10-Q

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 March 31, 2000

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: 1-7959	Commission File Number: 1-6828
STARWOOD HOTELS & RESORTS WORLDWIDE, INC	STARWOOD HOTELS & RESORTS
(Exact name of Registrant as specified in its charter)	(Exact name of Registrant as specified in its charter)
Maryland	Maryland
(State or other jurisdiction of incorporation or organization)	(State or other jurisdiction of incorporation or organization)
52-1193298	52-0901263
(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 offices, including zip code)	(Address of principal executive offices, including zip code)
(914) 640-8100	(914) 640-8100
(Registrant’s telephone number, including area code)	(Registrant’s telephone number, 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:

      190,246,969 shares of common stock, par value $0.01 per share, of Starwood Hotels & Resorts Worldwide, Inc. attached to and traded together with 189,643,989 Class B shares of beneficial interest, par value $0.01 per share, of Starwood Hotels & Resorts, and 100 Class A shares of beneficial interest, par value $0.01 per share, of Starwood Hotels & Resorts, all outstanding as of May 10, 2000.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
	STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED BALANCE SHEETS
	STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
	STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
	STARWOOD HOTELS & RESORTS CONSOLIDATED BALANCE SHEETS
	STARWOOD HOTELS & RESORTS CONSOLIDATED STATEMENTS OF OPERATIONS
	STARWOOD HOTELS & RESORTS CONSOLIDATED STATEMENTS OF CASH FLOWS
	STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities and Use of Proceeds.
Item 6. Exhibits and Reports on Form 8-K.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Starwood Hotels & Resorts Worldwide, Inc.:
	Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999		3
	Consolidated Statements of Operations for the Three Months Ended March 31, 2000    and 1999		4
	Consolidated Statements of Comprehensive Income for the Three Months Ended    March 31, 2000 and 1999		5
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000    and 1999		6
	Starwood Hotels & Resorts:
	Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999		7
	Consolidated Statements of Operations for the Three Months Ended March 31, 2000    and 1999		8
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000    and 1999		9
	Notes to Financial Statements		10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		19
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		19
Item 2.	Changes in Securities and Use of Proceeds		19
Item 6.	Exhibits and Reports on Form 8-K		19

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

      The following unaudited consolidated financial statements of Starwood Hotels & Resorts Worldwide, Inc. (the “Corporation”) and Starwood Hotels & Resorts (the “Trust” and, together with the Corporation, “Starwood” 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, have been included. The consolidated financial statements presented herein have been prepared in accordance with the accounting policies described in the Company’s Joint Annual Report on Form 10-K for the year ended December 31, 1999 filed on March 30, 2000. See the notes to financial statements for the basis of presentation. The consolidated financial statements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere herein. Results for the three months ended March 31, 2000 are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 2000.

2

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

			March 31,			December 31,
			2000			1999
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	443		$	436
	Accounts receivable, net of allowance for doubtful accounts of $57 and $62.			504			468
	Inventories			180			167
	Prepaid expenses and other			107			92
		Total current assets		1,234			1,163
Investments				450			442
Plant, property and equipment, net				7,735			7,787
Goodwill and intangible assets, net				2,950			2,872
Other assets				526			557
Net assets of discontinued operations				102			104
			$	12,997		$	12,925
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	186		$	205
	Accrued expenses			793			812
	Short-term borrowings and current maturities of long-term debt			915			988
	Accrued taxes and other			305			300
		Total current liabilities		2,199			2,305
Long-term debt				5,048			4,643
Deferred income taxes				1,462			1,470
Other liabilities				450			434
				9,159			8,852
Minority interest				40			228
Equity put options				19			19
Class B exchangeable preferred shares of the Trust, at redemption value of $38.50				136			136
Commitments and contingencies
Stockholders’ equity:
	Class A exchangeable preferred shares of the Trust; $0.01 par value; authorized 30,000,000 shares; outstanding 3,669,546 shares at March 31, 2000 and December 31, 1999.			—			—
	Corporation common stock; $0.01 par value; authorized 1,050,000,000 shares; outstanding 189,274,556 and 189,271,522 shares at March 31, 2000 and December 31, 1999, respectively			2			2
	Trust Class B shares of beneficial interest; $0.01 par value; authorized 1,000,000,000 shares; outstanding 189,274,556 and 189,271,522 shares at March 31, 2000 and December 31, 1999, respectively			2			2
	Additional paid-in capital			4,776			4,785
	Deferred compensation			(7	)		(5	)
	Cumulative translation and marketable securities adjustments			(289	)		(238	)
	Accumulated deficit			(841	)		(856	)
		Total stockholders’ equity		3,643			3,690
			$	12,997		$	12,925

The accompanying notes to financial statements are an integral part of the above statements.

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per Share data)

(Unaudited)

		Three Months Ended
		March 31,
		2000			1999
Revenues
Owned, leased and consolidated joint venture hotels		$	843		$	770
Other hotel and leisure			165			83
			1,008			853
Costs and Expenses
Owned, leased and consolidated joint venture hotels			590			541
Selling, general, administrative and other			104			48
Depreciation and amortization			123			119
			817			708
			191			145
Interest expense, net of interest income of $3 and $3			(111	)		(122	)
Gain on sales of real estate and investments			1			8
Miscellaneous expense			—			(15	)
			81			16
Income tax expense			(29	)		(942	)
Minority equity in net income			1			1
Income (loss) from continuing operations			53			(925	)
Discontinued operations:
	Loss from operations, net of tax benefits of $0 and $0.		—			—
	Loss on dispositions, net of tax and minority interest of $0 and $121		—			(7	)
Extraordinary item, net of tax			(3	)		—
Net income (loss)		$	50		$	(932	)
Earnings Per Share — Basic
Continuing operations		$	0.26		$	(4.86	)
Discontinued operations			—			(0.04	)
Extraordinary item			(0.01	)		—
Net income (loss)		$	0.25		$	(4.90	)
Earnings Per Share — Diluted
Continuing operations		$	0.26		$	(4.86	)
Discontinued operations			—			(0.04	)
Extraordinary item			(0.01	)		—
Net income (loss)		$	0.25		$	(4.90	)
Weighted average number of Shares			195			190
Weighted average number of Shares assuming dilution			202			190

The accompanying notes to financial statements are an integral part of the above statements.

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

		Three Months Ended
		March 31,
		2000			1999
Net income (loss)		$	50		$	(932	)
Other comprehensive income, net of taxes:
Foreign currency translation adjustments —
	Foreign currency translation arising during the period		(48	)		(71	)
Unrealized gains (losses) on securities, net —
	Unrealized holding losses arising during the period		(3	)		—
			(51	)		(71	)
Comprehensive loss		$	(1	)	$	(1,003	)

The accompanying notes to financial statements are an integral part of the above statements.

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

		Three Months Ended
		March 31,
		2000			1999
Operating Activities
Net income (loss)		$	50		$	(932	)
Exclude:
Discontinued operations, net			—			7
Extraordinary item			3			—
Income (loss) from continuing operations			53			(925	)
Adjustments to income (loss) from continuing operations:
	Depreciation and amortization		123			119
	Amortization of deferred loan costs		3			5
	Non-cash portion of Reorganization		—			936
	Provision for doubtful accounts		5			1
	Minority equity in net income		(1	)		(1	)
	Equity income, net of dividends received		(8	)		(9	)
	Gain on sales of real estate and investments		(1	)		(8	)
Changes in working capital:
	Accounts receivable		(45	)		(9	)
	Inventories		(13	)		(1	)
	Accounts payable		(16	)		14
	Accrued expenses		(31	)		20
Accrued and deferred income taxes			1			(70	)
Other, net			16			(44	)
	Cash from continuing operations		86			28
	Cash from discontinued operations		2			33
	Cash from operating activities		88			61
Investing Activities
Purchases of plant, property and equipment			(102	)		(74	)
Proceeds from asset sales			7			342
Collection of notes receivable, net			10			42
Acquisitions, net of acquired cash			(264	)		—
Investments			(14	)		(33	)
Other, net			(3	)		—
	Cash from (used for) investing activities		(366	)		277
Financing Activities
Revolving credit facility and short-term borrowings, net			490			(892	)
Long-term debt issued			13			625
Long-term debt repaid			(158	)		(25	)
Settlement of forward equity contracts			—			(16	)
Dividends paid			(30	)		(29	)
Share repurchases			(19	)		—
Other, net			4			(3	)
	Cash from (used for) financing activities		300			(340	)
Exchange rate effect on cash and cash equivalents			(15	)		—
Increase (decrease) in cash and cash equivalents			7			(2	)
Cash and cash equivalents — beginning of period			436			157
Cash and cash equivalents — end of period		$	443		$	155
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
	Interest	$	69		$	99
	Income taxes, net of refunds	$	32		$	16

The accompanying notes to financial statements are an integral part of the above statements.

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STARWOOD HOTELS & RESORTS

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

			March 31,			December 31,
			2000			1999
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	13		$	1
	Receivable, Corporation			46			34
	Prepaid expenses and other			3			7
		Total current assets		62			42
Investments, Corporation				848			848
Investments				48			47
Plant, property and equipment, net				4,305			4,293
Long-term receivables, net, Corporation				1,600			1,658
Goodwill and intangible assets, net				245			246
Other assets				16			16
			$	7,124		$	7,150
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	1		$	5
	Accrued expenses			61			65
	Short-term borrowings and current maturities of long-term debt			7			105
		Total current liabilities		69			175
Long-term debt				504			496
				573			671
Minority interest				32			32
Class B exchangeable preferred shares, at redemption value of $38.50				136			136
Commitments and contingencies
Stockholders’ equity:
	Class A exchangeable preferred shares; $0.01 par value; authorized 30,000,000 shares; outstanding 3,669,546 shares at March 31, 2000 and December 31, 1999			—			—
	Class A shares of beneficial interest; $0.01 par value; authorized 5,000 shares; outstanding 100 shares at March  31, 2000 and December 31, 1999			—			—
	Trust Class B shares of beneficial interest; $0.01 par value; authorized 1,000,000,000 shares; outstanding 189,274,556 and 189,271,522 shares at March 31, 2000 and December 31, 1999, respectively			2			2
	Additional paid-in capital			7,611			7,612
	Accumulated deficit			(1,230	)		(1,303	)
		Total stockholders’ equity		6,383			6,311
			$	7,124		$	7,150

The accompanying notes to financial statements are an integral part of the above statements.

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STARWOOD HOTELS & RESORTS

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions)

(Unaudited)

	Three Months Ended
	March 31,
	2000			1999
Revenues
Unconsolidated joint ventures and other	$	1		$	6
Rent and interest, Corporation		161			179
		162			185
Costs and Expenses
Selling, general and administrative		1			—
Depreciation and amortization		45			44
		46			44
		116			141
Interest expense, net of interest income of $0 and $0		(10	)		(16	)
Gain on sales of real estate and investments		2			—
Income tax expense		—			(1	)
Net income	$	108		$	124

The accompanying notes to financial statements are an integral part of the above statements.

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STARWOOD HOTELS & RESORTS

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

		Three Months Ended
		March 31,
		2000			1999
Operating Activities
Net income		$	108		$	124
Adjustments to net income:
	Depreciation and amortization		45			44
	Equity income, net of dividends received		(1	)		(3	)
	Gain on sales of real estate and investments		(2	)		—
Changes in working capital:
	Receivable, Corporation		(12	)		—
	Accounts payable		(3	)		(5	)
	Accrued expenses		(9	)		30
Other, net			1			(6	)
	Cash from operating activities		127			184
Investing Activities
Additions to plant, property and equipment			(59	)		(43	)
Investments			—			(4	)
Proceeds from asset sales			6			—
Collections of notes receivable			—			42
Long-term receivables, Corporation			61			(442	)
	Cash from (used for) investing activities		8			(447	)
Financing Activities
Long-term debt issued			10			291
Long-term debt repaid			(100	)		(1	)
Dividends paid			(30	)		(29	)
Share repurchases			(3	)		—
Other, net			—			(10	)
	Cash from (used for) financing activities		(123	)		251
Increase (decrease) in cash and cash equivalents			12			(12	)
Cash and cash equivalents — beginning of period			1			12
Cash and cash equivalents — end of period		$	13		$	—
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
	Interest	$	9		$	11
	Income taxes	$	—		$	—

The accompanying notes to financial statements are an integral part of the above statements.

9

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

AND STARWOOD HOTELS & RESORTS

NOTES TO FINANCIAL STATEMENTS

Note 1.  Basis of Presentation

      The accompanying consolidated balance sheets as of March 31, 2000 and December 31, 1999 and the consolidated statements of operations, comprehensive income and cash flows for the three months ended March 31, 2000 and 1999 represent (i) Starwood Hotels & Resorts Worldwide, Inc. (the “Corporation”) and its subsidiaries, including Starwood Hotels & Resorts and its subsidiaries (the “Trust” and, together with the Corporation, “Starwood” or the “Company”), and (ii) the Trust.

      The Trust was formed in 1969 and elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code (the “Code”). In 1980, the Trust formed the Corporation and made a distribution to the Trust’s shareholders of one share of common stock, par value $0.01 per share, of the Corporation (a “Corporation Share”) for each common share of beneficial interest, par value $0.01 per share, of the Trust (a “Trust Share”). Until January 6, 1999, the Corporation Shares and Trust Shares were paired on a one-for-one basis and, pursuant to an agreement between the Corporation and the Trust, could be held or transferred only in units (“Paired Shares”) consisting of one Corporation Share and one Trust Share.

      At December 31, 1998, the combined Corporation and Trust entity was a “paired share REIT” under the grandfathering provisions of the Code. During 1998, Congress enacted tax legislation that had the effect of eliminating this grandfathering for certain interests in real property acquired after March 26, 1998. In response to this legislation, a reorganization of the Corporation and the Trust (the “Reorganization”) was proposed by the Company and was approved by the Corporation and Trust shareholders on January 6, 1999. As a result of the Reorganization, the Trust became a subsidiary of the Corporation, which indirectly holds all outstanding shares of the new Class A shares of beneficial interest in the Trust. Each outstanding Trust Share was converted into one share of the new non-voting Class B shares of beneficial interest in the Trust (a “Class B Share”). The Corporation Shares and the Class B Shares trade together on a one-for-one basis, and pursuant to an agreement between the Corporation and the Trust, may be transferred only in units (“Shares”) consisting of one Corporation Share and one Class B Share. The Reorganization was accounted for as a reorganization of two companies under common control. As such, there was no revaluation of the assets and liabilities of the combining companies. Unless otherwise stated herein, all information with respect to Shares refers to Shares since January 6, 1999 and to Paired Shares for periods before January 6, 1999.

      During the first quarter of 1999, the Company recorded pretax charges of $15 million for costs directly attributable to the Reorganization, such as legal, accounting and investment banking fees. As a result of the Reorganization, the Company also recorded a one-time charge of $936 million to establish a deferred tax liability relating to the difference between the book and tax basis in the assets of the Trust.

      The Company is one of the largest hotel companies in the world and the Trust is one of the largest REITs in the United States. The Company’s principal business is hotels and leisure, which is comprised of a worldwide hospitality network of more than 700 full-service hotels as well as vacation ownership resorts primarily serving two markets: luxury and upscale. The Company’s hotel operations are represented in nearly every major world market.

      The Corporation, through its subsidiaries, is the general partner of, and held, as of March 31, 2000 and December 31, 1999, an aggregate 91.7% partnership interest in, SLC Operating Limited Partnership (the “Operating Partnership”). The Trust, through its subsidiaries, is the general partner of, and held an aggregate 95.1% partnership interest in, SLT Realty Limited Partnership (the “Realty Partnership” and, together with the Operating Partnership, the “Partnerships”) as of March 31, 2000 and December 31, 1999. The Realty Partnership principally owns, directly or indirectly, fee, ground lease and mortgage loan interests in hotel properties. The units of the Partnerships (“LP Units”) held by the limited partners of the respective Partnerships are exchangeable on a one-for-one basis for Shares. At March 31, 2000, there were approximately 9.9 million LP Units outstanding (including 4.3 million LP Units held by the Corporation). For all

10

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

AND STARWOOD HOTELS & RESORTS

NOTES TO FINANCIAL STATEMENTS — (Continued)

periods presented, the LP Units are assumed to have been converted to Shares for purposes of calculating basic and diluted weighted average Shares outstanding.

Note 2.  Significant Accounting Policies

      Earnings Per Share. The following reconciliation of basic earnings per Share to diluted earnings per Share for income (loss) from continuing operations assumes the conversion of LP Units to Shares (in millions, except per Share data):

		Three Months Ended March 31,
		2000							1999
		Earnings			Shares		Per Share		Earnings			Shares		Per Share
Income (loss) from continuing operations		$	53						$	(925	)
Dividends on Class A and Class B EPS			(1	)						(1	)
Basic earnings (loss)			52			195	$	0.26		(926	)		190	$	(4.86	)
Effect of dilutive securities:
	Employee options		—			—				—			—
	Class A and Class B EPS		1			7				—			—
Diluted earnings (loss)		$	53			202	$	0.26	$	(926	)		190	$	(4.86	)

      As a result of antidilutive effects, approximately 8 million Class A Exchangeable Preferred Shares (“Class A EPS”) and Class B Exchangeable Preferred Shares (“Class B EPS”) of the Trust and approximately 1 million employee options and other common stock equivalents were not included in the computation of diluted earnings per Share for the three months ended March 31, 1999.

      Reclassifications. Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.

Note 3.  Acquisitions

      In February 2000, the Company completed the tender offer to purchase the outstanding shares of Ciga S.p.A. (“Ciga”) not previously owned by Starwood. Following completion of the tender, Starwood now owns approximately 99% of the ordinary shares and approximately 93% of the savings shares. The aggregate purchase price of the incremental shares was approximately $305 million. The Company accounted for the acquisition of the outstanding Ciga shares as a step acquisition in accordance with Accounting Principles Board Opinion No. 16, resulting in a preliminary allocation to goodwill of approximately $90 million.

Note 4.  Discontinued Operations

      In April 1999, management developed a formal plan to dispose of the Company’s gaming operations. On December 30, 1999, the sale of Caesars World, Inc. (“Caesars”) was completed. The Company used the proceeds of approximately $3.0 billion to pay off $2.5 billion of increasing rate notes and to reduce its bank revolver by approximately $500 million.

      On May 18, 1999, the Company entered into an agreement to sell the Desert Inn Resort & Casino (the “Desert Inn”) for cash proceeds of approximately $275 million to Sun International Hotels Limited (“Sun”); in March 2000, the Company and Sun announced the termination of their agreement. The Company continued to market the Desert Inn and in April 2000, entered into a definitive agreement to sell the Desert Inn to Stephen A. and Elaine Wynn for aggregate cash proceeds of $270 million. This transaction is expected to close no later than June 30, 2000.

11

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

AND STARWOOD HOTELS & RESORTS

NOTES TO FINANCIAL STATEMENTS — (Continued)

      As a result of the definitive agreements to sell the gaming operations, the accompanying consolidated financial statements reflect the results of operations and net assets of the gaming segment as a discontinued operation. Long-term debt of approximately $165 million and $2.1 billion at March 31, 2000 and 1999, respectively, and the related interest expense of $3 million and $40 million for the three months ended March 31, 2000 and 1999, respectively, was allocated to the discontinued operation. This allocation was based upon the ratio of net gaming segment assets to the Company’s total capitalization. During 1999, the Company provided for the estimated loss on disposal of the Desert Inn, which includes estimated operating losses through the disposal date. Summary financial information of the discontinued gaming operations is as follows (in millions) (unaudited):

	March 31,			December 31,
	2000			1999
Balance Sheet Data
Total assets	$	267		$	269
Total liabilities		—			—
Debt allocated or attributed to discontinued operations		(165	)		(165	)
Net assets of the discontinued gaming operations	$	102		$	104

		Three Months Ended
		March 31,
		2000			1999
Income Statement Data
Revenues		$	29		$	378
Operating income (loss)		$	(2	)	$	44
Interest expense:
	Allocated debt	$	(3	)	$	(40	)
	Other	$	—		$	(4	)
Income tax benefit		$	2		$	—
Loss from discontinued operations		$	(3	)	$	—

Note 5.  Extraordinary Item

      During the first quarter of 2000, the Company prepaid the Westin St. John $28.4 million mortgage loan, resulting in an extraordinary loss on the early extinguishment of debt.

Note 6.  Restructuring and Other Special Charges

      At March 31, 2000 and December 31, 1999, the Company had remaining accruals related to restructuring and other special charges of $106 million and $121 million, respectively, $21 million and $34 million, respectively, of which is included in other long-term liabilities in the accompanying balance sheets. These accruals consist of $74 million and $75 million at March 31, 2000 and December 31, 1999, respectively, for certain litigation costs and $32 million and $46 million at March 31, 2000 and December 31, 1999, respectively, primarily related to remaining lease commitments which expire through 2006.

Note 7.  Derivative Financial Instruments

      The Company enters into interest rate swap agreements to manage interest rate fluctuations on its variable rate debt. At March 31, 2000, the Company has six outstanding interest rate swap agreements under which the Company pays a fixed rate and receives variable rates of interest. The aggregate notional amount of

12

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

AND STARWOOD HOTELS & RESORTS

NOTES TO FINANCIAL STATEMENTS — (Continued)

these interest rate swaps was approximately $1.1 billion and the estimated unrealized gain on these interest rate swaps was approximately $36 million at March 31, 2000. The unrealized gain represents the amount the Company would receive upon the termination of the swap agreements based on current interest rates.

      From time to time, 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 has five forward foreign exchange contracts outstanding with a U.S. dollar equivalent of the contractual amounts of these hedges at March 31, 2000 of approximately $50 million. These contracts mature through June 2000.

Note 8.  Business Segment Information

      The Company has one operating segment, hotels and leisure. The hotels and leisure segment represents a worldwide network of owned, leased and consolidated joint venture hotels, vacation ownership resorts operated primarily under the Company’s proprietary brand names including Sheraton, Westin, St. Regis, The Luxury Collection, Four Points, W and hotels and resorts operated or flagged under these brand names in exchange for management and franchise fees. Also included are earnings from the Company’s interest in unconsolidated joint ventures and from the development and sale of vacation ownership interests (“VOIs”).

      The performance of the hotels and leisure segment is evaluated primarily on operating profit before corporate selling, general, administrative and other expense, interest expense, and gains (losses) on the sales of real estate and investments. The Company does not allocate these items to the segment.

      The following table presents revenues, operating profit, assets and capital expenditures for the Company’s reportable segment (in millions):

	Three Months Ended
	March 31,
	2000		1999
Revenues	$	1,008	$	853
Operating profit(a)	$	216	$	170
Capital expenditures	$	102	$	74

		March 31,		December 31,
		2000		1999
Assets:
	Hotels	$	12,731	$	12,653
	Corporate		164		168
	Discontinued operations		102		104
		$	12,997	$	12,925

(a)  The following costs are not allocated to Hotels in evaluating operating profit:

	Three Months Ended
	March 31,
	2000		1999
Corporate selling, general, administrative and other	$	25	$	25

13

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

AND STARWOOD HOTELS & RESORTS

NOTES TO FINANCIAL STATEMENTS — (Continued)

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

      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 Reorganization; the Trust’s continued ability to qualify for taxation as a REIT; completion of future acquisitions and dispositions, including the pending sale of the Company’s gaming operations; the availability of capital for acquisitions and for renovations; execution of hotel renovation and expansion programs; the ability to maintain existing management, franchise or representation agreements and to obtain new agreements on favorable terms; competition within the hotel and leisure industry; the cyclicality of the real estate business and the hotel 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 adoption by several European countries of the Euro as their national currency; and the other risks and uncertainties set forth in Starwood’s annual, quarterly and current reports and proxy statements. 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.

RESULTS OF OPERATIONS

      The following discussion presents an analysis of results of our operations for the three months ended March 31, 2000 and 1999.

Three Months Ended March 31, 2000 Compared with Three Months Ended March 31, 1999

Continuing Operations

      Revenues. Revenues increased 18.2% to $1.008 billion for the three months ended March 31, 2000 when compared to the corresponding period in 1999. The increase in revenues was due to the 9.5% increase in revenues for the Company’s owned, leased and consolidated joint venture hotels to $843 million for the three months ended March 31, 2000 when compared to $770 million in the corresponding period of 1999 and the increase in other hotel and leisure revenues to $165 million for the three months ended March 31, 2000 when compared to $83 million in the corresponding period of 1999.

      The increase in revenues from owned, leased and consolidated joint venture hotels resulted primarily from the 8.6% increase in revenues at the Company’s 133 owned, leased and consolidated joint venture hotels (excluding 34 hotels under significant renovation or for which comparable results do not exist) (“Same-Store Hotels”), to $709 million for the three months ended March 31, 2000 when compared to $653 million in the same period of 1999. The increase also resulted from the opening of the 423-room W hotel in San Francisco in May 1999 and the 426-room W hotel in Seattle in September 1999 and the completion, in 1999, of significant renovations at the W New York and Sheraton Boston. The increase in revenues from owned, leased and consolidated joint venture hotels for the three months ended March 31, 2000 was offset, in part, by a $10 million decrease in revenues as a result of the sales of the Kansas City Ritz Carlton in November 1999 and the Westin Central Park South in New York in July 1999. The Same-Store Hotel increase was due, in part, to an increase in revenue per available room (“REVPAR”) at these hotels of 6.6% to $109.25 for the three months ended March 31, 2000 when compared to the same period of 1999. The increase in REVPAR at these hotels was attributed to an increase in average daily rate (“ADR”) of 4.3% to $159.25 for the three months ended March 31, 2000 when compared to the corresponding 1999 period. Occupancy for Same-Store Hotels rose to 68.6% from 67.1% in the three months ended March 31, 2000 when compared to the same period in 1999. REVPAR at Same-Store Hotels in North America increased 9.5% for the three months ended March 31, 2000 when compared to the same period of 1999. REVPAR at the Company’s international owned, leased and

14

consolidated joint venture hotels decreased 0.7% for the three months ended March 31, 2000 when compared to the same period of 1999.

      The increase in other hotel and leisure revenues resulted primarily from the acquisition of Vistana, Inc. (“Vistana”) in October 1999, the addition of hotels to the Company’s management and franchise system and the stronger performance at the Company’s existing managed and franchised hotels. As of March 31, 2000, the Company operates 11 vacation ownership resorts, with eight in active sales.

      Consolidated Hotels EBITDA.⁽¹⁾ EBITDA for the Company’s owned, leased and consolidated joint venture hotels increased $24 million or 10.5% to $253 million for the three months ended March 31, 2000 when compared to $229 million in the corresponding period in 1999. This increase was primarily due to an increase in EBITDA at the Company’s Same-Store Hotels, which increased $15.7 million or 7.7% to $219.6 million. Additionally, the opening of the W hotels in Seattle and San Francisco during the second and third quarters of 1999 contributed to this increase, offset by the sales of the Ritz Carlton in Kansas City and the Westin Central Park South discussed above.

      Selling, General, Administrative and Other. Selling, general, administrative and other expenses were $104 million and $48 million for the three months ended March 31, 2000 and 1999, respectively. The increase in selling, general, administrative and other expenses is due primarily to the cost of sales of VOIs and other costs of the timeshare operations included in the Company’s results for the three months ended March 31, 2000, due to the acquisition of Vistana in October 1999.

      Depreciation and Amortization. Depreciation and amortization expense increased to $123 million in the three months ended March 31, 2000 compared to $119 million in the corresponding period of 1999. The increase in depreciation and amortization expense for the three months ended March 31, 2000 was primarily attributable to the acquisition of Vistana in October 1999.

      Net Interest Expense. Interest expense for the three months ended March 31, 2000 and 1999, which is net of interest income of $3 million in each period and discontinued gaming operations allocation of $3 million and $40 million for the three months ended March 31, 2000 and 1999, respectively, decreased to $111 million from $122 million. This decrease was due primarily to the paydown of debt with proceeds from the Caesars sale ($3.0 billion of cash proceeds were used to pay down debt of which $2.1 billion was reflected as paid down in the presentation of 1999 interest expense), offset by additional borrowings during 1999 and 2000 for Share repurchases and capital expenditures.

      Income Taxes. The effective income tax rate for the first quarter of 2000 decreased to 36.0% compared to the corresponding quarter in 1999. As a result of the Reorganization, the tax provision for the three months ended March 31, 1999 included a $936 million one-time charge to establish a deferred tax liability related to the difference between the book and tax basis in the assets of the Trust. Excluding this charge, the Company’s effective tax rate for the three months ended March 31, 1999 was 40.0%. The Company’s effective income tax rate is determined by the level and composition of pretax income subject to varying foreign, state and local taxes.

Discontinued Operations

      Results for the Company’s gaming operations (including Caesars and the Desert Inn) are included in discontinued operations in the three months ended March 31, 1999. Results of the Desert Inn are included in discontinued operations in the three months ended March 31, 2000. Net loss from discontinued operations was

_______________

(1)  EBITDA is defined as income before interest expense, income tax expense and depreciation and amortization. Non-recurring items and gains and losses from sales of real estate and investments are also excluded from EBITDA as these items do not impact operating results on a recurring basis. Management considers EBITDA to be one measure of the cash flows from operations of the Company before debt service that provides a relevant basis for comparison, and EBITDA is presented to assist investors in analyzing the performance of the Company. This information should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States, 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.

15

$0 and $0.3 million for the three months ended March 31, 2000 and 1999, respectively. These results include the allocation of pretax corporate interest expense of $3 million and $40 million in the three months ended March 31, 2000 and 1999, respectively.

      During the first quarter of 1999, the Company provided for estimated after-tax losses on the disposition of the discontinued operations of $180 million ($158 million pretax), which included anticipated operating results through the expected closing date. In addition, the Company recorded, on an after-tax basis, a $173 million gain on the sale of the Company’s remaining interest in ITT Educational Services, Inc. during the first quarter of 1999.

      Due to the sale of Caesars in December 1999, revenues of discontinued gaming operations decreased 92.3% to $29 million for the three months ended March 31, 2000 when compared to the corresponding period of 1999. Operating costs and expenses of discontinued gaming operations for the three months ended March 31, 2000 also decreased 90.7% to $31 million when compared to the same period of 1999.

Seasonality and Diversification

      The hotel and leisure industry is seasonal in nature; however, the periods during which the Company’s properties experience higher hotel revenue activities vary from property to property and depend principally upon location. The Company’s revenues historically have been lower in the first quarter than in the second, third or fourth quarters.

Same-Store Hotels Results

      Starwood continually updates and renovates its owned, leased and consolidated joint venture hotels. While undergoing renovation, these hotels are generally not operating at full capacity and, as such, these renovations can negatively impact Starwood’s hotel revenues. Starwood expects to continue renovating its owned, leased and consolidated joint venture hotels in 2000 to pursue its brand and quality strategies.

      The following table summarizes average occupancy, ADR and REVPAR for the Company’s Same-Store Hotels for the three months ended March 31, 2000 and 1999. The results for the first quarter of 2000 and 1999 represent results for 133 owned, leased and consolidated joint venture hotels (excluding 34 hotels under significant renovation or for which comparable results are not available).

	Three Months Ended
	March 31,
	2000			1999			Variance
Worldwide (133 hotels with 43,285 rooms)
REVPAR	$	109.25		$	102.46			6.6	%
ADR	$	159.25		$	152.65			4.3	%
Occupancy		68.6	%		67.1	%		1.5
North America (92 hotels with 31,617 rooms)
REVPAR	$	110.00		$	100.43			9.5	%
ADR	$	157.83		$	149.95			5.3	%
Occupancy		69.7	%		67.0	%		2.7
International (41 hotels with 11,668 rooms)
REVPAR	$	107.22		$	107.96			(0.7	)%
ADR	$	163.34		$	159.93			2.1	%
Occupancy		65.6	%		67.5	%		(1.9	)

16

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Provided by Operating Activities

      Cash flow from operating activities is the principal source of cash 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-term and long-term indebtedness, fund maintenance requirements and capital expenditures and meet operating cash requirements, including all distributions to shareholders by the Trust. The Trust’s annual dividend increased 15% in 2000 to $0.69 per Share. A quarterly dividend of $0.1725 per Share was paid in April 2000 to shareholders of record as of March 31, 2000.

Cash Flow from Investing and Financing Activities

      In addition to cash flow from operating activities, the Company intends to finance the acquisition of additional hotel properties (including equity investments), hotel renovations, capital improvements and other core business acquisitions and provide for general corporate purposes through its credit facilities described below, through the net proceeds from dispositions of certain non-core assets and, when market conditions warrant, through the issuance of additional equity or debt securities.

      In December 1999, the Company completed the sale of Caesars for approximately $3.0 billion in cash. The Company used the proceeds to immediately pay off $2.5 billion of increasing rate notes and to reduce its bank revolver by approximately $500 million.

      In December 1999, the Company identified certain hotels as non-core assets and classified them as held for sale. Cash proceeds from non-core asset sales will be used to retire debt, repurchase Shares and provide for general corporate purposes. During the first quarter of 2000, the Company sold two hotels for aggregate proceeds (consisting of cash and a note receivable) of approximately $9 million, resulting in a pretax gain on disposal of $1 million.

      As a result of the Reorganization, Starwood will pay significantly more in federal income taxes, and will have the ability to retain significantly more earnings than was previously the case. Starwood anticipates that its enhanced ability to retain earnings will allow it to utilize cash flow from operating activities to fund maintenance, capital expenditures and acquisitions.

17

      Following is a summary of the Company’s debt portfolio as of March 31, 2000:

				Amount
		Amount of		Outstanding at						Interest Rate at			Average
		Facility		March 31, 2000(a)			Interest Terms			March 31, 2000			Maturity
		(Dollars in millions)
Floating Rate Debt
Senior Credit Facility:
	Five-Year Term Loan	$	1,000	$	1,000			LIBOR+1.00	%		7.13	%		2.9 years
	Revolving Credit Facility		1,100		836			LIBOR+1.00	%		7.13	%		2.9 years
Senior Secured Notes Facility:
	Tranche II Loans		1,000		1,000			LIBOR+2.75	%		8.88	%		2.9 years
Mortgages and other					373			Various			7.47	%		4.7 years
Long-term interest rate swaps					(1,080	)					7.14	%		—
Total/average				$	2,129						8.01	%		3.1 years
Fixed Rate Debt
ITT public debt				$	1,996						6.79	%		7.4 years
Mortgages and other					923						7.30	%		12.3 years
Long-term interest rate swaps					1,080						7.06	%		—
Total/average				$	3,999						6.98	%		8.9 years
Total Debt
Total debt and average terms				$	6,128						7.34	%		5.9 years

(a)  Includes $165 million of debt allocated to the Company’s discontinued operations in the accompanying March 31, 2000 balance sheet.

     Starwood has a substantial amount of indebtedness and a working capital deficiency of $965 million at March 31, 2000. Starwood has no significant debt maturing until November 2000, at which time $700 million of the ITT public debt is due. Based upon the current level of operations, management believes that the Company’s cash flow from operations, together with available borrowings under the Senior Credit Facility (approximately $216 million at March 31, 2000) and capacity with additional borrowings and proceeds from non-core asset sales, will be adequate to meet the Company’s anticipated requirements for working capital, capital expenditures, marketing and advertising expenditures, program and other discretionary investments, interest payments and scheduled principal payments for the foreseeable future, including at least the next three years. There can be no assurance, however, that the Company’s business will continue to generate cash flow at or above current levels or that currently anticipated improvements will be achieved. If Starwood is unable to generate sufficient cash flow from operations in the future to service the Company’s debt, the Company may be required to sell assets, reduce capital expenditures, refinance all or a portion of its existing debt or obtain additional financing. The Company’s ability to make scheduled principal payments, to pay interest on or to refinance the Company’s indebtedness depends on its future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the hotel and leisure industry and to general economic, political, financial, competitive, legislative and regulatory factors beyond the Company’s control. There can be no assurance that sufficient funds will be available to enable Starwood to service its indebtedness or to make necessary capital expenditures, marketing and advertising expenditures and program and other discretionary investments.

Stock Sales and Repurchases

      Pursuant to the Share repurchase program, the Company repurchased 805,000 Shares in the open market at an average purchase price of $24.10 during the first quarter of 2000. Under the 1998 Board-approved Share repurchase program, at March 31, 2000, the Company has approximately $280 million remaining authorization to repurchase Shares.

18

OTHER MATTERS

European Union Currency Conversions

      On January 1, 1999, 11 of the 15 member countries of the European Union (the “Participating Countries”) established fixed conversion rates between their existing sovereign currencies and the Euro. Following the introduction of the Euro, the legacy currencies of the Participating Countries will remain legal tender during a transition period ending on January 1, 2002. During the transition period, both the legacy currency and the Euro will be legal tender in the respective Participating Countries. During the transition period, currency conversions will be computed by a triangulation with reference to conversion rates between the respective currencies and the Euro. The Company currently operates in 10 of the 11 Participating Countries. The effect on the Company of the adoption of the Euro by the Participating Countries in which it operates is currently uncertain. However, it is possible that the Euro adoption will result in increased competition within the European market. In addition, a number of the Company’s information systems are not currently Euro compliant. The Company is currently evaluating and updating its information systems to make them Euro compliant; however, there is no assurance that the Company or third-party vendors of applications used by the Company will successfully bring all of their systems into compliance. Failure of the Company or such third parties to do so could result in disruptions in the processing of transactions in Euros or computed by reference to the Euro.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

      There were no material changes to the information provided in Item 7A in the Company’s Joint Annual Report on Form 10-K regarding the Company’s market risk.

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.

      Pursuant to the Share repurchase program, the Company repurchased approximately 805,000 Shares in the open market at an average purchase price of $24.10 during the first quarter of 2000.

19

Item 6.  Exhibits and Reports on Form 8-K.

(a) Exhibits

Exhibit
Number		Description
	10.1	Amended and Restated Employment Agreement, effective as of January 1, 2000, between Barry S. Sternlicht and the Company.(1)
	10.2	Separation Agreement, dated as of February 10, 2000, by and between the Corporation and Susan R. Bolger (incorporated by reference to Exhibit 10.53 to the 1999 Form 10-K).
	27.1	Financial Data Schedule for the Corporation.(1)
	27.2	Financial Data Schedule for the Trust.(1)

(1)  Filed herewith.

(b)  Reports on Form 8-K

      Starwood filed the following Current Report on Form 8-K during the first quarter of 2000:

(i)  Joint Current Report on Form 8-K dated January 7, 2000, reporting under Items  2 and 7 the completion of the sale of Caesars and certain other gaming assets to Park Place Entertainment Corporation.

20

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 WORLDWIDE, INC	STARWOOD HOTELS & RESORTS
By: /s/ RONALD C. BROWN Ronald C. Brown Executive Vice President and Chief Financial Officer	By: /s/ RONALD C. BROWN Ronald C. Brown Vice President and Chief Financial and Accounting Officer
Date: May 12, 2000

21

EXHIBIT INDEX

Exhibit
Number		Description
	10.1	Amended and Restated Employment Agreement, effective as of January 1, 2000, between Barry S. Sternlicht and the Company.(1)
	10.2	Separation Agreement, dated as of February 10, 2000, by and between the Corporation and Susan R. Bolger (incorporated by reference to Exhibit 10.53 to the 1999 Form 10-K).
	27.1	Financial Data Schedule for the Corporation.(1)
	27.2	Financial Data Schedule for the Trust.(1)

(1)  Filed herewith.

EX-10.1

   1
                                                                   Exhibit 10.1


                              AMENDED AND RESTATED
                              EMPLOYMENT AGREEMENT
                                     between
                    STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
                                       and
                               BARRY S. STERNLICHT


               Employment Agreement ("Agreement"), effective as of January 1,
2000, between Barry S. Sternlicht ("Executive") and Starwood Hotels & Resorts
Worldwide, Inc., a Maryland corporation (the "Company"), with its principal
office at 777 Westchester Avenue, Suite 400, White Plains, New York 10604.

               WHEREAS, Executive has served as Chairman and Chief Executive
Officer of the Company or its predecessors since December 1994 and currently
serves as such;

               WHEREAS, the Company desires to continue the services of
Executive as its Chairman and Chief Executive Officer and to enter into an
agreement embodying the terms of such continuing relationship; and

               WHEREAS, Executive is willing to accept such continued employment
upon the terms and conditions hereinafter set forth;

               NOW, THEREFORE, in consideration of the agreements and covenants
contained herein, the Executive and the Company hereby agree as follows:

                                   ARTICLE I

                               Employment and Term

     Section 1.01. Position; Responsibilities.

                   (a) The Company hereby employs and continues the employment
of Executive as its Chairman and Chief Executive Officer ("CEO") upon the terms
and conditions hereinafter set forth.

                   (b) As CEO, Executive shall at all times be senior-most
officer of the Company, with the duties, responsibilities and authority
customarily associated with such position and consistent with such duties,
responsibilities and authority as have heretofore been his as CEO. Such duties
include authority and responsibility for acquisitions, divestitures, finance and
investor relations, subject to policies adopted by the Board of Directors of the
Company (the "Board"). Executive shall perform such other additional duties and
services of a


   2

senior executive nature, consistent with his position as CEO of a large,
publicly traded company, as may be requested of him from time to time by the
Board.

     Section 1.02. Performance of Duties; Other Commitments and Activities.

                   (a) Executive shall at all times endeavor to duly and
faithfully perform all of his duties hereunder to the best of his abilities.

                   (b) Executive shall devote such time and effort as may be
necessary and appropriate from time to time in the circumstances for the proper
discharge of his duties and obligations under this Agreement. The Company
acknowledges that Executive is involved in other business endeavors, including
with Starwood Capital Group L.L.C. ("SCG"), as well as serving on outside boards
and managing personal investments and as a consequence performs multiple
executive roles. Subject to the Executive's duties and obligations to the
Company as set forth in this Section 1.02(b) and subject to non-competition
agreements between the Company and Executive and between the Company and SCG,
the Company consents to the continuation of Executive's additional business
endeavors and multiple executive roles.

                   (c) Executive's base of operations under this Agreement shall
continue to be White Plains, New York although Executive may, at his election,
render his services from other locations. Executive shall not be required to
relocate to or render services in, on other than a temporary basis, another
location that is more than a 20-mile radius from the White Plains' location.

     Section 1.03. Term. Executive's term of employment under this Agreement
(the "Term") shall commence on the date hereof (the "Commencement Date") and
shall expire on December 31, 2002, unless extended or sooner terminated as
herein provided.

     Section 1.04. Representation and Warranty of Executive. Executive hereby
represents and warrants to the Company that he is not aware of any presently
existing fact, circumstance or event (including, but without limitation, any
health condition or legal constraint) which would preclude or restrict him from
providing to the Company the services contemplated by this Agreement, or which
would give rise to any breach of any term or provision hereof; or which could
otherwise result in the termination of his employment hereunder for Cause or
Good Reason (as such terms are hereinafter defined).

     Section 1.05. Representation and Warranty of Company. The Company hereby
represents and warrants to Executive that (i) it is not aware of any fact,
circumstance or event which would give rise to any breach of any term or
provision of this Agreement, or which would form the basis for any claim or
allegation that Executive's employment hereunder could be terminated for Cause
or Good Reason hereunder; and (ii) it has received all authorizations and has
taken all actions, necessary or appropriate for the due execution, delivery and
performance of this Agreement, all options described in Section 2.04(b).



                                      -2-
   3

                                   ARTICLE II

                                  Compensation

     Section 2.01. General. The Company shall compensate Executive for all his
services under this Agreement, as set forth herein.

     Section 2.02. Basic Compensation. Executive's minimum annual salary ("Base
Salary") shall be at the rate of $1,000,000 and shall be payable in bi-weekly or
other installments in accordance with the Company's normal payment schedule for
senior management (not less frequently than monthly). The Base Salary shall be
subject to annual review commencing at the end of 2000 and at the end of each
year thereafter during the Term, and may be increased (but not decreased) for
subsequent years.

     Section 2.03. Incentive Compensation. In addition to the Base Salary, the
Company shall pay to Executive as incentive compensation ("Incentive
Compensation") in respect of each calendar year (or portion thereof) of the
Company, an amount determined pursuant to and in accordance with the Company's
1999 Annual Incentive Plan for Certain Executives, or any successor plan (the
"Annual Incentive Plan"); provided, however, that (i) as Incentive Compensation
for the full calendar year ending December 31, 1999, the Company will pay
Executive $1,650,000, and (ii) the bonus payable to Executive upon attainment of
the minimum threshold Performance Measure requirement established under the
Annual Incentive Plan for each year during the Term shall not be less than
$1,325,000.

               All Incentive Compensation earned under this Section 2.03 shall
be payable as soon as reasonably practicable, but in no event later than 120
days after the end of the relevant calendar year.

     Section 2.04. Equity Incentives and Other Benefit Programs.

                   (a) On and prior to September 25, 1997, Executive was granted
certain options, warrants, restricted stock and performance awards under the
Starwood Lodging Trust 1995 Long-Term Incentive Plan (as it has been amended and
restated, from time to time, as of and subsequent to August 12, 1996) (as well
as certain options which were granted under the Starwood Lodging Trust 1995
Share Option Plan, prior to the amendment and restatement thereof as of August
12, 1996) and which were modified by the Employment Agreement between Executive
and Starwood Hotels & Resorts Trust dated February 17, 1998 (the "1998
Employment Agreement"), and options which were granted to Executive on January
26, 1999 (all such awards, warrants, stock and options, the "Pre-Existing
Awards"), all of which grants and awards are hereby confirmed as having been
duly and validly authorized and issued, and being in full force and effect as of
the date of execution of this Agreement.

               Nothing in this Agreement shall be deemed to modify or otherwise
affect any of the terms or provisions (including, but without limitation, any
contingencies and any modifications made by the 1998 Employment Agreement) of
any Pre-Existing Awards.



                                      -3-
   4

                   (b) Initial Option Grant. In an option agreement in
substantially the form attached hereto as Exhibit A, and reflecting the terms
and conditions of this Section 2.04(b), the Company, pursuant to the Starwood
Hotels & Resorts Worldwide, Inc. 1999 Long-Term Incentive Plan ("the 1999
LTIP"), on March 3, 2000, granted Executive a nonqualified stock option to
purchase 1,500,000 Units, as defined in the 1999 LTIP, (the "Units") at an
exercise price equal to $21.8125 per unit (the "Option"). Subject to Section
3.02(b), the Option shall vest and become exercisable in accordance with the
following provisions of this Section 2.04(b) and shall remain exercisable
throughout its term. The Option shall vest and become exercisable with respect
to 500,000 Units on December 31, 2000. The Option shall vest with respect to a
second 500,000 Units (the "Second Installment") on December 31, 2001. With
respect to the Second Installment, the option will become exercisable on the
later of December 31, 2001 and the first date following January 1, 2000 upon
which Shares of the Company's Common Stock trade at a price per share of $25.59
or more on the New York Stock Exchange (or if such Common Stock ceases to be
traded on the New York Stock Exchange for any reason, then the price listed on
the applicable exchange, market or quotation system). The Option shall vest with
respect to the remaining 500,000 Units (the "Third Installment") on December 31,
2002. With respect to the Third Installment, the option will become exercisable
on the later of December 31, 2002 and the first date following January 1, 2000
upon which Shares of the Company's Common Stock trade at a price per share of
$30.06 or more on the New York Stock Exchange (or if such Common Stock ceases to
be traded on the New York Stock Exchange for any reason, then the price listed
on the applicable exchange, market or quotation system). Notwithstanding the
foregoing, the Option will become exercisable with respect to the 1,000,000
Units not becoming exercisable on December 31, 2000, on December 31, 2004. The
exercise price of the Option, the number of Units subject to the Option and the
prices that cause the Option to become exercisable shall be appropriately
adjusted in the event of any stock dividend, stock split, stock combination,
spin-off, split-off, split-up, reclassification, recapitalization or any
transaction similar thereto. An adjustment shall be considered "appropriate"
within the meaning of the preceding sentence if, and only if, after such
adjustment, (i) the difference between the price at which the Executive is
entitled to exercise each Option, and the fair market value of the securities
subject to each such Option is at least as great as in effect immediately before
any such adjustment and (ii) the terms of the securities subject to each such
Option impose no greater limitation on the possibility of further increases in
their fair market value than were in effect immediately before such adjustment.
Subject to Section 3.02(b), the Option shall continue to vest until the Option
is fully vested or, if earlier, until the date on which the Executive holds
neither the position of Chairman or CEO with the Company. In addition to the
rights granted to Executive under Section 3.02(b), if the Executive's employment
is terminated by the Company for any reason other than "Cause" as defined in
Section 3.01(d) at any time before the Option has become exercisable in full,
the Option shall become immediately vested and become immediately exercisable in
its entirety, and the Executive shall be entitled to continue to hold the Option
and to exercise it, or any portion of it, until the earlier of (i) the third
anniversary of the date of the termination of Executive's employment or (ii) the
tenth anniversary of the date on which the Option was granted.

               The option agreement shall provide that Executive may transfer
the Option to his spouse or issue, a trust or trusts maintained for their
benefit, a partnership, LLC or LLP, in which


                                      -4-
   5


such family members, with or without Executive, own at least a 98 percent
interest in capital and profits, or a corporation at least 98 percent of the
stock of which is owned by such family members, such trusts, and Executive.

                   (c) Future Option Grants. The Company shall grant Executive
an option in January of each subsequent year during the Term. It is the
intention of the parties that such future grants for the two remaining years of
the Term shall be made to Executive consistent with then-prevailing market
conditions, but generally such future grants will be for no less than the number
of Units (adjusted as necessary for any dilution, stock dividend, stock split,
stock combination, spin-off, split-off, split-up, reclassification,
recapitalization or any transaction similar thereto), and on terms no less
favorable than those applicable to, the Option provided for in Section 2.04(b)
and contained in Exhibit B.

                   (d) During the Term, Executive shall be entitled to
participate in the LTIP, any successor plan and all employee benefit plans,
including retirement programs, if any, group health care plans, and all fringe
benefit plans, of the Company. Such plans shall at all times be comparable to
those made available to the senior-most management of the Company. In addition,
the Company shall provide Executive with the following benefits during the Term:

                        (i) use of an automobile driver and car service for
business purposes consistent with past practice prior to the execution of this
Agreement;

                        (ii) priority scheduling on the Company aircraft, if
any, for business purposes;

                        (iii) first-class travel accommodations (air and
lodging) for business-related travel (including the reasonable travel expenses
incurred by Executive's spouse when accompanying Executive on business-related
travel); and

                        (iv) tax preparation and financial planning assistance
up to a maximum cost of $25,000 per calendar year.

               (e) During the Term, the Company shall pay the premiums on and
maintain in effect a whole life or universal life insurance policy (the
"Executive Insurance Policy") on Executive's life in the face amount of
$10,000,000, the proceeds of which shall be payable to Executive's estate or
such other person or persons as Executive shall designate. The Executive
Insurance Policy shall be owned as directed by Executive. At Executive's
election the Executive Insurance Policy shall be maintained on a split-dollar
basis, the Company shall enter into a split-dollar agreement suitable to
Executive, and the face amount of the Executive Insurance Policy shall be
increased to fully compensate for any rights or interest the Company may have
with respect to the policy under the split-dollar agreement. The Company shall
not be required to maintain such insurance after termination of Executive's
employment for any or no reason, but upon such termination the Company shall
take all actions reasonably requested by Executive necessary to transfer any and
all rights or interests it may have with respect to such policy as the Executive
directs at no cost to Executive.



                                      -5-
   6

                   (f) The Company shall reimburse Executive for all legal fees
reasonably incurred by Executive in connection with the negotiation and
execution of this Agreement.

     Section 2.05. Expense Reimbursements. The Company shall reimburse Executive
for all proper expenses incurred by him in the performance of his duties
hereunder in accordance with the policies and procedures of the Company as in
effect from time to time.

     Section 2.06. Withholding. The Base Salary and all other payments to
Executive for his services to the Company shall be subject to all withholding
and deductions required by federal, state or other law (including those
authorized by Executive but not otherwise required by law), including but not
limited to state, federal and local income taxes, unemployment tax, Medicare and
FICA, together with such deductions as Executive may from time to time
specifically authorize under any employee benefit program which may be adopted
by the Company for the benefit of its senior executives or Executive.

                                  ARTICLE III

                            Termination of Employment

     Section 3.01. Termination.

                   (a) Executive's employment hereunder shall be terminable by
either party with or without Cause and with or without notice except as
otherwise provided herein, but with the effect set forth herein.

                   (b) Executive shall give the Company at least 30 days'
advance written notice prior to any termination by Executive other than for Good
Reason. The Company shall give Executive at least 30 days' advance written
notice prior to any termination of Executive without Cause.

                   (c) Executive may resign and terminate his employment
hereunder for Good Reason (which shall also be deemed a termination by the
Company other than for Cause), subject, however, to prior delivery to the
Company of a Preliminary Notice of Good Reason and the failure of the Company to
remedy the same within the cure period provided below. For purposes of this
Agreement, "Good Reason" means (i) the failure to elect and continue Executive
as CEO or Chairman of the Company or to nominate Executive for re-election as a
member of the Board (unless a Cause Termination Notice (as hereinafter defined)
shall theretofore have been given to Executive); (ii) the assignment to
Executive of duties, authorities, responsibilities and reporting requirements
inconsistent with his position, or if the scope of any of Executive's material
duties or responsibilities as CEO of the Company is reduced or expanded to a
significant degree without Executive's prior consent, except for any reduction
in duties and responsibilities due to Executive's illness or disability or
temporary suspensions of duties and responsibilities pending results of any
Board-commissioned investigation as to potential Cause for termination of
Executive's employment and except if a Cause Termination Notice shall




                                      -6-
   7

theretofore have been given to Executive; (iii) a reduction in or a substantial
delay in the payment of Executive's compensation or benefits from those required
to be provided in accordance with the provisions of this Agreement, including
any reduction of Executive's bonus opportunity under Section 2.03 and
Executive's rights under Exhibit A, including (A) a materially adverse change in
the manner of setting Performance Measure requirements under the Annual
Incentive Plan, or (B) an increase in those requirements that is materially
inconsistent with prior practice; (iv) a requirement by the Company or the
Board, without Executive's prior written consent, that Executive be based in
another location that is more than a 20-mile radius from the White Plains, New
York location, other than on travel reasonably required to carry out Executive's
obligations under this Agreement; (v) the failure of the Company to indemnify
Executive (including the prompt advancement of expenses), or to maintain
directors' and officers' liability insurance coverage for Executive, in
accordance with the provisions of Section 5.12 hereof; (vi) the Company's
purported termination of Executive's employment for Cause other than in
accordance with the requirements of this Agreement; (vii) a "Change of Control"
as such term is defined and used in the LTIP, shall have occurred (unless a
Cause Termination Notice shall theretofore have been given to Executive); (viii)
the failure, by December 1, 2002, of the Company and Executive to agree to an
extension of the Term beyond December 31, 2002, (ix) the failure of any
successor company to the Company to assume this Agreement in accordance with
Section 5.02 hereof; and (x) any other breach by the Company of any provision of
this Agreement; provided, that in the event Good Reason is based on clause (ii),
(iii), (iv), (v), (ix) or (x) above, (a) "Good Reason" shall not include an act
which is cured by the Company within 30 days from receipt by the Company of a
written notice from Executive (a "Preliminary Notice of Good Reason")
identifying in reasonable detail the act(s) or failure(s) constituting Good
Reason; provided that during the Term the Company shall the opportunity to cure
only one occurrence described in each of clauses (ii), (iii), (iv), (v), (ix) or
(x) above, (b) Good Reason shall not exist unless the Preliminary Notice of Good
Reason shall have been given by Executive within 60 days after learning of the
act, failure or event (or, in the case of a series of related acts, failures or
events, within 120 days of the first such act, failure or event) which Executive
alleges constitutes Good Reason hereunder, (c) if the Company has failed to cure
as provided above, Good Reason shall not exist unless Executive shall have given
notice of termination hereunder for Good Reason within 60 days from delivery of
the Preliminary Notice of Good Reason (which termination shall be effective 30
days from the giving of such notice), and (d) if the Company has commenced an
expedited arbitration in the manner prescribed below within 15 days after
receipt of Executive's notice of termination called for under the immediately
preceding clause (c), such termination shall not be effective as a termination
of employment and shall not be deemed a termination by Executive for Good Reason
unless and until the Arbitrator shall have determined otherwise. If the Company
has timely commenced such an arbitration proceeding, in the manner prescribed
below, no payments shall be due Executive under Section 3.02 (i) or (ii) hereof
until the conclusion of the arbitration proceeding or further proceeding
contemplated by Section 5.04 hereof and only if an award is rendered by the
Arbitrator in favor of Executive. Notwithstanding the foregoing, if the Company
fails to file a demand for arbitration with the American Arbitration Association
("AAA") and pay the requisite fees pursuant to Rule 4 of the AAA's National
Rules for the Resolution of Employment Disputes effective June 1, 1996, as
hereafter amended from time to time (the "National Rules") within 30 days after
receipt of notice


                                      -7-
   8

of termination from Executive, and diligently pursue such proceeding in
accordance with the procedures set forth in Section 5.04 hereof, Executive's
termination of employment from the Company shall be conclusively presumed to
have been for Good Reason.

                   (d) The Company shall have the right to terminate Executive's
employment hereunder for Cause. For purposes hereof "Cause" shall be defined as
Executive's having (i) been convicted of a criminal offense constituting a
felony, (ii) committed one or more acts or omissions constituting fraud or
willful misconduct that have had a material detrimental effect upon the Company,
or (iii) failed, after written warning from the Board specifying in reasonable
detail the breach(es) complained of, to substantially perform his duties under
this Agreement (excluding, however, any failure to meet any performance
targets), except where such failure results from Executive's incapacity due to
physical or mental illness. For purposes of the foregoing, no act or failure to
act on the part of Executive shall be considered "willful" unless it is done, or
omitted to be done, by Executive without reasonable belief that Executive's
action or omission was in the best interests of the Company. Any act or failure
to act that is expressly authorized by the Board pursuant to a resolution duly
adopted by the Board, or pursuant to the written advice of counsel for the
Company, shall be conclusively presumed to be done, or omitted to be done, by
Executive in the best interests of the Company.

               Notwithstanding the foregoing, termination by the Company for
Cause shall not be effective until and unless each of the following provisions
shall have been complied with: (i) notice of intention to terminate for Cause (a
"Preliminary Cause Notice"), the giving of which shall have been authorized by a
vote of not less than 75% of all disinterested Directors then in office which
shall include a written statement of the particular acts or circumstances which
are the basis for the termination for Cause and shall set forth a reasonable
period (not less than 30 days) to cure (the "Cure Period"), shall have been
given to Executive by the Board within sixty days after the Company first learns
of the act, failure or event constituting Cause; and (ii) Executive shall not
have cured the acts or circumstances complained of within the Cure Period; and
(iii) the Board shall have called an in personam meeting of the Board, at which
termination of Executive is an agenda item, and shall have provided Executive
with not less than 20 days' notice thereof; and (iv) Executive shall have been
afforded the opportunity, accompanied by counsel, to provide written materials
to the Directors in advance of such meeting and, if he so desires, to personally
address the Directors at such meeting; and (v) the Board shall have provided,
within three business days after such meeting, a written notice of termination
for Cause, stating that, based upon the evidence it has received and reviewed,
and specifying in reasonable detail the acts and circumstances complained of, it
has voted by a vote of at least 75% of all of the disinterested Directors then
in office to terminate Executive for Cause (such a notice, a "Cause Termination
Notice"), which such notice shall be effective on the sixteenth day after
receipt thereof by Executive, subject to the provisions hereof; provided that if
Executive has commenced an expedited arbitration in the manner prescribed below
within 15 days after his receipt of the Cause Termination Notice, disputing the
Company's right under this Agreement to so terminate for Cause, Executive shall
not be deemed to have been terminated for Cause unless and until the Arbitrator
shall thereafter have determined that Executive was properly terminated for
Cause in accordance with the provisions hereof; and provided, further that the
Company may



                                      -8-
   9

suspend Executive (a) with pay, at any time after any indictment of Executive
for a criminal offense constituting a felony, and (b) without pay, at any time
after the giving of the Cause Termination Notice, except that any payments not
so made shall be made within three business days after the Arbitrator shall have
made a determination that Executive was terminated other than in compliance with
the foregoing provisions relating to termination for Cause. If Executive or his
representative fails to file a demand for arbitration with the AAA and pay the
requisite fees pursuant to Rule 4 of the National Rules within 30 days of his
receipt of a Cause Termination Notice from the Board, and diligently pursue such
proceeding in accordance with the procedures set forth in Section 5.04 hereof;
such termination shall be conclusively presumed to have been for Cause; it being
understood and agreed that any decision of the Arbitrator that Executive has
been terminated hereunder for Cause or any failure of Executive to contest the
Company's allegations of Cause hereunder (by failing to file and/or prosecute a
demand for arbitration or otherwise), is not intended to, and shall not, have
any effect or bearing whatsoever on any Pre-Existing Award, and the parties
specifically agree and undertake that, notwithstanding anything to the contrary,
no finding of any Arbitrator pursuant hereto that Executive was properly
terminated for Cause under this Agreement shall be binding upon or admissible in
any court or other proceeding in which any Pre-Existing Awards are at issue.

               If the Arbitrator declines to rule that Executive was terminated
for Cause, Executive shall be treated as having been terminated without Cause
and Executive shall have the rights provided under Section 3.02 below and
provided elsewhere in this Agreement with respect to a termination without
Cause.

               For all purposes of this Agreement, "Good Reasons" and "Cause"
shall have the applicable defined meaning as set forth above in this Section
3.01.

               No termination of Executive's employment shall require that
Executive resign any other position (including as Director or Chairman) he may
then be holding with the Company; provided, however, that (i) if Executive's
employment hereunder is terminated for Cause under the above provisions,
Executive shall resign forthwith from all positions he may then be holding with
the Company, if requested to do so by the Board, and (ii) if Executive
terminates his employment hereunder other than for Good Reason, Executive shall
resign forthwith from all such positions, if requested to do so by the Board,
except for any position to which he has been elected by the shareholders of the
Company (such as Director).

     Section 3.02. Severance Package. In the event Executive's employment under
this Agreement is terminated by the Company other than for Cause (and a
termination due to the Executive's death or permanent disability shall be
treated for purposes of this Agreement as a termination by the Company other
than for Cause) or is terminated by Executive for Good Reason, then, as and for
a severance package ("Severance Package"):

                   (a) Executive shall, subject only to the delays permitted by
Section 3.01 for arbitration, receive (A) an amount, which shall be payable in
one lump sum as soon as practicable, but in any event within 30 days of the date
of Executive's termination, equal to the sum of (1) the product of (a) the
greatest amount of Incentive Compensation paid to Executive



                                      -9-
   10

with respect to any of the three full calendar years ending immediately prior to
the calendar year in which the termination of employment occurs (the "Annual
Bonus") multiplied by (b) a fraction, the numerator of which is the number of
completed days in the calendar year of such termination of employment through
the date of such termination and the denominator of which is 365 and (2) the
product of 2 times the sum of (a) the annual Base Salary then in effect, plus
(b) the Annual Bonus; and (B) Company paid medical insurance benefits available
to other senior executives of the Company during the current or future 12-month
period subsequent to termination of employment, all costs of which shall be paid
by the Company (and thereafter all COBRA rights available to Executive shall be
paid by Executive); provided that the Company shall deposit the amount described
in clause (A) above in escrow within 10 days of the Company's or Executive's
filing a demand for arbitration in accordance with Section 3.01(c) or 3.01(d),
as applicable; provided that in such event, the amount held in escrow shall be
paid to the appropriate party by the escrow agent within 5 days of the date of
determination that Executive's termination is other than for Cause or for Good
Reason, as applicable; and

                   (b) The Option granted pursuant to Section 2.04(b) and any
future options granted to Executive pursuant to Section 2.04(c) shall,
notwithstanding any provision to the contrary contained in this Agreement,
Exhibit A or any future option agreement(s) covering the Option and such future
option grants, immediately vest in full and immediately become exercisable. The
Option granted pursuant to Section 2.04(b) and any future options granted to
Executive pursuant to Section 2.04(c) shall remain exercisable until the sooner
of: (i) the third anniversary of Executive's Termination Date, or (ii) the
expiration of the tenth anniversary of the Option's grant and following
Executive's exercise of any such option, Executive shall receive title to the
shares issued upon exercise in respect thereof free and clear of any lien, claim
or encumbrance by, through or under the Company.

               In addition, any Deferred Units credited to Executive under the
Company's 1999 Annual Incentive Plan for Certain Executives shall immediately
vest in full.

               If a corporate transaction which would constitute a Change of
Control event under the LTIP is agreed to during the pendency of an arbitration
hereunder, the Company will include appropriate provisions which will enable
Executive to participate in such Change of Control event as if the arbitration
were resolved favorably to Executive, but subject to such a favorable
resolution.

               The parties agree that the foregoing shall be Executive's sole
and exclusive monetary remedy under this Agreement by reason of termination by
Executive for Good Reason or by the Company other than for Cause, it being
agreed that as his actual damages under this Agreement would be difficult to
measure or quantify and would be impracticable to determine, such amount shall
constitute liquidated damages under this Agreement for Executive by reason of
such termination by Executive for Good Reason, or by reason of any termination
by the Company other than for Cause hereunder. Such payments shall not be
reduced or limited by amounts Executive might earn or be able to earn from other
employment or ventures. The parties agree that the Company shall have no
recourse whatsoever to any monetary remedy by




                                      -10-
   11


reason of Executive's termination of employment, other than for reimbursement of
actual out-of-pocket damages actually suffered and incurred by the Company as a
direct result of Executive's termination by the Company for Cause hereunder
(excluding the costs of identifying and/or hiring any replacement for Executive,
or any attorney's fees or costs of investigation, which shall be borne solely by
the Company), all of which are hereby waived; provided, however, that the
foregoing limitation shall not apply to any claims the Company may have against
Executive relating to tortious conduct by Executive which causes damage to the
Company or to any claims Executive may have against the Company relating to
tortious conduct by the Company which causes damage to Executive.

     Section 3.03. Rights on Termination for Cause or Without Good Reason. No
Severance Package shall be due or owing to Executive in the event that the
Company shall fully terminate Executive's employment for Cause or in the event
that Executive shall terminate his employment with the Company for reasons other
than Good Reasons; provided, however, that Executive shall in all events be paid
all accrued but unpaid Base Salary, earned but unpaid Incentive Compensation,
and other benefits through the date of termination. For purposes of this
Agreement, Incentive Compensation shall be considered to be earned if the cycle
for which the Incentive Compensation is to be measured has been completed,
notwithstanding the fact that the amount may not have been calculated at the
time the Executive's employment is terminated and notwithstanding any
requirement that the Executive be employed at the payment date of such Incentive
Compensation.

     Section 3.04. Effect of Change in Control Agreement. Notwithstanding any
provision of this Agreement to the contrary, if the Executive's termination of
employment, follows a Change in Control of the Company, as defined in the Tier I
Severance Agreement between the Company and the Executive, dated December 14,
1999 (the "Change in Control Agreement") and the Change in Control Agreement is
in effect, the Executive shall be entitled to receive, with respect to each
benefit or payment described above, the greater of the net benefit provided
under this Agreement or the net benefit provided under the Change in Control
Agreement. If either of those Agreements provides a benefit or payment to the
Executive that is not a subject of the other Agreement, that benefit or payment
will be paid to the Executive in accordance with the terms of the applicable
Agreement.

                                   ARTICLE IV

              Confidential Information; Including Company Employees

     Section 4.01. Confidential Information. Except in the course of his
employment with the Company, or as he may be required pursuant to any law or
court order of similar process, Executive shall not at any time either during or
after his termination of employment hereunder, directly or indirectly disclose
or use any secret, proprietary or confidential information or data of the
Company, or any of its subsidiaries or affiliates; provided, however, that after
the expiration of 18 months from such termination of employment, the Company's
sole remedy shall be to seek and procure appropriate equitable remedies. In the
event of any dispute between Executive and


                                      -11-
   12

the Company or between Executive or the Company and others, Executive shall
cooperate with the Company as to redaction or other protective measures with
respect to any unnecessary public disclosure of any such confidential
information or proprietary data.

     Section 4.02. Inducing of Company Employees. Except in the course of his
employment with the Company, or with the prior written approval of the Board,
Executive shall not at any time through the 12 month period after his
termination of employment hereunder, in any way directly or indirectly hire or
attempt to hire any party any person or persons who to Executive's best
knowledge was employed at any time during the period commencing six months prior
to such termination by the Company or its subsidiaries or SLT Realty Limited
Partnership or SLC Operating Limited Partnership.

                                   ARTICLE V

                                  Miscellaneous

     Section 5.01. Notices. All notices, request or other communications
provided for in this Agreement shall be made, if to the Company, to the
Secretary of the Company at the Company's principal executive office, and if to
Executive, to his address on the books of the Company (or to such other address
as the Company or Executive may give to the other in writing for purposes of
notice hereunder).

                   Copies of all notices given to Executive shall be sent to:

                   Dechert Price & Rhoads
                   4000 Bell Atlantic Tower
                   1717 Arch Street
                   Philadelphia, Pennsylvania 19103
                   Facsimile:  (215) 994-2222
                   Attention:  Barton J. Winokur, Esq.

                   Copies of all notices given to the Company shall be sent to:

                   Starwood Hotels & Resorts Worldwide, Inc.
                   777 Westchester Avenue - Ste. 400
                   White Plains, New York 10604
                   Attention:  Thomas C. Janson, Jr.
                   Executive Vice President, General Counsel and Secretary
                   Facsimile:  (914) 640-8240

     All notices, requests or other communications required or permitted by this
Agreement shall be made in writing either (a) by personal delivery to the party
entitled thereto, (b) by mailing via certified mail, postage prepaid, return
receipt requested, in the United States mails to the last known address of the
party entitled thereto, (c) by reputable overnight courier service, or (d) by
facsimile with confirmation or receipt. The notice, request or other



                                      -12-
   13

communication shall be deemed to be received upon actual receipt by the party
entitled thereto; provided, however, that if a notice, request or other
communication is received after regular business hours, it shall be deemed to be
received on the next succeeding business day of the Company.

     Section 5.02. Assignment and Succession. The rights and obligations of the
Company under this Agreement may not be assigned in whole or any part except in
the case of a consolidation or merger with, or a transfer of all or
substantially all of the assets of the Company to, another entity acceptable to
Executive, which upon the consummation of such combination transaction expressly
assumes in a writing satisfactory in form and substance to Executive all of the
Company's obligations to Executive hereunder, under all Pre-Existing Awards and
otherwise. No such assignment shall limit or restrict Executive's right to
terminate this Agreement for Good Reason, which right shall remain absolute.
Executive's rights and obligations hereunder are personal and may not be
assigned; provided, however, that in the event of the termination of Executive's
employment due to Executive's death or permanent disability, Executive's legal
representative shall have the right to receive the Severance Package as more
particularly set forth in Section 3.02 above. This Agreement shall inure to the
benefit of and be enforceable by Executive's heirs, beneficiaries and/or legal
representatives.

     Section 5.03. Headings. The Article, Section, paragraph and subparagraph
headings are for convenience of reference only and shall not define or limit the
provisions hereof.

     Section 5.04. Arbitration. In the event of any controversy, dispute or
claim arising out of or related to this Agreement or Executive's employment by
the Company, the parties shall negotiate in good faith in an attempt to reach a
mutually acceptable settlement of such dispute. If negotiations in good faith do
not result in a settlement of any such controversy, dispute or claim, it shall,
except as otherwise provided for herein be finally settled by expedited
arbitration conducted by a single arbitrator selected as hereinafter provided
(the "Arbitrator") in accordance with the National Rules, subject to the
following (the parties hereby agreeing that, notwithstanding the provisions of
Rule 1 of the National Rules, in the event that there is a conflict between the
provisions of the National Rules and the provisions of this Agreement, the
provisions of this Agreement shall control):

                   (a) The Arbitrator shall be determined from a list of names
of five impartial arbitrators each of whom shall be an attorney experienced in
arbitration matters concerning executive employment disputes, supplied by the
AAA chosen by Executive and the Company each in turn striking a name form the
list until one name remains (with the Company being the first to strike a name).

                   (b) The expenses of the arbitration shall be borne by the
Company; and the Company shall bear its own legal fees and expenses and pay, at
least monthly, all of Executive's legal fees and expenses incurred in connection
with such arbitration, except that Executive shall have to reimburse the Company
for his legal fees and expenses if the arbitrator finds that Executive brought
an action in bad faith.



                                      -13-
   14

                   (c) The Arbitrator shall determine whether and to what extent
any party shall be entitled to damages under this Agreement; provided that no
party shall be entitled to punitive or consequential damages (including, in the
case of the Company, any claim for alleged lost profits or other damages that
would have been avoided had Executive remained an employee), and each party
waives all such rights, if any.

                   (d) The Arbitrator shall not have the power to add to nor
modify any of the terms or conditions of this Agreement. The Arbitrator's
decision shall not go beyond what is necessary for the interpretation and
application of the provision(s) of this Agreement in respect of the issue before
the Arbitrator. The Arbitrator shall not substitute his or her judgment for that
of the parties in the exercise of rights granted or retained by this Agreement.
The Arbitrator's award or other permitted remedy, if any, and the decision shall
be based upon the issue as drafted and submitted by the respective parties and
the relevant and competent evidence adduced at the hearing.

                   (e) The Arbitrator shall have the authority to award any
remedy or relief (including provisional remedies and relief) that a court of
competent jurisdiction could order or grant. The Arbitrator's written decision
shall be rendered within sixty days of the closing of the hearing. The decision
reached by the Arbitrator shall be final and binding upon the parties as to the
matter in dispute. To the extent that the relief or remedy granted by the
Arbitrator is relief or remedy on which a court could enter judgment, a judgment
upon the award rendered by the Arbitrator shall be entered in any court having
jurisdiction thereof (unless in the case of an award of damages, the full amount
of the award is paid within 10 days of its determination by the Arbitrator).
Otherwise, the award shall be binding on the parties in connection with their
continuing performances of this Agreement and, except as otherwise provided
herein with respect to Existing Grants, in any subsequent arbitral or judicial
proceedings between the parties.

                   (f) The arbitration shall take place in New York, New York.

                   (g) The arbitration proceeding and all filing, testimony,
documents and information relating to or presented during the arbitration
proceeding shall be disclosed exclusively for the purpose of facilitating the
arbitration process and in any court proceeding relating to the arbitration, and
for no other purpose, and shall be deemed to be information subject to the
confidentiality provisions of this Agreement.

                   (h) The parties shall continue performing their respective
obligations under this Agreement notwithstanding the existence of a dispute
while the dispute is being resolved unless and until such obligations are
terminated or expire in accordance with the provisions hereof.

                   (i) The parties may obtain a pre-hearing exchange of
information including depositions, interrogatories, production of documents,
exchange of summaries of testimony or exchange of statements of position, and
the Arbitrator shall limit such disclosure to avoid unnecessary burden to the
parties and shall schedule promptly all discovery and other




                                      -14-
   15

procedural steps and otherwise assume case management initiative and control to
effect an efficient and expeditious resolution of the dispute. At any oral
hearing of evidence in connection with an arbitration proceeding, each party and
its counsel shall have the right to examine its witness and to cross-examine the
witnesses of the other party. No testimony of any witness, or any evidence,
shall be introduced by affidavit, except as the parties otherwise agree in
writing.

                   (j) Notwithstanding the dispute resolution procedures
contained in this Section 5.04, either party may apply to any court sitting in
the County, City and State of New York (i) to enforce this agreement to
arbitrate, (ii) to seek provisional injunctive relief so as to maintain the
status quo until the arbitration award is rendered or the dispute is otherwise
resolved, (iii) to confirm any arbitration award, or (iv) to challenge or vacate
any final judgement, award or decision of the Arbitrator that does not comport
with the express provisions of this Section 5.04.

     Section 5.05. Certain Additional Payments.

                   (a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, including without limitation the value of any acceleration in the
vesting of options or other amounts, but determined without regard to any
additional payments required under this Section 5.05) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code") or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Executive shall be entitled to receive an additional payment
(a "Gross-Up Payment") in an amount such that after payment by Executive of all
taxes (including any interest and penalties imposed with respect to such taxes)
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.

                   (b) Subject to the provisions of Section 5.05(c), all
determinations required to be made under this Section 5.05, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by Arthur Andersen LLP (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Executive within 15 business
days of the receipt of notice from Executive that there has been a Payment, or
such earlier time as is requested by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 5.05, shall be paid by the Company to
Executive within five days of the receipt of the Accounting Firm's
determination. The Accounting Firm shall furnish Executive with a written
opinion that its determination of the Excise Tax payable is a position with a
realistic possibility of being sustained on its merits, within the meaning of
Section 6694 of the Code. Any



                                      -15-
   16

determination by the Accounting Firm shall be binding upon the Company and
Executive and shall be the position reported on the federal income tax returns
of the Company and Executive for the applicable taxable year. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that (i)
Gross-Up Payments which will not have been made by the Company should have been
made (an "Underpayment"), consistent with the calculations required to be made
hereunder or that (ii) Gross-Up Payments that have been made will be determined
to have been in excess of the Gross-Up Payments actually required (an
"Overpayment"). In the event that the Company exhausts its remedies pursuant to
Section 5.05(c) and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Executive. In the event that it is finally
determined that an Overpayment has occurred, Executive shall promptly, and in
any event within 30 days of such determination, refund the amount of the
Overpayment, plus any interest actually paid to the Executive with respect to
the Overpayment, to the Company. The Company shall have the same rights with
respect to the determination of an Overpayment that it has with respect to the
determination of an Underpayment in accordance with Section 5.05(c), including,
without limitation, the right to require the Executive to claim, and sue for, a
refund of any Excise Tax paid by the Executive upon any Payment or Gross-Up
Payment.

                   (c) Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:

                        (i) give the Company any information reasonably
requested by the Company relating to such claim,

                        (ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,

                        (iii) cooperate with the Company in good faith in order
effectively to contest such claim, and

                        (iv) permit the Company to participate in any
proceedings relating to such claim;




                                      -16-
   17

provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest, and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 5.05(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine, provided, however, that if the Company directs Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such payment
to the Executive, on an interest-free basis and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.

                   (d) If, after the receipt by Executive of an amount advanced
by the Company pursuant to Section 5.05(c), Executive becomes entitled to
receive any refund with respect to such claim, Executive shall (subject to the
Company's complying with the requirements of Section 5.05(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
Executive of an amount advanced by the Company pursuant to Section 5.05(c), a
determination is made that Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify Executive in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.

     Section 5.06. Invalidity. If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect under any law, the validity,
legality or enforceability of the remaining provisions hereof shall not in any
way be affected or impaired.

     Section 5.07. Waivers. No omission or delay by either party hereto in
exercising any right, power or privilege hereunder shall impair such right,
power or privilege, nor shall any single or partial exercise of any such right,
power or privilege, preclude any further exercise thereof, or the exercise of
any other right, power or privilege.



                                      -17-
   18

     Section 5.08. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

     Section 5.09. Entire Agreement. Except as otherwise provided or referred to
herein, this Agreement contains the entire understanding of the parties and
supersedes all prior agreements and understandings relating to the subject
matter hereof. This Agreement may not be amended, except by a written instrument
hereafter signed by each of the parties hereto.

     Section 5.10. Interpretation. The parties hereto acknowledge and agree that
each party and its or his counsel reviewed and negotiated the terms and
provisions of this Agreement and have contributed to its drafting. Accordingly,
(i) the rules of construction to the effect that any ambiguities are resolved
against the drafting party shall not be employed in the interpretation of this
Agreement, and (ii) the terms and provisions of this Agreement shall be
construed fairly as to all parties hereto and not in favor of or against any
party regardless of which party was generally responsible for the preparation of
this Agreement. Except where the context requires otherwise, all references
herein to Sections, paragraphs and clauses shall be deemed to be reference to
Sections, paragraphs and clauses of this Agreement. The words "include",
"including", and "includes" shall be deemed in each case to be followed by the
phrase "without limitation". The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.

     Section 5.11. Governing Law. This Agreement and the performance hereof
shall be construed and governed in accordance with the internal laws of the
State of New York without reference to principles of conflict of laws.

     Section 5.12. Indemnification. In addition to any additional benefits
provided under applicable state law, as a Director and officer of the Company,
Executive shall be entitled to the benefits of: (a) those provisions of the
Articles of Incorporation of the Company, as amended, and of the by-laws of the
Company as amended, which provide for indemnification of officers and Directors
of the Company (and no such provision shall be amended in any way to limit or
reduce the extent of indemnification available to Executive as a Director or
officer of the Company), (b) the Indemnification Agreement between the Company
and Executive dated as of June 8, 1995, as amended through the date hereof (the
"Indemnification Agreement").

                   The rights of Executive under such indemnification
obligations shall survive the termination of this Agreement and be applicable
for so long as Executive may be subject to any claim, demand, liability, cost or
expense, which the indemnification obligations referred to in this Section are
intended to protect and indemnify him against.

                   The Company shall, at no cost to Executive, use its best
efforts to at all times include Executive, during the term of Executive's
employment hereunder and for so long thereafter as Executive may be subject to
any such claim, as an insured under any directors' and officers' liability
insurance policy maintained by the Company, which policy shall provide such



                                      -18-
   19


coverage in such amounts as the Board shall deem appropriate for coverage of all
Directors and officers of the Company.














                                      -19-
   20

     IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by
its duly authorized officer and Executive has signed this Agreement as of the
day and year first above written.


                           STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

                           By: /s/ Ronald C. Brown
                              ----------------------------------
                              Name:  Ronald C. Brown
                              Its:  Senior Vice President and Chief Financial
                                    Officer

                             /s/ Barry S. Sternlicht
                           -------------------------------------
                           BARRY S. STERNLICHT

EX-27.1

 

<ARTICLE> 5
<LEGEND>
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.

<CIK> 0000316206
<NAME> STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS

                             
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-2000
<PERIOD-START>                             JAN-01-2000
<PERIOD-END>                               MAR-31-2000
<EXCHANGE-RATE>                                      1
<CASH>                                             443
<SECURITIES>                                         0
<RECEIVABLES>                                      561
<ALLOWANCES>                                        57
<INVENTORY>                                        180
<CURRENT-ASSETS>                                 1,234
<PP&E>                                           8,965
<DEPRECIATION>                                   1,230
<TOTAL-ASSETS>                                  12,997
<CURRENT-LIABILITIES>                            2,199
<BONDS>                                          5,963
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                             4
<OTHER-SE>                                       3,639
<TOTAL-LIABILITY-AND-EQUITY>                    12,997
<SALES>                                              0
<TOTAL-REVENUES>                                 1,008
<CGS>                                                0
<TOTAL-COSTS>                                      817
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                 111
<INCOME-PRETAX>                                     82
<INCOME-TAX>                                        29
<INCOME-CONTINUING>                                 53
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                    (3)
<CHANGES>                                            0
<NET-INCOME>                                        50
<EPS-BASIC>                                       0.25
<EPS-DILUTED>                                     0.25


 

EX-27.2

 

<ARTICLE> 5
<LEGEND>
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.

<CIK> 0000048595
<NAME> STARWOOD HOTELS & RESORTS
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS

                             
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-2000
<PERIOD-START>                             JAN-01-2000
<PERIOD-END>                               MAR-31-2000
<EXCHANGE-RATE>                                      1
<CASH>                                              13
<SECURITIES>                                         0
<RECEIVABLES>                                    1,646
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                                    62
<PP&E>                                           4,654
<DEPRECIATION>                                     349
<TOTAL-ASSETS>                                   7,124
<CURRENT-LIABILITIES>                               69
<BONDS>                                            511
<PREFERRED-MANDATORY>                              136
<PREFERRED>                                          0
<COMMON>                                             2
<OTHER-SE>                                       6,381
<TOTAL-LIABILITY-AND-EQUITY>                     7,124
<SALES>                                              0
<TOTAL-REVENUES>                                   162
<CGS>                                                0
<TOTAL-COSTS>                                       46
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                  10
<INCOME-PRETAX>                                    108
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                                108
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                       108
<EPS-BASIC>                                          0
<EPS-DILUTED>                                        0