defense based upon an election of remedies (including, if available, an election to proceed by non-judicial foreclosure) or any other act or omission of any holder of Guaranteed Obligations or any other Person which destroys or otherwise impairs any right that any Guarantor might otherwise have for subrogation, recourse, reimbursement, indemnity, exoneration, contribution or otherwise against the Borrower, Starwood REIT, any other Guarantor or any other Person; (e) COLLATERAL SECURITY. Any defense based upon any grant of, any failure to demand, take, perfect, protect or enforce, or any modification or release of any Lien securing, or guaranty of, any or all of the Guaranteed Obligations, or any failure to create or perfect or ensure the priority or enforceability of any security interest in any collateral for any of the Guaranteed Obligations or any act or omission related thereto; (f) RECOUPMENT AND SETOFF. Any right to recoup from or offset against any of the Guaranteed Obligations any claim that may be held or asserted by or available to (i) the Borrower or Starwood REIT or any other Guarantor or any other Person liable for any of the Guaranteed Obligations against any holder of Guaranteed Obligations or (ii) any Guarantor against the Borrower, Starwood REIT, any other Guarantor, any other holder of Guaranteed Obligations or any other Person; and (g) OTHER MATTERS. Any other claim, right or defense (including, for example, such matters as failure or insufficiency of consideration, statute of limitations, breach of contract, tortious conduct, accord and satisfaction, and discharge by agreement or conduct or in any bankruptcy case or other insolvency or liquidation proceeding), except the defense of payment, that may be held or asserted by or available to (i) the Borrower or any other Guarantor or any other Person liable for any of the Guaranteed Obligations against any holder of Guaranteed Obligations or (ii) any Guarantor against the Borrower, any other Guarantor, any other holder of Guaranteed Obligations or any other Person. SECTION 9.14. WAIVER OF BENEFIT OF ANTI-DEFICIENCY LAWS. If, in the exercise of any rights and remedies, any holder of Guaranteed Obligations shall forfeit any of its rights or remedies, including its right to obtain a deficiency judgment against the Borrower, Starwood REIT or any other Guarantor or any other Person, whether because of any applicable laws pertaining to recourse to collateral security or election of remedies or barring claims for a 76 83 deficiency following foreclosure of any Lien or the like, each Guarantor hereby consents to such action by such holder and, to the maximum extent permitted by applicable law, waives any claim or defense based upon such recourse to collateral security, election of remedies, loss of claims for a deficiency or the like, even if such action by such holder shall result in a full or partial loss of any rights of subrogation, recourse, reimbursement, contribution or indemnification which such Guarantor might otherwise have had but for such action by such holder or but for the provisions of this Section 9.14. Furthermore, each Guarantor waives all rights and defenses arising out of any recourse to collateral security or election of remedies by any holder of Guaranteed Obligations, even though such recourse to collateral security or election of remedies, such as a nonjudicial foreclosure with respect to security for any Guaranteed Obligation, has destroyed such Guarantor's rights of subrogation, recourse, reimbursement, contribution or indemnification against the Borrower, Starwood REIT or any other Guarantor or any other Person by the operation of applicable law or otherwise. Any election of remedies which results in the denial or impairment of the right of any holder of Guaranteed Obligations to seek a deficiency judgment against the Borrower, Starwood REIT or any other Guarantor shall not, to the maximum extent permitted by applicable law, impair any other Guarantor's obligation to pay the full amount of the Guaranteed Obligations. In the event any holder of Guaranteed Obligations shall bid at any foreclosure or trustee's sale or at any private sale permitted by law or the Note Documents, such holder may bid all or less than the amount of the Guaranteed Obligations and (if expressly permitted under the Note Documents or approved in writing by all of the Lenders) the amount of such bid need not be paid by such holder but shall be credited against the Guaranteed Obligations. To the extent permitted by applicable law, the amount of the successful bid at any such sale, whether any holder of Guaranteed Obligations or any other Person is the successful bidder, shall be conclusively deemed to be the fair market value of the property being sold and the difference between such bid amount and the remaining balance of the Guaranteed Obligations shall be conclusively deemed to be the amount of the Guaranteed Obligations guaranteed under this Agreement, notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which any holder of Guaranteed Obligations might otherwise be entitled if no holder had bid at any such sale. SECTION 9.15. REINSTATEMENT. If at any time any payment on any Guaranteed Obligation is set aside, avoided or rescinded or must otherwise be restored or returned, this Agreement and the liability of each Guarantor under this Agreement and the indemnification and subordination granted hereby and all other liabilities of each Guarantor hereunder shall remain in full force and effect and, if previously released or terminated, shall be automatically and fully reinstated, without any necessity for any act, consent or agreement of any Guarantor, as fully as if such payment had never been made and as fully as if any such release or termination had never become effective. SECTION 9.16. AUTHORITY OF GUARANTORS OR BORROWER. It is not necessary for any Beneficiary to inquire into the capacity or powers of any Guarantor or the Borrower or the officers, directors or any agents acting or purporting to act on behalf of any of them. SECTION 9.17. CONDITION OF THE BORROWER AND OTHER GUARANTORS. Each Guarantor is fully aware of the financial condition of the Borrower and each other Guarantor 77 84 and is executing and delivering this Agreement based solely upon such Guarantor's own independent investigation of all matters pertinent hereto and is not relying in any manner upon any representation or statement by any holder of Guaranteed Obligations. Each Guarantor represents and warrants that it is in a position to obtain, and each Guarantor hereby assumes full responsibility for obtaining, any additional information concerning the financial condition of the Borrower, Starwood REIT or any other Guarantor or their respective properties, financial condition and prospects and any other matter pertinent hereto as such Guarantor may desire, and such Guarantor is not relying upon or expecting any holder of Guaranteed Obligations to furnish to such Guarantor any information now or hereafter in the possession of any holder of Guaranteed Obligations concerning the same or any other matter. By executing this Agreement, each Guarantor knowingly accepts the full range of risks encompassed within a contract of this type, which risks each Guarantor acknowledges. No Guarantor shall have the right to require any holder of Guaranteed Obligations to obtain or disclose any information with respect to the Guaranteed Obligations, the financial condition or prospects of the Borrower or Starwood REIT or any of their Subsidiaries, the ability of the Borrower or Starwood REIT or any other Guarantor to pay or perform the Guaranteed Obligations, the existence, perfection, priority or enforceability of any collateral security for any or all of the Guaranteed Obligations, the existence or enforceability of any other guaranties of all or any part of the Guaranteed Obligations, any action or non-action on the part of any holder of Guaranteed Obligations, the Borrower, Starwood REIT, any of their Subsidiaries, any other Guarantor or any other Person, or any other event, occurrence, condition or circumstance whatsoever. SECTION 9.18. ACCEPTANCE AND NOTICE. Each Guarantor acknowledges acceptance hereof and reliance hereon by the Lenders and each other holder of Guaranteed Obligations and waives, irrevocably and forever, all notice thereof. SECTION 9.19. RIGHTS CUMULATIVE. The rights, powers and remedies given to the Beneficiaries by this Agreement are cumulative and shall be in addition to and independent of all rights, powers and remedies given to any Beneficiary by virtue of any statute or rule of law or in any of the other Note Documents or any agreement between any Guarantor and one or more of the Beneficiaries or between Borrower and one or more of the Beneficiaries. Any forbearance or failure to exercise, and any delay by any Beneficiary in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy. SECTION 9.20. NOTICE OF EVENTS. Ten Business Days after any Guarantor obtains knowledge thereof, unless the Borrower has given the Lenders written notice thereof, such Guarantor shall give the Lenders written notice of any condition or event which has resulted in a Material Adverse Change, a Default or an Event of Default. SECTION 9.21. SET OFF. In addition to all other rights any Lender may have under law or in equity, if any amount shall at any time be due and payable by any Guarantor to any Lender under this Agreement, such Lender is authorized at any time or from time to time, without notice (any such notice being hereby expressly waived), to set off and to appropriate and to apply any and all deposits (general or special, including but not limited to indebtedness 78 85 evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness of any such Lender owing to such Guarantor and any other property of such Guarantor held by any Lender to or for the credit or the account of such Guarantor against and on account of the Guaranteed Obligations and liabilities of such Guarantor to any Lender under this Agreement. SECTION 9.22. NOTATION. Starwood REIT agrees to execute the form of Confirmation of Guaranty appended to each Senior Secured Note as and when such Senior Secured Note is issued at any time and reissued from time to time by the Borrower. The provisions of this Article IX shall be fully enforceable against Starwood REIT and each other Guarantor, whether or not any such Confirmation of Guaranty, or any other instrument or document except this Agreement, is ever signed by Starwood REIT or any other Guarantor. ARTICLE X. SPECIAL COVENANTS SECTION 10.1. ADDITIONAL LOAN PARTIES. If at any time after the Original Closing Date any Person who becomes a Subsidiary of the Borrower or Starwood REIT or any other Subsidiary of the Borrower or Starwood REIT that is not a Loan Party guarantees, assumes or otherwise becomes liable for any Credit Facility Liabilities or grants, assumes or creates any Lien in favor of the Collateral Agent or any other Person as security for any Credit Facility Liabilities or ITT Notes, then (in each such event) the Borrower and Starwood REIT will, within ten days thereafter, (a) notify the Lenders thereof, (b) cause such Person to execute and deliver to the Lenders a Guarantor Joinder, (c) cause such Person to grant the Collateral Agent a Lien upon all property of the type described in the Pledge Agreement then owned or thereafter acquired by such Person as security for the payment of the Senior Secured Liabilities and to become bound by the Pledge Agreement in the same manner as each other Guarantor that is a party thereto, and (d) cause such Person to deliver to the Collateral Agent all certificated securities, instruments, Collateral, certificates, financing statements, legal opinions and other documents that would have been required from or as to such Person on the Original Closing Date pursuant to the provisions of the Bank Credit Facility if such Person has been a party to this Agreement and the Pledge Agreement on the Original Closing Date. SECTION 10.2. FURTHER ASSURANCES. Each Loan Party will, from time to time upon the request of the Required Lenders, at the expense of the Loan Parties, execute, deliver and acknowledge all instruments, assignments, security agreements, financing statements or other documents and take all other actions as the Collateral Agent or Required Lenders may in good faith deem necessary or appropriate to create, Perfect, ensure the priority and enforceability of, protect or (if an Event of Default is continuing at the time) lawfully enforce a Lien in favor of the Collateral Agent for the ratable benefit of the holders of the Senior Secured Liabilities and (to the extent required) the ITT Notes upon any and all property of such Person of the type described in the Pledge Agreement or upon which such Person has granted, assumed or become subject to a Lien as security for any Credit Facility Liabilities or ITT Notes. SECTION 10.3. SECURITY DOCUMENTS. The Borrower will, and will cause each of its Affiliates that is a party to the Pledge Agreement or any other security document securing Senior Secured Liabilities to, duly and punctually perform and observe each and all of their 79 86 respective covenants and agreements thereunder. Without limiting the generality of the foregoing, on the Reorganization Date the Borrower shall pledge (and deliver for pledge) the Class A Shares of Starwood REIT pursuant to the Pledge Agreement, and the Borrower shall take or cause to be taken all actions required so that at all times all Capital Stock of Starwood REIT owned the Borrower or any of its Subsidiaries (including the Class A Shares to be issued pursuant to the Reorganization) do not constitute Margin Stock. SECTION 10.4. PERMANENT FINANCING. UNTIL THE DISCHARGE OF THE NOTE LIABILITIES, EACH LOAN PARTY WILL TAKE ALL ACTIONS REQUIRED OF IT, OR CONTEMPLATED TO BE TAKEN BY IT, UNDER THE ENGAGEMENT LETTERS. ARTICLE XI. MISCELLANEOUS SECTION 11.1. NOTICES. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (i) if to any Loan Party, to it at Starwood Hotels and Resorts, 2231 East Camelback Road, Suite 410, Phoenix, Arizona 85016, Attention: Ronald C. Brown, Telecopy No. (602) 852-0115 and Starwood Hotels and Resorts Worldwide, Inc., 2231 East Camelback Road, Suite 400, Phoenix, Arizona 85016, Attention: Alan M. Schnaid, Telecopy No. (602) 852-0115, and (ii) if to any Lender, to it at the address set forth as to it on Schedule B or in the Assignment and Acceptance by which it becomes a Lender. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date set forth in a telecopy confirmation, the first Business Day after personal service or delivery to an overnight courier service or the fifth Business Day after mailing. SECTION 11.2. WAIVERS; AMENDMENTS. (a) NO WAIVER; RIGHTS AND POWERS CUMULATIVE. No failure or delay by any Lender in exercising any right or power hereunder or under any other Note Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Lenders hereunder and under the other Note Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Note Document or consent to any departure by any Loan Party therefrom shall 80 87 in any event be effective unless the same shall be permitted by Section 11.2(b), and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Under no circumstances shall the making of a Loan be construed as a waiver of any Default, regardless of whether any Lender may have had notice or knowledge of such Default at the time. (b) WRITING REQUIRED. Neither this Agreement nor any other Note Document nor any provision hereof or thereof may be waived, amended or modified except, in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or, in the case of any other Note Document, pursuant to an agreement or agreements in writing entered into by the signatory parties thereto, in each case with the consent of the Required Lenders, except that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan or any interest thereon or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of the Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.9 in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) change any of the provisions of this Section 11.2 or the definition of the term "Required Lenders" or any other provision of this Agreement specifying the number or percentage of Lenders required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder, without the written consent of each Lender, (vi) release any Guarantor from its liability under the Affiliate Guaranty (except as expressly provided in Section 9.12(h)), or limit such liability, without the written consent of each Lender, or (vii) release all or any substantial part of the Collateral, without the written consent of each Lender. SECTION 11.3. EXPENSES; INDEMNITY; DAMAGE WAIVER. (a) EXPENSES. The Borrower and Starwood REIT jointly and severally agree to pay (i) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent, LCPI or Lehman Brothers or its Affiliates, including all reasonable fees, charges and disbursements of their counsel, in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation and administration of the Note Documents or any drafts or agreements or proposals related or antecedent thereto, or any amendments, modifications or waivers of the provisions thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent, LCPI, Lehman Brothers or its Affiliates or the Lenders, including all reasonable fees, charges and disbursements of counsel for LCPI, Lehman Brothers or its Affiliates or the Lenders and any advisors, appraisers, consultants, or other professional engaged by them or by such counsel, in connection with the enforcement or protection of their respective rights in connection with the Note Documents, including their rights under this Section 11.3, or in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or 81 88 negotiations in respect of such Loans or during the pendency of any bankruptcy or insolvency proceeding. (b) INDEMNITY. The Borrower and Starwood REIT agree jointly and severally to defend and indemnify LCPI, Lehman Brothers and its Affiliates, the Administrative Agent and each Lender, and each Related Party of any of the foregoing Persons (all, collectively, "Indemnitees"), against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable and documented fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of any Note Document or any other agreement or instrument contemplated hereby, the performance by the parties to the Note Documents of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or release of hazardous materials on or from any property currently or formerly owned or operated by any Loan Party or any of their Subsidiaries, or any environmental law liability related in any way to any Loan Party or any of their Subsidiaries, (iv) the inaccuracy of any representation or warranty made by any Loan Party in any of the Transaction Documents, or (v) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto, except only that no Indemnitee shall be indemnified hereunder if and to the extent that any such losses, claims, damages, liabilities or related expenses incurred or sustained by it are determined by final judgment of a court of competent jurisdiction to have resulted directly and primarily from the gross negligence or willful misconduct of such Indemnitee. (c) WAIVER OF LIABILITY FOR SPECIAL, INDIRECT, CONSEQUENTIAL AND PUNITIVE DAMAGES. Neither the Borrower nor Starwood REIT will assert, each of them will cause each of their Subsidiaries never to assert, and each of them for themselves and each of their present and future Subsidiaries and their respective Related Parties hereby forever waives, releases and agrees not to sue upon, any claim against any Indemnitee, on any theory of liability (whether based upon contract, or founded upon tort or any legal duty or otherwise), for any special, indirect, consequential damages and, to the fullest extent a claim for punitive damages is permitted to be waived by law, for punitive damages arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof or any act, omission, claim, breach, wrongful conduct, or other occurrence or event in any respect relating hereto. (d) PAYABLE UPON DEMAND. All amounts described in this Section 11.3 shall be payable promptly after written demand therefor. SECTION 11.4. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be binding upon the parties hereto and their respective successors and assigns permitted hereby and shall inure to the benefit of and be enforceable by such parties and LCPI, Lehman Brothers and its Affiliates and each Indemnitee and their Related Parties and each of their successors and assigns. Neither the Borrower nor Starwood REIT may assign or otherwise transfer any of its 82 89 rights or obligations hereunder without the prior written consent of each Lender (and any such attempted assignment or transfer without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, LCPI, Lehman Brothers and its Affiliates and each Indemnitee, their Related Parties and each of their respective successors and assigns) any legal or equitable right, remedy or claim under or by reason of this Agreement. SECTION 11.5. SURVIVAL. All covenants, agreements, representations and warranties made by the Loan Parties in the Note Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Note Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Note Documents and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Tranche Two Commitments have not expired or terminated. The provisions of Sections 2.6, 2.7, 2.8, 2.9 and 11.3 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof. SECTION 11.6. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Note Documents and any separate letter agreements with respect to fees or compensation payable to any Person constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 3.1, this Agreement shall become effective when it shall have been executed by the Loan Parties and the Lenders and when LCPI and the Borrower shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto, including each Lender identified on Schedule B, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 11.7. SEVERABILITY. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 11.8. RIGHT OF SETOFF. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from 83 90 time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of any Loan Party against any of and all the obligations of any Loan Party now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section 11.8 are in addition to other rights and remedies (including other rights of setoff) that such Lender may have. SECTION 11.9. GOVERNING LAW; JURISDICTION; SERVICE OF PROCESS. (a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. (b) CONSENT TO JURISDICTION. Each Loan Party hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to any Note Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Note Document shall affect any right that any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Note Document against any Loan Party or their properties in the courts of any jurisdiction. (c) WAIVER OF OBJECTIONS TO VENUE. Each Loan Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Note Document in any court referred to in Section 11.9(b) other than a court referred to in the last sentence thereof that is not referred to elsewhere therein. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) SERVICE OF PROCESS. Each Loan Party hereby irrevocably and unconditionally consents to service of process in the manner provided for notices in Section 11.1. Nothing in this Agreement or any other Note Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 11.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, 84 91 ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER SENIOR SECURED NOTE DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.10. SECTION 11.11. ADDITIONAL GUARANTORS. The initial Guarantors hereunder shall be Starwood REIT and such Subsidiaries of the Borrower or Starwood REIT as are signatories hereto on the date hereof. From time to time subsequent to the date hereof, additional Subsidiaries of the Borrower or Starwood REIT may become party hereto, as additional Guarantors (each an "Additional Guarantor"), by executing a counterpart of this Agreement and delivery of a copy of any such counterpart to the Lenders. Upon such delivery, notice of which is hereby waived by each Guarantor, each such Additional Guarantor shall be a Guarantor and shall be as fully a party hereto as if such Additional Guarantor were an original signatory hereof. Each Guarantor expressly agrees that its obligations arising hereunder shall not be affected or diminished by the addition or release of any other Guarantor hereunder, nor by any election of any Beneficiary not to cause any Subsidiary of Borrower or Starwood REIT to become an Additional Guarantor hereunder. This Agreement shall be fully effective as to any Guarantor that is or becomes a party hereto regardless of whether any other Person becomes or fails to become or ceases to be a Guarantor hereunder. SECTION 11.12. AGENTS. Lehman Commercial Paper Inc., as Arranger, and BT Alex. Brown Incorporated and Chase Securities, Inc., as Syndication Agents (collectively, the "Agents"), shall not have under this Agreement any rights, duties or responsibilities in their capacity as such. Without limiting the generality of the foregoing, (a) no Agent shall be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) no Agent shall have any duty to take any discretionary action or exercise any discretionary powers, (c) no Agent shall have any responsibility with respect to the collection or distribution of any payments, documents or notices delivered under this Agreement, and (d) no Agent shall have any duty to disclose, and no Agent shall be liable for the failure to disclose, any information relating to the Borrower or Starwood REIT or any of their Subsidiaries that is communicated to or obtained by any Agent or any of its Affiliates in any capacity. No Agent shall be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 11.2) or in the absence of such Agent's own gross negligence or willful misconduct. No Agent shall be deemed to have knowledge of any Default unless and until written notice thereof is given to such Agent by the Borrower or a Lender, and no Agent shall be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Note Document, 85 92 (ii) the contents of any certificate, report or other document delivered thereunder or in connection therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Note Document, (iv) the validity, enforceability, effectiveness or genuineness of any Note Document or any other agreement, instrument or document, (v) the creation, enforceability, perfection, priority or sufficiency of any Lien, or (vi) the satisfaction of any condition set forth in Article III or elsewhere in any Note Document. Each Agent shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not an Agent, and such Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with any Loan Party or Affiliate thereof as if it were not an Agent hereunder. SECTION 11.13. HEADINGS. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 11.14. OBLIGATIONS ABSOLUTE. The Borrower's obligation to pay the Senior Secured Notes and all other Note Liabilities and each Guarantor's obligation to pay the Guaranteed Obligations shall be absolute, unconditional, and irrevocable, and shall be paid strictly in accordance with the terms hereof and thereof, under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which any Loan Party may have or have had against any Lender or any other Person. SECTION 11.15. RECOURSE. Each Lender acknowledges and agrees that the name "Starwood Hotels & Resorts" is a designation of Starwood REIT and its Trustees (as Trustees but not personally) under a Declaration of Trust dated August 25, 1969, as amended and restated as of June 6, 1988, as further amended on February 1, 1995 and as further amended on June 19, 1995 and as the same may by further amended from time to time, and all persons dealing with Starwood REIT shall look solely to Starwood REIT's assets for the enforcement of any claims against Starwood REIT, as the Trustees, officers, agents and security holders of Starwood REIT assume no personal liability for obligations entered into on behalf of Starwood REIT, and their respective individual assets shall not be subject to the claims of any person relating to such obligations. ARTICLE XII. THE ADMINISTRATIVE AGENT This Article XII is for the benefit of the Administrative Agent and the Lenders only. SECTION 12.1. APPOINTMENT OF ADMINISTRATIVE AGENT. Each Lender hereby designates LCPI as its agent and irrevocably authorizes the Administrative Agent to take action on its behalf under this Agreement and with respect to the Notes, to exercise the powers and perform the duties described herein, and to exercise such other powers reasonably incidental thereto. The Administrative Agent may perform any of its duties through its agents or employees. In addition, the Administrative Agent may designate one or more subagents from time to time, with the consent of the Borrower (which consent shall not be unreasonably 86 93 delayed or withheld and shall not be required if any Default is then continuing), to perform administrative services with regard to the Tranche Two Commitments, the Loans and the Notes. Any subagent so designated by the Administrative Agent shall be entitled to the same protections, exculpations and indemnities as are set forth in this Article XII with respect to the Administrative Agent for all actions and omissions performed by such subagent pursuant to such designation. SECTION 12.2. NATURE OF DUTIES OF THE ADMINISTRATIVE AGENT. The Administrative Agent has no duties or responsibilities except those expressly set forth in this Agreement. Neither the Administrative Agent nor any of its officers, directors, employees or agents shall be liable for any action taken or omitted hereunder or in connection herewith, except for such Person's gross negligence or willful misconduct. The duties of the Administrative Agent shall be mechanical and administrative in nature. The Administrative Agent shall not have a fiduciary relationship to any Loan Party, any Lender or any participant of any Lender. The Administrative Agent shall act only for the Lenders and neither the Administrative Agent nor any Lender assumes any agency or trust relationship with any Loan Party. Except for the express obligations of the Administrative Agent and the Lenders under this Agreement and the other Note Documents, neither the Administrative Agent nor any Lender assumes any obligation to any Loan Party. The Administrative Agent shall have no liability for the acts or omissions of any subagents engaged or selected by the Administrative Agent, provided that the Administrative Agent was not grossly negligent in the engagement or selection of such subagents. The Administrative Agent may deem and treat each Lender as the holder of the Loan held by it, as reflected in the Note Register, for all purposes hereof. The Administrative Agent shall not be required to deal with any Person that has acquired a participation in any Loan. SECTION 12.3. LACK OF RELIANCE ON THE ADMINISTRATIVE AGENT. Independently and without reliance upon the Administrative Agent, each Lender has made and shall continue to make its own independent investigation and analysis of the content and validity of the Note Documents and of the performance and creditworthiness of the Loan Parties thereunder. Each Lender shall, independently and without reliance on upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement and the other Note Documents. The Administrative Agent assumes no responsibility and undertakes no obligation to make inquiry with respect to such matters. The Administrative Agent shall not be responsible to any Lender for any recitals, statements, representations or warranties made by any Loan Party or any officer, employee or agent of any Loan Party or any other Person, whether contained in this Agreement or any other Note Document or otherwise, or for the value, legality, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Note Document, or for the perfection or priority of any security interest or lien in any Collateral or for any failure by any Loan Party to perform any obligations hereunder or thereunder. The Administrative Agent shall not be required to keep itself informed as to any Loan Party's compliance with any Note Document or to inspect the properties or books and records of any Loan Party. Except for notices and other documents and information that this Agreement expressly requires the 87 94 Administrative Agent to furnish to the Lenders, the Administrative Agent shall have no duty or obligation to provide any Lender with any credit or other information concerning the business, operations, result of operations, assets, liabilities, prospects or condition (financial or otherwise) of any Loan Party. The Administrative Agent shall not be required to file this Agreement or any other Note Document for record or to give notice to anyone of any of the foregoing. SECTION 12.4. CERTAIN RIGHTS OF THE ADMINISTRATIVE AGENT. The Administrative Agent may request instructions from Required Lenders at any time. If the Administrative Agent requests instructions from Required Lenders at such time with respect to any action or inaction, the Administrative Agent shall be entitled to await instructions from Required Lenders at such time before such action or inaction. No Lender shall have any right of action based upon the Administrative Agent's action or inaction in response to instructions from Required Lenders at such time. Any action taken or failure to act pursuant to instructions of Required Lenders shall be binding on all Lenders and any other holder of all or any portion of any Loan or any interest or participation therein. Except for actions expressly required of the Administrative Agent under this Agreement, the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall have received further assurances (which may include a requirement for cash collateral) of the Lender's indemnity obligations under this Article XII in respect of any and all liability and expense that the Administrative Agent may incur by reason of taking or continuing to take any such action. SECTION 12.5. RELIANCE BY THE ADMINISTRATIVE AGENT. The Administrative Agent may rely upon written or telephonic communications it believes to be genuine and to have been signed, sent or made by the proper person. The Administrative Agent may obtain the advice of legal counsel (including, for matters concerning the Borrower, counsel for the Borrower), independent public accountants and other experts selected by it and shall have no liability for action or inaction in good faith based upon such advice. SECTION 12.6. INDEMNIFICATION OF THE ADMINISTRATIVE AGENT. To the extent the Administrative Agent is not reimbursed and indemnified by the Borrower, each Lender will reimburse and indemnify the Administrative Agent, to the extent of such Lender's Percentage Share, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever (including all expenses) which may be imposed on, incurred by or asserted against the Administrative Agent in performing its duties hereunder or otherwise relating to the Note Documents or any other documents contemplated hereby or thereby (including any costs and expenses that any Loan Party is obligated but fails to reimburse) or in the enforcement of any of the terms hereof or thereof. Notwithstanding the foregoing, no Lender shall be liable to the Administrative Agent: (a) to the extent of losses directly resulting from the Administrative Agent's gross negligence or willful misconduct; or (b) with respect to any loss of principal of or interest on the Administrative Agent's Loans. SECTION 12.7. ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. In its individual capacity, the Administrative Agent shall have the same rights and powers hereunder as any other Lender and may exercise them as though it was not performing the duties of an agent for 88 95 the Lenders. The Administrative Agent and its Affiliates may lend money to, acquire equity interests in, and generally engage in any kind of investment banking, financial advisory or other business with the Borrower or any Affiliate of the Borrower as if it were not performing the duties of an agent for the Lenders, and may accept fees and other consideration from the Borrower for services in connection with this Agreement and otherwise without having to account for the same to any Lender. SECTION 12.8. SUCCESSOR ADMINISTRATIVE AGENT. (a) The Administrative Agent may, upon five Business Days' notice to the Lenders and the Borrower, resign at any time by giving written notice thereof to the Lenders and the Borrower. Upon any such notice of resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent, with the consent of the Borrower (which consent shall not be unreasonably delayed or withheld and shall not be required if any Default is then continuing). If no successor Administrative Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty days after notice of the Administrative Agent's retirement or resignation, then the retiring the Administrative Agent may, on behalf of the Lenders, appoint one of the Lenders as successor Administrative Agent. (b) Upon its acceptance of the agency hereunder, a successor Administrative Agent shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. The retiring Administrative Agent shall continue to have the benefit of this Article XII for any action or inaction while it was the Administrative Agent. SECTION 12.9. COLLATERAL; REMEDIES. Each of the Loan Parties and the Lenders hereby acknowledges that the Administrative Agent shall have no duties or obligations with respect to any Collateral or the selection or enforcement of any remedies hereunder or under any other Note Document. SECTION 12.10. DEFAULTS. The Administrative Agent shall not be deemed to have knowledge of the occurrence of a Default or Event of Default unless the Administrative Agent has received notice from a Lender or from the Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default." If the Administrative Agent receives such a notice, then the Administrative Agent shall give prompt notice thereof to the Lenders, but in no event shall the Administrative Agent be required to take or refrain from taking any other action with respect to any Default or Event of Default. SECTION 12.11. MISCELLANEOUS. Notwithstanding anything to the contrary in this Agreement, the Administrative Agent shall not be bound by any waiver, amendment, supplement or modification of this Agreement or any other Note Document that affects its duties, rights or functions hereunder or thereunder in such capacity unless the Administrative Agent shall have given its prior written consent thereto. The Administrative Agent shall have no liabilities or responsibilities to any Loan Party or any Lender on account of any Lender's (except the Administrative Agent's) or Loan Party's failure to perform its obligations hereunder or under any other Note Document. Without requiring the consent of any Loan Party 89 96 or any Lender, the Administrative Agent may at any time and from time to time transfer its functions as the Administrative Agent hereunder and under the other Note Documents to any of its offices wherever located in the United States, provided that the Administrative Agent shall promptly notify the Borrower and the Lenders of any such transfer. 90 97 LIST OF EXHIBITS Exhibit A Form of Assignment and Acceptance Exhibit B-1 Form of Tranche One Note Exhibit B-2 Form of Tranche Two Note Exhibit C Form of Closing Certificate Exhibit D Form of Notice of Pledge Agreement Entitlement Exhibit E Form of Notice of Borrowing LIST OF SCHEDULES Schedule A Guarantors Schedule B Lenders, Commitment Amounts, Notice and Payment Information Schedule C Disbursement Instructions Schedule D Additional Conditions Precedent Schedule 4.1 Disclosure Schedule (from Bank Credit Facility) 98 STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation By: /s/ RONALD C. BROWN ------------------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer CHARLESTON HOTEL ASSOCIATES, LLC, a New Jersey limited liability company, CRYSTAL CITY HOTEL ASSOCIATES, LLC, a New Jersey limited liability company, LONG BEACH HOTEL ASSOCIATES, LLC, a New Jersey limited liability company, SANTA ROSA HOTEL ASSOCIATES, LLC, a New Jersey limited liability company, SLT ALLENTOWN LLC, a Delaware limited liability company, SLT ARLINGTON LLC, a Delaware limited liability company, SLT ASPEN DEAN STREET, LLC, a Delaware limited liability company, SLT BLOOMINGTON LLC, a Delaware limited liability company, SLT CENTRAL PARK SOUTH, LLC, a Delaware limited liability company, SLT DANIA LLC, a Delaware limited liability company, SLT DC MASSACHUSETTS AVENUE, LLC, a Delaware limited liability company, SLT INDIANAPOLIS LLC, a Delaware limited liability company, 99 SLT KANSAS CITY LLC, a Delaware limited liability company, SLT LOS ANGELES LLC, a Delaware limited liability company, SLT MINNEAPOLIS LLC, a Delaware limited liability company, SLT PALM DESERT LLC, a Delaware limited liability company, SLT PHILADELPHIA LLC, a Delaware limited liability company, SLT REALTY COMPANY, LLC, a Delaware limited liability company, SLT SAN DIEGO LLC, a Delaware limited liability company, SLT SOUTHFIELD LLC., a Delaware limited liability company, SLT ST. LOUIS LLC, a Delaware limited liability company, SLT TUCSON LLC, a Delaware limited liability company, STARLEX LLC, a New York limited liability company, STARWOOD ATLANTA II LLC, a Delaware limited liability company, STARWOOD ATLANTA LLC, a Delaware limited liability company, STARWOOD MISSION HILLS, L.L.C., a Delaware limited liability company, STARWOOD NEEDHAM LLC, a Delaware limited liability company, 100 STARWOOD WALTHAM LLC, a Delaware limited liability company, By: SLT Realty Limited Partnership, a Delaware limited partnership, the managing member of each of the above listed entities By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry Sternlicht Name: Barry Sternlicht Title: Chairman and Chief Executive Officer SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry Sternlicht Name: Barry Sternlicht Title: Chairman and Chief Executive Officer STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust, By: /s/ Barry Sternlicht Name: Barry Sternlicht Title: Chairman and Chief Executive Officer BW HOTEL REALTY, LP, a Maryland limited partnership, CP HOTEL REALTY, LP, a Maryland limited partnership, EDISON HOTEL ASSOCIATES, LP, a New Jersey limited liability company, 101 NOVI HOTEL ASSOCIATES, LP, a Delaware limited partnership, PARK RIDGE HOTEL ASSOCIATES LP, a Delaware limited partnership, SLT FINANCING PARTNERSHIP, a Delaware partnership, SLT HOUSTON BRIAR OAKS, LP, a Delaware limited partnership, VIRGINIA HOTEL ASSOCIATES, LP, a Delaware limited partnership, PRUDENTIAL HEI JOINT VENTURE, a Georgia general partnership, BY: SLT Realty Limited Partnership, a Delaware limited partnership, the general partner of each of the above listed entities By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Barry Sternlicht ------------------------------ Name: Barry Sternlicht Title: Chairman and Chief Executive Officer 102 HEI HOTELS, L.L.C., a Delaware limited liability company, OPERATING PHILADELPHIA LLC, a Delaware limited liability company, SLC ALLENTOWN LLC, a Delaware limited liability company, SLC ARLINGTON LLC, a Delaware limited liability company, SLC ASPEN DEAN STREET, LLC, a Delaware limited liability company, SLC ATLANTA II LLC, a Delaware limited liability company, SLC ATLANTA LLC, a Delaware limited liability company, SLC BLOOMINGTON LLC, a Delaware limited liability company, SLC CENTRAL PARK SOUTH, LLC, a Delaware limited liability company, SLC DANIA LLC, a Delaware limited liability company, SLC DC MASSACHUSETTS AVENUE, LLC, a Delaware limited liability company, SLC INDIANAPOLIS LLC, a Delaware limited liability company, SLC KANSAS CITY L.L.C., a Delaware limited liability company, SLC LOS ANGELES LLC, a Delaware limited liability company, SLC MINNEAPOLIS LLC, a Delaware limited liability company, 103 SLC NEEDHAM LLC, a Delaware limited liability company, SLC PALM DESERT LLC, a Delaware limited liability company, SLC SAN DIEGO LLC, a Delaware limited liability company, SLC SOUTHFIELD LLC, a Delaware limited liability company, SLC ST. LOUIS LLC, a Delaware limited liability company, SLC TUCSON LLC, a Delaware limited liability company, SLC WALTHAM LLC, a Delaware limited liability company, STARWOOD MANAGEMENT COMPANY, LLC, a Delaware limited liability company, By: SLC Operating Limited Partnership, a Delaware Limited Partnership, the managing member of each of the above listed entities By: Starwood Hotels and Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ RONALD C. BROWN ---------------------------------- Name: Ronald C. Brown Title: Executive Vice President and Chief Financial Officer [SIGNATURES OF LENDERS OMITTED] EX-10.4 6 EX-10.4 1 EXHIBIT 10.4 AIRCRAFT DRY LEASE AGREEMENT THIS AIRCRAFT LEASE AGREEMENT (hereinafter "Lease") is made and entered into as of February 6, 1998, by and between STAR FLIGHT, L.L.C., a Connecticut limited liability company, having a mailing address of c/o Starwood Capital Group, Three Pickwick Plaza, Greenwich CT 06830 (hereinafter "Lessor"), and ITT FLIGHT OPERATIONS, INC., a Pennsylvania corporation, with its principal office situated at 987 Postal Road, Allentown, PA 18103 (hereinafter "Lessee"). WITNESSETH: WHEREAS, Lessor desires to lease to Lessee, and Lessee desires to lease and take possession of the aircraft described in Article I from Lessor, all upon the terms and conditions of this Lease; NOW, THEREFORE, for and in consideration of the premises, the mutual covenants set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee (hereinafter the "Parties"), intending to be legally bound, do hereby agree as follows: ARTICLE I General A. Subject Matter of Lease. Lessor hereby dry leases to Lessee and Lessee hereby dry leases from Lessor one (1) Gulfstream III Aircraft, Manufacturer's Serial Number 335, Registration Mark: N117MS, as more fully described in Appendix A, "Description of Aircraft," and as equipped in all other respects at the time of Lessee's acceptance (hereinafter the "Aircraft"), together with all manuals, computerized maintenance programs, logs and similar records pertaining to the use and operation of the Aircraft. B. Effect of Lease. Title to the Aircraft shall be vested in Lessor at all times during the Lease Term. Lessee shall have the right to possession and quiet enjoyment of the Aircraft during the Lease Term so long as Lessee is not in default under this Lease Agreement. Notwithstanding the foregoing, Lessor shall have the right to interrupt Lessee's quiet enjoyment and take temporary possession of the Aircraft during the Lease Term, at such times and for such periods as Lessor shall require in order to perform (or have performed) certain capital improvements, as agreed to by Lessor and Lessee, or to inspect the condition of the aircraft, upon reasonable advance notice to Lessee (hereinafter referred to as a "Period of Term Interruption"). During any Period of Term Interruption, all of the terms and conditions of this Lease shall remain in full force and effect, including the obligation of the Lessee to make the minimum rental payment pursuant to Article IV of this Agreement. However, if such Period of Term Interruption exceeds two (2) weeks, the rent due hereunder shall abate. 2 ARTICLE II Term of Lease The Lease Term shall be for the one-year period, commencing on February 6, 1998, and continuing through February 5, 1999, and shall thereafter be automatically renewed for successive one year periods unless and until either party provides the other party with thirty (30) days written notice of its intention not to renew prior to the expiry of the then current term of the lease or the lease is earlier terminated as otherwise provided herein. ARTICLE III Delivery The Aircraft was delivered to the Lessee on February 6, 1998. Upon such delivery, Lessee has inspected, and upon any subsequent delivery following a Period of Term Interruption the Lessee shall inspect, the Aircraft and, if found satisfactory in the reasonable opinion of Lessee, will accept the Aircraft by signing and delivering to the Lessor the Acceptance Supplement to the Lease Agreement, which is attached hereto as Appendix B, whereupon the Aircraft shall become subject to and governed by all portions of the Lease Agreement. Delivery of the Acceptance Supplement by the Lessee shall be deemed conclusive proof that the Lessee has fully inspected the aircraft to its satisfaction and acknowledges that the aircraft is in good condition and repair and that the Lessee is satisfied with and has accepted the aircraft in such condition and repair. ARTICLE IV Rent and Use of Aircraft A. Use Rent. Lessee agrees to pay Lessor a base use rent of 1.25% of the Lessor's total costs, relating to the Aircraft per month (amounting to $122,542.94 per month at the commencement of the Lease Term). However, the monthly base rent lease payments shall increase by an additional 1.25% per month of all additional costs incurred by Lessor, with respect to the Aircraft, throughout the Lease Term. Such additional costs shall be subject to approval of Lessee, which approval shall not be unreasonably withheld or delayed. Additionally, Lessee shall pay three hundred dollars ($300.00) for each and every hour that the Aircraft is in use. This base rent and the hourly use rent shall be due and payable on the 15th of the calendar month following the month of the use for which the rent is to be paid. The use rent shall be payable to Lessor by check at its mailing address or at such other address as shall be designated in writing by Lessor. B. Taxes and Duties. Lessee agrees to pay all taxes and duties, other than property taxes, including any sales or use tax or duties, tolls, license fees or assessments, which may be levied or assessed by any government against the Aircraft with respect to Lessee's use thereof during the Lease Term. Lessee will reimburse Lessor for any such taxes or duties which Lessor shall be required to pay (except for income taxes, if any, due on the rental payments); - 2 - 3 however, Lessee may contest any assessment of tax or duty on Lessor and Lessor shall provide Lessee with a timely opportunity to defend against such assessment and cooperate in the defense. Any tax or duty levied with respect to a period of time including but in excess of the Lease Term shall be prorated so that Lessee shall bear only the portion thereof attributable to Lessee's use during the Lease Term. Lessee shall keep the Aircraft free and clear of all liens and encumbrances including any which may arising from the imposition of any tax or duty as described in this Section B. C. Out-of-Pocket Expenses. All out-of-pocket expenses incurred in connection with the leasing of this Aircraft shall be borne by Lessee, including, by way of example, fuel, pilot cost, food service, hangar and tie-down charges, landing fees and custom fees. ARTICLE V Warranties A. Lessor's Warranties. Lessor warrants and represents that: (1) Lessor has duly authorized, executed and delivered the Lease Agreement and has the lawful right to lease the Aircraft in accordance with the terms and conditions hereof. (2) To the best of Lessor's knowledge, the Aircraft has been maintained in compliance with applicable Regulations under FAR Part 91 in an airworthy condition. (3) Lessor has no knowledge of undisclosed defects in the Aircraft. (4) ALL OTHER WARRANTIES WITH RESPECT TO THE AIRCRAFT, WHETHER EXPRESS, IMPLIED, OR STATUTORY, SUCH AS WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY EXCLUDED AND DISCLAIMED TO THE EXTENT THEY EXCEED THE FOREGOING WARRANTIES, WHICH WARRANTIES COMPRISE LESSOR'S ENTIRE RESPONSIBILITY WITH RESPECT TO ANY FAILURE OR DEFECT TO THE EXCLUSION OF ALL OTHER LIABILITY IN TORT (WHETHER FOR NEGLIGENCE OR OTHERWISE) OR IN CONTRACT, INCLUDING ANY LIABILITY OF LESSOR WITH RESPECT TO INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOSS OF USE. B. Lessee's Warranties and Representations. Lessee warrants and represents that: (1) Lessee has full power, authority and legal right to execute this Lease Agreement. This Lease Agreement has been duly authorized by all necessary actions of Lessee and constitutes a valid and binding obligation of Lessee, enforceable in accordance with its terms. - 3 - 4 (2) No registration with, or approvals of, any governmental agency is necessary for the performance by Lessee of its enforceability hereof except for those which have been duly made or obtained. (3) There is no action, litigation or other proceeding pending or threatened against Lessee before any court or government agency which might materially affect the business or operations of Lessee adversely or which would jeopardize the ability of Lessee to perform its obligations under this Lease Agreement. ARTICLE VI Use of the Aircraft A. Use of Aircraft. Subject to the requirements of the U.S. Federal Aviation Regulations (hereinafter "FAR"), the Aircraft shall be used only for business uses of the Lessee including, without limitation, transportation of personnel, business guests, and equipment of affiliate companies for which compensation may be provided. The Aircraft shall not be utilized in a business transporting persons or property for compensation or hire pursuant to FAR Part 135 without the express written permission of the Lessor and then only if the Lessee is certified by the Federal Aviation Administration (hereinafter the "FAA") for such use of the aircraft, the aircraft has been maintained and inspected to FAR Part 135 Standards and adequate insurance coverage has been obtained for such operations from reputable insurers. B. Lawful Operation. Lessee's use of the Aircraft under Section A of this Article VI shall be in compliance with all laws of the jurisdictions in which the Aircraft may be operated and in accordance with rules of the FAA. In particular, the Aircraft shall at all times be operated within the limitations specified in the flight and maintenance manuals assigned to the Aircraft, within the normal operating limitations under which the Aircraft is certificated, as well as within the requirements of all insurance policies relating to the Aircraft. ARTICLE VII Records A. Records. Lessee shall maintain the logs and records delivered with the Aircraft under Section A of Article I in accordance with the manufacturer's instructions and FAA rules and regulations. Such logs shall be kept in the Aircraft and shall be available for inspection at all reasonable times by Lessor or its representatives, without prior notice. B. Filing of Lease with FAA -- Truth in Leasing. Lessee shall file a signed copy of this Lease with the FAA, Aircraft Registration Branch, Attention: Technical Section, Post Office Box 25724, Oklahoma City, Oklahoma, United States of America 73125, within twenty-four (24) hours after the execution of this Lease. Lessee shall keep a copy of the Lease in the Aircraft at all times. - 4 - 5 C. Filing of Lease with FAA Public Notice. If the Lease has been filed for public notice with the FAA in addition to the Truth in Leasing filing required under Section B of this Article VII, Lessee shall execute FAA AC Form 8050-26 and transmit to Lessor or file it with the FAA as Lessor instructs at the end of the Lease Term or upon a Premature Termination of this Lease. D. Notification to FAA of First Flight. At least forty-eight (48) hours prior to takeoff of the first flight under this Lease, Lessee shall notify, by telephone or in person, the FAA Flight Standards District Office, General Aviation District Office, Air Carrier District Office, or International Field Office nearest the airport where the first flight under the Lease will originate, of (i) the location of the airport of departure; (ii) the departure time; and (iii) the registration number of the Aircraft. ARTICLE VIII Maintenance of Aircraft A. Maintenance. Subject to other provisions of this Lease Agreement, Lessee shall keep the Aircraft in good operating condition and completely airworthy during the Lease Term by performing the service and maintenance recommended in the Gulfstream Factory Maintenance Program. The performance of all maintenance and repair work shall be by or under the supervision of properly qualified and trained personnel and in compliance with FAA or other governmental requirements and shall be at the Lessee's expense. B. Replacement of Certain Parts. In the event of failure of any expendable or on-condition items during the Lease Term including, but not limited to windshields, cabin pressure transducers, air data computer, relays and aileron cables, Lessee shall repair or replace the failed unit with a serviceable unit of comparable quality to the failed unit at Lessee's expense. C. Required Service Changes. Lessee agrees to incorporate, or, at its expense, arrange for the incorporation of, those mandatory service changes (and other service changes necessary for the safety of the Aircraft) issued by the FAA with respect to the Aircraft during the Lease Term and which Lessee and/or Lessor deem necessary. D. Time Between Overhaul Items. Except as expressly agreed, Lessee agrees to perform at its expense any scheduled overhaul or replacement of any component of the Aircraft with designated "time between overhaul" (TBO) life, including, but not limited to hydraulic pumps and inverters, which have become "time expired" or "run out" during the Lease Term. However, Lessor shall pay for engine, APU and generator overhauls. In the event of the failure of any TBO item, Lessee shall replace the failed item with a serviceable unit, provided by Lessee, of comparable quality to the failed unit. The designation of an item as either expendable or on-condition to which Section B of this Article VIII applies, or as a TBO item to which this Section D of Article VIII applies, shall be based upon Lessee's maintenance practices during the term of this Lease Agreement. - 5 - 6 E. Alterations. Lessee shall not make any changes in or alterations of the Aircraft without the prior written consent of Lessor except as necessary for compliance with the provisions of this Lease Agreement. ARTICLE IX Insurance A. Third Party Liability Insurance. During the Lease Term, Lessor shall at all times and at Lessor's sole expense carry in full force and effect public liability and property damage insurance in respect of the Aircraft. All policies of insurance carried in accordance with this Section A of Article IX shall name Lessee and Business Aerotech East Corp. as additional insureds and shall contain cross-liability endorsements. Lessee shall reimburse the expense of such insurance to Lessor. B. Amount of Coverage. Public liability and property damage insurance in respect of the Aircraft covering possession, maintenance and operation of the Aircraft shall be in minimum limits of Two Hundred Million ($200,000,000.00) Dollars combined single limit, including bodily injury, property damage and passenger legal liability. C. Hull Insurance. During, the Lease Term, Lessor shall at all times and at Lessor's sole expense obtain and keep in full force and effect "All Risk" type hull insurance on the Aircraft, including "in motion" and "not in motion" coverage, in an amount not less than the Insured Value of the Aircraft. Any and all policies under this Section C shall name Lessor solely as loss payee and any recovery under the policies shall be made payable to Lessor to the extent of the Insured Value. As used herein the term "Insurance Value" shall mean full "replacement value". D. War Risk Insurance. Lessor shall, before it permits and authorizes the Lessee to operate the Aircraft in any area where the Aircraft may be subject to war risk damage, or in any area of hostility as designated by Lessor, at its own expense, obtain and keep in full force and effect War Risk Insurance coverage applicable to such areas. Such insurance shall protect against confiscation, seizure, detention and the like by any government, whether de facto or de jure, other than the United States, in type, amount, coverage and terms reasonably satisfactory to Lessee. E. Substitute for War Risk Insurance. Lessor agrees to accept, in lieu of the above described War Risk Insurance, indemnification from the United States Government against war risks under the regular Military Airlift Command program or the Civil Reserve Air Fleet Indemnification program for a carrier in the event that a limited or national emergency is declared, if Lessor in its sole discretion is reasonably satisfied with the sufficiency thereof in complying with the same terms and conditions stated herein with regard to War Risk Insurance. F. Additional Terms and Conditions of Insurance. Lessee shall provide Lessor with a copy of the certificate of insurance and policy for each insurance obtained by Lessee - 6 - 7 under this Article IX. Lessor will also provide same certificates to Lessee with respect to insurance Lessor is required to obtain. Each policy shall contain an agreement by the insurer that, notwithstanding the lapse of any such policy for any reason or any right of cancellation by the insurer or the Lessee, or Lessor (as the case may be) whether voluntary or involuntary, such policy shall continue in force for the benefit of Lessor or Lessee (as the case may be) for at least thirty (30) days (or such lesser time as may be permitted in the case of War Risk Insurance, if such War Risk Insurance so requires) after written notice of such lapse or cancellation shall have been given to Lessor and Lessee and that no alteration whatsoever in any such policy which would have the effect of reducing the coverage required pursuant to this Section F of Article IX shall be made except on written approval of Lessor and Lessee. G. Lessor releases Lessee and its respective officers and employees (hereinafter "Authorized Representative") from any claims for damage to the Aircraft caused by or resulting from risks insured against under any insurance policies carried by Lessor and in force at the time of any such damage, including, without limitation the hull insurance referred to in Section C, above. Lessor shall cause any such insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against Lessee and its Authorized Representatives in connection with any damage covered by any such policy. Lessee and its Authorized Representative shall not be liable to Lessor for any damage to the Aircraft caused by the risks insured against under any such insurance policy. ARTICLE X Default and Remedies A. Event of Default. Any of the following events shall constitute an Event of Default under this Lease Agreement: (1) Failure of Lessee to make any payment of rent to Lessor when due and such failure shall continue for ten (10) days after Lessor gives Lessee written notice of such failure. (2) Failure of Lessee to procure or maintain any insurance coverage required under Article IX and such failure shall continue for ten (10) days after Lessor gives Lessee written notice of such failure. (3) Failure of Lessee to observe or perform any other covenant, condition, agreement or warranty contained in this Lease Agreement and such failure shall continue for ten (10) days after Lessor gives Lessee written notice of such failure, provided that if such failure is not reasonably susceptible of being cured within said ten (10) day period, such additional period of time shall be granted as may be reasonably necessary to cure same provided that Lessee commences to cure within such ten (10) day period and diligently prosecutes same. (4) Inclusion of a material falsity by Lessee in any representation or warranty of Lessee contained in this Lease Agreement or in any documents executed and - 7 - 8 delivered by Lessee to Lessor pursuant to the terms hereof and such failure shall continue for ten (10) days after Lessor gives Lessee written notice of such failure, provided that if such failure is not reasonably susceptible of being cured within said ten (10) day period, such additional period of time shall be granted as may be reasonably necessary to cure same provided that Lessee commences to cure within such ten (10) day period and diligently prosecutes same. (5) Omission of a material fact by Lessee in any representation or warranty of Lessee contained in this Lease Agreement or in any documents executed and delivered by Lessee to Lessor pursuant to the terms hereof and such failure shall continue for ten (10) days after Lessor gives Lessee written notice of such failure, provided that if such failure is not reasonably susceptible of being cured within said ten (10) day period, such additional period of time shall be granted as may be reasonably necessary to cure same provided that Lessee commences to cure within such ten (10) day period and diligently prosecutes same. (6) The insolvency of Lessee; the institution by or against Lessee of any voluntary or involuntary proceedings under any bankruptcy law; the adjudication of Lessee as a bankrupt or an insolvent; the appointment of a receiver of Lessee's property; or any assignment by Lessee for the benefit of its creditors. B. Notice of Event of Default. Lessee shall give Lessor notice of the occurrence of any Event of Default promptly upon obtaining knowledge thereof. C. Lessor's Remedies. Upon the occurrence of any Event of Default, Lessor shall be entitled to use one or more of the following remedies: (1) Give Lessee notice which identifies the Event of Default and states that this Lease Agreement shall terminate on the date specified therein (hereinafter "Premature Termination"). Upon a Premature Termination, all rights of Lessee under this Lease Agreement shall cease and Lessee shall redeliver the Aircraft to Lessor in accordance with Article XI. (2) Demand payment from Lessee of any and all amounts which are due and are unpaid, or which may become due from Lessee under this Lease Agreement plus any damages, to the extent not fully covered by insurance, in addition thereto which Lessor shall have sustained by reason of the Event of Default, but excluding consequential damages. (3) Proceed by appropriate action in law or equity to enforce performance by Lessee of the applicable covenants of this Lease Agreement or to recover damages, to the extent not fully covered by insurance, resulting from the Event of Default, but excluding consequential damages. (4) Lessor agrees to take reasonable actions to mitigate damages upon the occurrence of any Event of Default. D. Waiver of Event of Default. Lessor may elect not to exercise any one or all of its rights to seek a remedy for an Event of Default under Section C of this Article XI. Lessor - 8 - 9 may also rescind a Premature Termination of this Lease Agreement by giving Lessee notice to this effect prior to the date of such Premature Termination. However, no waiver of enforcement of any of its rights under this Lease Agreement with respect to any Event of Default shall operate to affect or impair unenforced rights with respect to that Event of Default or any right with respect to another Event of Default whether past or future. E. Lessor's Costs of Enforcement. If Lessor brings an action to enforce any of its rights under this Lease Agreement and is entitled to a judgment, Lessor may recover reasonable expenses attendant to that action, including reasonable attorney's fees, and the amount thereof shall be included in such judgment. ARTICLE XI Return of Aircraft A. Lessee's Obligation to Redeliver Aircraft. At the end of the Lease Term, or upon the Premature Termination of the Lease Agreement, Lessee shall redeliver the Aircraft at its own expense to any delivery point within the continental United States specified by Lessor. B. Condition of Aircraft. Except for any casualty losses for which insurance proceeds have been received, or are receivable, by Lessor, upon redelivery, the Aircraft: (1) Shall be clean by the best commercial airline operating standards; (2) Subject to Section D of Article VIII, shall have installed thereon the engines, equipment, accessories and parts as installed at the commencement of the Lease Term or replacements made in accordance with Section B of Article VIII; and (3) Subject to Section D of Article VIII, shall be in the same or better condition as when originally delivered to Lessee, ordinary wear and tear excepted, and subject to changes or alterations properly made by Lessee as permitted or required under this Lease Agreement. C. Failure of Lessee to Redeliver Aircraft. If Lessee does not redeliver the Aircraft as required under Section A of this Article XII, Lessor may cause immediate possession of the Aircraft to be taken by its agent without liability to return to Lessee any rent previously paid and free of any claims of Lessee whatsoever. In taking possession under this Section C of Article XII, Lessor may remove the Aircraft from the possession and use of Lessee and for such purpose may enter upon Lessee's premises where the Aircraft may be located and use and employ in connection with such removal any supplies, services, means or other facilities of Lessee with or without process of law. D. Return of Records. All records kept in the Aircraft pursuant to Section A of Article VII shall be returned with the Aircraft upon its redelivery to Lessor. - 9 - 10 E. Risk of Loss. Lessor shall bear the risk of loss with respect to the Aircraft at all times during the term of this Lease Agreement, except for violation of law or regulation by Lessee with respect to which the hull insurance policy referred to in Section C of Article IX hereof does not apply and provide coverage. F. Additional Costs. Any and all additional expenditures with respect to the Aircraft, except for those set forth in Exhibits X and Y, and future engine overhauls, APU overhauls and DC generator overhauls, shall be the sole cost and expense of Lessee. ARTICLE XII Miscellaneous A. Identification. The manufacturer's serial numbers affixed to the Aircraft and the engines shall not be removed or defaced. In the event of such removal or defacement, Lessee shall promptly cause the assigned serial numbers to be restored. B. Assignment by Lessee. Lessee shall not make any assignment or sublease of this Lease Agreement nor of any rights and interest, or delegate any obligations under this Lease Agreement without the prior written consent of Lessor. C. Assignment of Lease/Sale of Aircraft by Lessor. Lessor may not assign its rights or obligations hereunder without the consent of Lessee. However Lessor, at any time, in its sole discretion, can sell the Aircraft. In the event of such a sale of Aircraft by Lessor, Lessor or Lessee, at either parties' sole discretion, may terminate this Lease upon thirty (30) days written notice. Notwithstanding anything contained herein, Lessor may assign its rights and obligations hereunder to any entity or person controlled by Lessor, under common control with Lessor, or which controls the Lessor (an "Affiliate"). Such Affiliate shall agree to be bound by the terms of this Lease. D. Notice. Any notice given under this Lease Agreement shall be sent by registered mail, certified mail or telex to the recipient Party at its mailing address. The date of delivery of the notice to the post office shall be the date of the mailing. E. Scope and Change of Lease. The terms and conditions contained herein constitute the entire agreement of the Parties with respect to the use of the Aircraft by Lessee. This Lease Agreement shall supersede all communications, representations and agreements, either oral or written, between the Parties with respect to the lease of the Aircraft. No agreement or understanding which modifies the terms and conditions herein shall be binding upon either Party unless reduced to writing and signed by a duly authorized representative of each Party. F. Liens and Encumbrances. Without the prior written consent of Lessor, Lessee shall not create or incur any mortgage, lien, charge or encumbrances of any kind on any of its rights under this Lease Agreement, on the Aircraft or any part thereof. If such encumbrances come into existence, Lessee at its sole expense shall promptly remove the same. - 10 - 11 G. Successors and Assigns. This Lease Agreement shall be binding on and shall inure to the benefit of Lessor and Lessee and their respective successors and assigns, provided that any assignment or sublease shall be made in accordance with the terms hereof and no other persons shall have or acquire any rights under or by virtue of this Lease Agreement. H. Survival of Lease Provisions. All provisions of this Lease Agreement which must survive the Lease Term for their full observance and performance shall survive the Lease Term. I. Governing Law. This Lease Agreement shall be governed, construed and interpreted in accordance with the laws of the Commonwealth of Pennsylvania. J. Arbitration. Any dispute arising out of, or relating to, this Lease Agreement shall be submitted to arbitration by written notice to the other party or parties within one (1) year of the event giving rise to the dispute. The arbitration will be conducted in New York, NY in accordance with the procedures in this document and the Arbitration Rules of the American Arbitration Association then in effect ("AAA RULES"). The arbitration will be conducted before a panel of three arbitrators, regardless of the size of the dispute, to be selected as provided in the AAA Rules. Any issue concerning the extent to which any dispute is subject to arbitration, or concerning the applicability, interpretation, or enforceability of these procedures, including any contention that all or part of these procedures are invalid or unenforceable, shall be governed by the Federal Arbitration Act and resolved by the arbitrators. No potential arbitrator may serve on the panel unless he or she has agreed in writing to abide and be bound by these procedures. The result of the arbitration will be binding on the parties, and judgment on the arbitrators' award may be entered in any court having jurisdiction. K. Truth in Leasing. THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR PART 91 FOR OPERATIONS TO BE CONDUCTED UNDER THIS LEASE DURING THE LEASE TERM. IN THE EVENT LESSEE DECIDES TO OPERATE THE AIRCRAFT UNDER FAR PART 135, LESSEE AGREES THAT THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED IN ACCORDANCE WITH FAR PART 135 REGULATIONS. ITT FLIGHT OPERATIONS, INC., IS CONSIDERED RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT IDENTIFIED AND TO BE OPERATED UNDER THIS LEASE AND FOR COMPLIANCE WITH APPLICABLE FAR. AN EXPLANATION OF THE FACTORS BEARING ON OPERATIONAL CONTROL AND THE PERTINENT FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT OFFICE, GENERAL AVIATION DISTRICT OFFICE OR AIR CARRIER DISTRICT OFFICE. - 11 - 12 I, RICHARD UHLE, CHIEF PILOT OF ITT FLIGHT OPERATIONS, INC., CERTIFY THAT I AM RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT IDENTIFIED IN THIS LEASE AGREEMENT AND I UNDERSTAND MY RESPONSIBILITIES FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS. FURTHER, I CERTIFY THAT I AM FAMILIAR WITH AND KNOWLEDGEABLE OF THE CONTENTS OF FAR 91.23,14 C.F.R.Section 91.23 AND THE ADVISORY CIRCULARS THEREUNDER (TRUTH IN LEASING). Signed /s/ RICHARD UHLE ---------------------------- IN WITNESS WHEREOF, each party has caused this Dry Lease Agreement to be signed by its duly authorized representative on the date first above written. STAR FLIGHT L.L.C. ITT FLIGHT OPERATIONS, INC. (LESSOR) (LESSEE) By /s/ JEROME C. SILVEY By /s/ ROBERT F. SHEEHY -------------------------------- --------------------------------- Title EXECUTIVE VICE PRESIDENT Title PRESIDENT ----------------------------- ------------------------------ Attest: Attest: /s/ LINDA FERRANTI /s/ JAMES W. LATHAM - ----------------------------------- ------------------------------------ APPENDIX A -- Description of Aircraft APPENDIX B -- Acceptance Supplement - 12 - 13 FIRST AMENDMENT TO THE AIRCRAFT DRY LEASE AGREEMENT This First Amendment to the Aircraft Dry Lease Agreement is entered into as of the 25th day of August 1998 (this "Amendment") by and between the Star Flight L.L.C. ("SF") and ITT Flight Operations, Inc. ("ITT") WITNESSETH: WHEREAS, SF and ITT entered into that certain Aircraft Dry Lease Agreement dated as of February 6, 1998, (the "Lease Agreement"); and WHEREAS, SF and ITT wish to make certain modifications to the Lease Agreement to reflect more accurately the understandings and agreements among SF and ITT. NOW, THEREFORE, SF and ITT agree that the Lease Agreement is hereby amended as follows: 1. Article II of the Lease Agreement is hereby deleted in its entirety and replaced with the following: "The Lease Term shall be for the one-year period, commencing on February 6, 1998, and continuing through February 5, 1999, and shall thereafter be automatically renewed for successive one year periods. After February 5, 1999, either party hereto may terminate the Lease Agreement, with or without cause, by providing the other party ninety (90) days prior written notice to terminate the Lease Agreement." This First Amendment may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same document. Capitalized terms not otherwise defined herein shall be defined as set forth in the Lease Agreement. Except as modified herein, the Lease Agreement shall remain in full force and effect. IN WITNESS WHEREOF, this First Amendment has been executed by all of the parties to the Lease Agreement as of August 25, 1998. (SIGNATURES ON THE NEXT PAGE) - 16 - 14 STAR FLIGHT L.L.C., a Connecticut limited liability company By: /s/ Jerome C. Silvey ------------------------------------ Jerome C. Silvey Executive Vice President ITT FLIGHT OPERATIONS, INC., a Pennsylvania corporation By: /s/ Robert F. Sheehy ------------------------------------ Name: Robert F. Sheehy Title: President - 17 - EX-27.1 7 EX-27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1998 AND THE RELATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 OF STARWOOD HOTELS AND RESORTS WORLDWIDE, INC. WHICH INCLUDE THE ACCOUNTS OF STARWOOD HOTELS AND RESORTS WORLDWIDE, INC. AND WESTIN FROM THE DATE OF THE ITT MERGER ON FEBRUARY 23, 1998 THROUGH SEPTEMBER 30, 1998 AND THE ACCOUNTS OF ITT AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998. EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 28, AND BASIC AND DILUTED EPS HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY. 0000316206 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. 1,000,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 251 0 876 0 67 1,098 6,612 1,034 11,471 2,368 10,542 0 0 2 (2,666) 11,471 0 6,294 4,614 1,714 (6) 0 387 (384) (80) (288) 1,116 0 0 828 (1.54) (1.54)
EX-27.2 8 EX-27.2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1998 AND THE RELATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE PERIOD FROM THE ITT MERGER ON FEBRUARY 23, 1998 THROUGH SEPTEMBER 30, 1998. NO RESULTS PRIOR TO FEBRUARY 23, 1998 ARE REPORTED AS A RESULT OF THE REVERSE PURCHASE PRICE ACCOUNTING FOR THE ITT MERGER. EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY. 0000048595 STARWOOD HOTELS AND RESORTS 1,000,000 U.S. DOLLARS 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 1 9 0 2,900 0 0 348 4,589 314 8,333 448 604 153 5 2 6,682 8,333 0 437 0 121 0 0 12 304 0 304 0 0 0 304 1.52 1.45
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