e10-k405


	Joint Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of each Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

As of March 23, 2001, the aggregate market value of the Registrants’ voting and non-voting common equity held by non-affiliates (for purposes of this Joint Annual Report only, includes all shares other than those held by the Registrants’ Directors, Trustees and executive officers) was $6,134,418,023.

As of March 23, 2001, the Corporation had outstanding 197,685,079 Corporation Shares and the Trust had outstanding 197,685,079 Class B Shares and 100 Class A shares of beneficial interest, par value $0.01 per share (“Class A Shares”).

For information concerning ownership of shares, see the Proxy Statement for the Corporation’s Annual Meeting of Stockholders that is currently expected to be held on May 18, 2001 (the “Proxy Statement”), which is incorporated by reference under various Items of this Joint Annual Report.

This Joint Annual Report is filed by Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (the “Corporation”), and its subsidiary, Starwood Hotels & Resorts, a Maryland real estate investment trust (the “Trust”). Unless the context otherwise requires, all references to the Corporation include those entities owned or controlled by the Corporation, including SLC Operating Limited Partnership, a Delaware limited partnership (the “Operating Partnership”), but excluding the Trust; all references herein to the Trust include the Trust and those entities owned or controlled by the Trust, including SLT Realty Limited Partnership, a Delaware limited partnership (the “Realty Partnership”); and all references to “Starwood” or the “Company” refer to the Corporation, the Trust and their respective subsidiaries, collectively. The shares of common stock, par value $0.01 per share, of the Corporation (“Corporation Shares”) and the Class B shares of beneficial interest, par value $0.01 per share, of the Trust (“Class B Shares”) are attached and trade together and may be held or transferred only in units consisting of one Corporation Share and one Class B Share (a “Share”). Prior to the reorganization of Starwood (the “Reorganization”) on January 6, 1999, the common shares of beneficial interest, par value $0.01 per share, of the Trust (“Trust Shares”) were traded together with the Corporation Shares as “Paired Shares,” just as the Class B Shares and the Corporation Shares are currently traded as Shares. Unless otherwise stated herein, all information with respect to Shares refers to Shares on and since January 6, 1999 and to Paired Shares for periods before January 6, 1999.

This Joint Annual Report contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Joint Annual Report, including, without limitation, the section of Item 1, “Business,” captioned “Business Strategy” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Such forward-looking statements may include statements regarding the intent, belief or current expectations of Starwood, its Directors or Trustees or its officers with respect to the matters discussed in this Joint Annual Report. All such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements including, without limitation, the risks and uncertainties set forth below. The Company undertakes no obligation to publicly update or revise any forward-looking statements to reflect current or future events or circumstances.

We Are Subject to All the Operating Risks Common to the Hotel and Leisure Industry. Operating risks common to the hotel and leisure industry include:


	•	changes in general economic conditions;

	•	decreases in the level of demand for rooms and related services;

	•	cyclical over-building in the hotel and leisure industry;

	•	restrictive changes in zoning and similar land use laws and regulations or in health, safety and environmental laws, rules and regulations;

	•	changes in travel patterns; and

	•	changes in operating costs including, but not limited to, energy and labor costs.

In addition, our hotel management contracts are typically long-term arrangements, but most allow the hotel owner to replace us if certain financial or performance criteria are not met. Our ability to meet these financial and performance criteria is subject to, among other things, the risks described in this section. Additionally, our operating results would be adversely affected if we could not maintain existing management, franchise or representation agreements or obtain new agreements on favorable terms.

We Must Compete for Customers. The hotel and leisure industry is highly competitive. Our properties compete for customers with other hotel and resort properties, and, with respect to our vacation ownership resorts, with owners reselling their vacation ownership interests (“VOIs”), in their geographic markets. Some of our competitors may have substantially greater marketing and financial resources than we do, and they may improve their facilities, reduce their prices or expand or improve their marketing programs in ways that adversely affect our operating results.

We Must Compete for Properties. We compete with other hotel and leisure companies for properties. Some of these competitors may have substantially greater financial resources than we do and may be able to pay more to acquire properties than we are able to pay. In addition, competition for properties may increase the cost of acquiring properties.

The Hotel and Leisure Industry Is Seasonal in Nature. The hotel and leisure industry is seasonal in nature; however, the periods during which we experience higher revenue vary from property to property and depend principally upon location. Our revenue historically has been lower in the first quarter than in the second, third or fourth quarters.

The Hotel and Leisure Business Is Capital Intensive. In order for our properties to remain attractive and competitive, we have to spend money periodically to keep them well maintained, modernized and refurbished. This creates an ongoing need for cash and, to the extent expenditures cannot be funded from cash generated by our operations, we may be required to borrow or otherwise obtain these funds. Accordingly, our financial results may be sensitive to the cost and availability of funds.

Real Estate Investments Are Subject to Numerous Risks. Because we own and lease hotels and resorts, we are subject to the risks that generally relate to investments in real property. The investment returns available from equity investments in real estate depend in large part on the amount of income earned and capital appreciation generated by the related properties, as well as the expenses incurred. In addition, a variety of other factors affect income from properties and real estate values, including governmental regulations, real estate, zoning, tax and eminent domain laws, interest rate levels and the availability of financing. For example, new or existing real estate, zoning or tax laws can make it more expensive and/ or time-consuming to develop real property or expand, modify or renovate hotels. When interest rates increase, the cost of acquiring, developing, expanding or renovating real property increases and real property values may decrease as the number of potential buyers decreases. Similarly, as financing becomes less available, it becomes more difficult both to acquire and to sell real property. Finally, governments can, under eminent domain laws, take real property. Sometimes this taking is for less compensation than the owner believes the property is worth. Any of these factors could have a material adverse impact on our results of operations or financial condition, as well as on our ability to make distributions to our shareholders. In addition, equity real estate investments, such as the investments we hold and any additional properties that we may acquire, are relatively difficult to sell quickly. If our properties do not generate revenue sufficient to meet operating expenses, including debt service and capital expenditures, our income will be adversely affected.

Hotel and Resort Development Is Subject to Timing, Budgeting and Other Risks. We intend to develop hotel and resort properties as suitable opportunities arise. New project development has a number of risks, including risks associated with:


	•	construction delays or cost overruns that may increase project costs;

	•	receipt of zoning, occupancy and other required governmental permits and authorizations;

	•	development costs incurred for projects that are not pursued to completion;

	•	so-called “acts of God” such as earthquakes, hurricanes, floods or fires that could adversely impact a project; and

	•	governmental restrictions on the nature or size of a project.

We cannot assure you that any development project will be completed on time or within budget.

Our Vacation Ownership Business Is Subject to Extensive Regulation and Risk of Default. We market and sell VOIs, which typically entitle the buyer to ownership of a fully-furnished resort unit for a one-week period on either an annual or an alternate-year basis. We also acquire, develop and operate vacation ownership resorts, and provide financing to purchasers of VOIs. These activities are all subject to extensive regulation by the federal government and the states in which vacation ownership resorts are located and in which VOIs are marketed and sold. In addition, the laws of most states in which we sell VOIs grant the purchaser of this type of interest the right to rescind the purchase contract at any time within a statutory rescission period. Although we believe that we are in material compliance with all applicable federal, state, local and foreign laws and regulations to which vacation ownership marketing, sales and operations are currently subject, changes in these requirements or a determination by a regulatory authority that we were not in compliance could adversely affect us. Additionally, if the purchaser of a VOI defaults, we may not have recovered our marketing, selling, and general and administrative costs related to the sale of the VOI.

Environmental Regulations Could Make Us Liable for Cleaning Up Hazardous Substances. Environmental laws, ordinances and regulations of various federal, state, local and foreign governments regulate certain of our properties and could make us liable for the costs of removing or cleaning up hazardous or toxic substances on, under or in property we currently own or operate or that we previously owned or operated. Those laws could impose liability without regard to whether we knew of, or were responsible for, the presence of hazardous or toxic substances. The presence of hazardous or toxic substances, or the failure to properly clean up such substances when present, could jeopardize our ability to develop, use, sell or rent the real property or to borrow using the real property as collateral. If we arrange for the disposal or treatment of hazardous or toxic wastes, we could be liable for the costs of removing or cleaning up wastes at the disposal or treatment facility, even if we never owned or operated that facility. Other laws, ordinances and regulations could require us to manage, abate or remove lead- or asbestos-containing materials. Similarly, the operation and closure of storage tanks are often regulated by federal, state, local and foreign laws. Finally, certain laws, ordinances and regulations, particularly those governing the management or preservation of wetlands, coastal zones and threatened or endangered species, could limit our ability to develop, use, sell or rent our real property.

General Economic Conditions May Negatively Impact Our Results. Moderate or severe economic downturns or adverse conditions may negatively affect our operations. These conditions may be widespread or isolated to one or more geographic regions. As a result, recessions or other general economic conditions may have a negative impact on our results of operations. In addition, a tightening of the labor markets in one or more geographic regions may result in fewer and/ or less qualified applicants for job openings in our facilities and higher wages.

International Operations Are Subject to Special Political and Monetary Risks. We have significant international operations which as of December 31, 2000 included 109 owned, managed or franchised properties in Europe (including 30 properties with majority ownership); 35 owned, managed or franchised properties in Latin America (including 15 properties with majority ownership); 71 owned, managed or franchised properties in the Asia Pacific region (including 4 properties with majority ownership); and 54 managed or franchised properties in the Africa/ Middle East region (no properties with majority ownership). International operations generally are subject to various political and other risks that are not present in U.S. operations. These risks include the risk of war or civil unrest, expropriation and nationalization. In addition, some international jurisdictions restrict the repatriation of non-U.S. earnings. Various international jurisdictions also have laws limiting the right and ability of non-U.S. entities to pay dividends and remit earnings to affiliated companies unless specified conditions have been met. In addition, sales in international jurisdictions typically are made in local currencies, which subject us to risks associated with currency fluctuations. Currency devaluations and unfavorable changes in international monetary and tax policies could have a material adverse effect on our profitability and financing plans, as could other changes in the international regulatory climate and international economic conditions. Other than Italy, where our risks are heightened due to the relatively large number of properties we own, our international properties are geographically diversified and are not concentrated in any particular region.

We Are Uncertain What Long-Term Effect the Adoption of the Euro Will Have on Us. 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 substantially all of the 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 in the process of updating its information systems to make them Euro compliant. As of the date of this filing, five properties have converted to the Euro without any significant impact to the properties’ operations or information systems; however, there is no assurance that the Company or third-party vendors of applications used by the Company will successfully bring all of its systems into compliance. Failure of the Company to do so could result in disruptions in the processing of transactions in Euros or computed by reference to the Euro.

We intend to make acquisitions that complement our business. There can be no assurance, however, that we will be able to identify acquisition candidates or complete acquisitions on commercially reasonable terms or at all. If additional acquisitions are made, there can be no assurance that any anticipated benefits will actually be realized. Similarly, there can be no assurance that we will be able to obtain additional financing for acquisitions, or that the ability to obtain such financing will not be restricted by the terms of our current debt agreements.

Investing Through Partnerships or Joint Ventures Decreases Our Ability to Manage Risk

Instead of acquiring or developing hotels and resorts directly, we have from time to time invested, and may continue to invest, as a co-venturer. Joint venturers often have shared control over the operation of the joint venture assets. Therefore, joint venture investments may involve risks such as the possibility that the co-venturer in an investment might become bankrupt, or have economic or business interests or goals that are inconsistent with our business interests or goals, or be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives. Consequently, actions by a co-venturer might subject hotels and resorts owned by the joint venture to additional risk. Although we generally seek to maintain sufficient control of any joint venture, we may be unable to take action without the approval of our joint venture partners. Alternatively, our joint venture partners could take actions binding on the joint venture without our consent. Additionally, should a joint venture partner become bankrupt, we could become liable for our partner’s share of joint venture liabilities.

We periodically review our business with the view to identifying properties or other assets that we believe no longer complement our business. There can be no assurance, however, that if we identify such properties that we will be able to complete dispositions on commercially reasonable terms or at all. In particular, we have announced our expectation to market our CIGA S.p.A. (“CIGA”) portfolio of 22 hotels for sale, potentially encumbered by our management agreements, in whole or in part during 2001. There is, however, no guarantee that such a sale will materialize or be consummated within our projected time frame, and if consummated, there is no guarantee of the terms of any such transaction.

As a result of incurring debt, we are subject to the following risks associated with debt financing: (i) the risk that cash flow from operations will be insufficient to meet required payments of principal and interest; (ii)

the risk that (to the extent that we maintain floating rate indebtedness) interest rates will fluctuate; and (iii) risks resulting from the fact that the agreements governing our loan and credit facilities contain covenants imposing certain limitations on our ability to acquire and dispose of assets. In addition, although we anticipate that we will be able to repay or refinance our existing indebtedness and any other indebtedness when it matures, there can be no assurance that we will be able to do so or that the terms of such refinancings will be favorable. Our leverage may have important consequences including the following: (i) our ability to obtain additional financing for acquisitions, working capital, capital expenditures or other purposes, if necessary, may be impaired or such financing may not be available on terms favorable to us; (ii) a substantial decrease in operating cash flow or an increase in our expenses could make it difficult for us to meet our debt service requirements and force us to modify our operations; and (iii) our higher level of debt and resulting interest expense may place us at a competitive disadvantage with respect to certain competitors with lower amounts of indebtedness and/ or higher credit ratings. While our senior debt is currently rated investment grade by two of the rating agencies, there can be no assurance we will be able to maintain this rating. In the event our senior debt is not investment grade, we would incur higher borrowing costs and would become subject to more restrictive covenants under our current loan agreement.

Barry S. Sternlicht is the Chairman and Chief Executive Officer the Corporation and the Trust. Mr. Sternlicht also serves as the President and Chief Executive Officer of, and may be deemed to control, Starwood Capital Group, L.L.C. (“Starwood Capital”), a real estate investment firm. Madison F. Grose is a member of the board of the Corporation and the Trust and is also an executive officer of Starwood Capital. Starwood Capital and the Company have entered into a non-compete agreement whereby Starwood Capital may not purchase a hotel property in the United States until such opportunity is first presented to the Company. See Item 13, “Certain Relationships and Related Transactions.” Although Starwood Capital is free to compete with the Company for hotel properties outside of the United States, as a matter of practice, all opportunities to purchase such properties are also first presented to the Company. In each case, the Audit Committee of the Board (or other committee of independent directors) will make a decision as to whether or not the Company will pursue the opportunity. In addition, certain officers and directors of the Company have interests in businesses that may, from time to time, do business with the Company. To the extent such individuals have a material interest in such businesses, any agreements relating thereto are subject to Audit Committee (or other committee of independent directors) approval.

Our future success and our ability to manage future growth depend in large part upon the efforts of our senior management and our ability to attract and retain key officers and other highly qualified personnel. Competition for such personnel is intense. There can be no assurance that we will continue to be successful in attracting and retaining qualified personnel. Accordingly, there can be no assurance that our senior management will be able to successfully execute and implement our growth and operating strategies.

Failure of the Trust to Qualify as a REIT Would Increase Our Tax Liability. Qualifying as a real estate investment trust (a “REIT”) requires compliance with highly technical and complex tax provisions that courts and administrative agencies have interpreted only to a limited degree. Due to the complexities of our ownership, structure and operations, the Trust is more likely than are other REITs to face interpretative issues for which there are no clear answers. Also, facts and circumstances that we do not control may affect the Trust’s ability to qualify as a REIT. The Trust believes that since the taxable year ended December 31, 1995, it has qualified as a REIT under the Internal Revenue Code of 1986, as amended. The Trust intends to continue to operate so as to qualify as a REIT. However, the Trust cannot assure you that it will continue to qualify as a REIT. If the Trust failed to qualify as a REIT for any prior tax year, the Trust would be liable to pay a significant amount of taxes for those years. Similarly, if the Trust fails to qualify as a REIT in the future, our liability for taxes would increase.

Additional Legislation Could Eliminate or Reduce Certain Benefits of Our Structure. On January 6, 1999, we consummated the Reorganization pursuant to an Agreement and Plan of Restructuring dated as of September 16, 1998, as amended, among the Corporation, ST Acquisition Trust, a wholly owned subsidiary of the Corporation, and the Trust. Pursuant to the Reorganization, the Trust became a subsidiary of the Corporation, which holds all the outstanding Class A shares of beneficial interest, par value $0.01 per share, of the Trust (“Class A Shares”). The Reorganization was proposed in response to the Internal Revenue Service Restructuring and Reform Act of 1998 (“H.R. 2676”), which made it difficult for us to acquire and operate additional hotels while still maintaining our former status as a “grandfathered paired share real estate investment trust.” While we believe that the Reorganization was the best alternative in light of H.R. 2676 and that our new structure does not raise the same concerns that led Congress to enact such legislation, no assurance can be given that additional legislation, regulations or administrative interpretations will not be adopted that could eliminate or reduce certain benefits of the Reorganization and have a material adverse effect on our results of operations, financial condition and prospects.

No Person or Group May Own More Than 8% of Our Shares. Our governing documents provide (subject to certain exceptions) that no one person or group may own or be deemed to own more than 8% of our outstanding stock or Shares of beneficial interest, whether measured by vote, value or number of Shares. There is an exception for shareholders who owned more than 8% as of February 1, 1995, who may not own or be deemed to own more than the lesser of 9.9% or the percentage of Shares they held on that date, provided, that if the percentage of Shares beneficially owned by such a holder decreases after February 1, 1995, such a holder may not own or be deemed to own more than the greater of 8% or the percentage owned after giving effect to the decrease. We may waive this limitation if we are satisfied that such ownership will not jeopardize the Trust’s status as a REIT. In addition, if Shares which would cause the Trust to be beneficially owned by fewer than 100 persons are issued or transferred to any person, such issuance or transfer shall be null and void. This ownership limit may have the effect of precluding a change in control of us by a third party without the consent of our Board of Directors, even if such change in control would otherwise give the holders of Shares or other of our equity securities the opportunity to realize a premium over then-prevailing market prices, and even if such change in control would not reasonably jeopardize the status of the Trust as a REIT.

At Least Two Annual Meetings Must Be Held Before a Majority of Our Board of Directors Can Be Changed. Our Board of Directors is divided into three classes. Each class is elected for a three-year term. At each annual meeting of shareholders, approximately one-third of the members of the Board of Directors are elected for a three-year term and the other directors remain in office until their three-year terms expire. Furthermore, our governing documents provide that no director may be removed without cause. Any removal for cause requires the affirmative vote of the holders of at least two-thirds of all the votes entitled to be cast for the election of directors.

Thus, control of the Board of Directors cannot be changed in one year without removing the directors for cause as described above. Consequently, at least two annual meetings must be held before a majority of the members of the Board of Directors can be changed. Our charter provides that the charter cannot be amended without the approval of the holders of at least a majority of the outstanding Shares entitled to vote thereon.

Our Board of Directors May Issue Preferred Stock and Establish the Preferences and Rights of Any Such Preferred Stock. Our charter provides that the total number of Shares of stock of all classes which the Corporation has authority to issue is 1,350,000,000, initially consisting of one billion Shares of common stock, 50 million Shares of excess common stock, 200 million Shares of preferred stock and 100 million Shares of excess preferred stock. Our Board of Directors has the authority, without a vote of shareholders, to establish the preferences and rights of any preferred or other class or series of Shares to be issued and to issue such Shares. The issuance of preferred shares or other shares having special preferences or rights could delay or prevent a change in control even if a change in control would be in the interests of our shareholders. Because our Board of Directors has the power to establish the preferences and rights of additional classes or series of shares without a shareholder vote, our Board of Directors may give the holders of any class or series preferences, powers and rights, including voting rights, senior to the rights of holders of our Shares.

Certain Provisions of Our Charter May Require the Approval of Two-Thirds of Our Shares and Only Our Directors May Amend Our Bylaws. Our charter contains provisions relating to restrictions on transferability of the Corporation Shares, which may be amended only by the affirmative vote of our shareholders holding two-thirds of the votes entitled to be cast on the matter. As permitted under the Maryland General Corporation Law, our Bylaws provide that directors have the exclusive right to amend our Bylaws.

Our Shareholder Rights Plan Would Cause Substantial Dilution to Any Shareholder That Attempts to Acquire Us on Terms Not Approved by Our Board of Directors. We adopted a shareholder rights plan which provides, among other things, that when specified events occur, our shareholders will be entitled to purchase from us a newly created series of junior preferred stock, subject to the ownership limit described above. The preferred stock purchase rights are triggered by the earlier to occur of (i) ten days after the date of a public announcement that a person or group acting in concert has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of our outstanding Corporation Shares or (ii) ten business days after the commencement of or announcement of an intention to make a tender offer or exchange offer, the consummation of which would result in the acquiring person becoming the beneficial owner of 15% or more of our outstanding Corporation Shares. The preferred stock purchase rights would cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our Board of Directors.

Our financial and operating performance may be adversely affected by acts of God, such as natural disasters, in locations where we own and/or operate significant properties and areas of the world from which we draw a large number of customers. Some types of losses, such as from earthquake and environmental hazards may be either uninsurable or too expensive to justify insuring against. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a hotel or resort, as well as the anticipated future revenue from the hotel or resort. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. Similarly, wars, political unrest and other forms of civil strife have caused in the past, and may cause in the future, our results to differ materially from anticipated results.

Starwood is one of the world’s largest hotel and leisure companies. The Company conducts its hotel and leisure business both directly and through its subsidiaries. The Company’s brand names include Sheraton®, Westin®, The Luxury Collection®, St. Regis®, W® and Four Points® by Sheraton. Through these brands, Starwood is well represented in most major markets around the world.⁽¹⁾

The Company’s revenue and earnings are derived primarily from hotel and leisure operations, which include the operation of the Company’s owned hotels; management fees earned from hotels the Company manages pursuant to long-term management contracts; the receipt of franchise fees; and the development, ownership and operation of vacation ownership resorts, marketing and selling VOIs in the resorts and providing financing to customers who purchase such interests.

The Company’s hotel and leisure business emphasizes the global operation of hotels and resorts primarily in the luxury and upscale segment of the lodging industry. Starwood seeks to acquire interests in or management rights with respect to properties in this segment. In the first quarter of 1998, Starwood completed two major transactions: the acquisition of Westin Hotels & Resorts Worldwide, Inc. and certain of its affiliates (“Westin”) (the “Westin Merger”) and the acquisition of ITT Corporation, currently Sheraton Holding Corporation (“Sheraton Holding”), (the “ITT Merger”). For further discussion of the ITT Merger and the Westin Merger, see the notes to financial statements of this Joint Annual Report. At December 31, 2000, the

Company’s portfolio of owned, managed and franchised hotels totaled 738 hotels with approximately 227,000 rooms in 80 countries. This portfolio is comprised of 162 hotels that Starwood owns or leases or in which Starwood has a majority equity interest (substantially all of which hotels Starwood also manages), 263 hotels managed by Starwood on behalf of third-party owners (including entities in which Starwood has a minority equity interest) and 313 hotels for which Starwood receives franchise fees. Additionally, the Company is currently selling VOI inventory at 12 resorts.

The Trust was organized in 1969, and the Corporation was incorporated in 1980, both under the laws of Maryland.

The Company’s principal executive offices are located at 777 Westchester Avenue, White Plains, New York 10604, and its telephone number is (914) 640-8100.

For a discussion of the Company’s revenues, profits, assets and geographical segments, see the notes to financial statements of this Joint Annual Report. For additional information concerning the Company’s business, see Item 2, “Properties,” of this Joint Annual Report.

Management believes that the following factors contribute to the Company’s position as a leader in the lodging industry and provide a foundation for the Company’s business strategy:

Brand Strength. Starwood believes that it has strong brand leadership in major markets worldwide based on the global recognition of the Company’s lodging brands. The strength of the Company’s brands is evidenced, in part, by the superior ratings received from the Company’s hotel guests and from industry publications. For example, Starwood was designated as the “World’s Best Global Hotel Company” by Global Finance magazine in their September 2000 issue. Also, for the second year in a row, Westin was named number one in the upper-upscale category of Business Travel News’ 2000 Survey of Top Hotel Chains. With the Company’s well known lodging brands, Starwood benefits from a luxury and upscale branding strategy that provides strong operating performance from new customer penetration and customer loyalty. During 2000 and 1999, Starwood converted five and six, respectively, of its owned hotels, which had been operated on a non-branded or non-proprietary-branded basis, to proprietary brands owned by the Company. These conversions have enhanced and expanded the Company’s global presence and brand recognition. In 2000, the Company also added an additional 76 hotels with approximately 17,981 rooms to its branded hotel system. In total, approximately 1,327 rooms were added to its newest brand, W. The W San Francisco recently won Hospitality Design Magazine’s 2000 Gold Key Award as best in the “Lobby/ Reception” category and was a finalist in the “Guestroom” category.

Frequent Guest Program. The Company’s loyalty program, Starwood Preferred Guest® (“SPG”), was awarded the 1999 Hotel Program of the year by consumers via the prestigious Freddie Awards. SPG, despite being the newest hotel loyalty program in the industry, also received awards for Best Customer Service, Best Web Site, Best Elite-Level Program and Best Award Redemption. SPG, deemed unique in the hotel and leisure industry for its policy of no blackout dates and no capacity controls, enables members to redeem stays when they want and where they want, a feature not offered by competitors.

Significant Presence in Top Markets. The Company’s luxury and upscale hotel and resort assets are well positioned in North America, Europe, Asia, Latin America and Africa. These assets are primarily located in major cities and resort areas that management believes have historically demonstrated a strong breadth, depth and growing demand for luxury and upscale hotels and resorts, in which the supply of sites suitable for hotel development has been limited and in which development of such sites is relatively expensive.

Premier and Distinctive Properties. Starwood controls a distinguished and diversified group of hotel properties throughout the world, including The St. Regis in New York, New York; The Phoenician in Scottsdale, Arizona; the Hotel Danieli in Venice, Italy; and the Westin Palace in Madrid, Spain. These are among the leading hotels in the industry and are at the forefront of providing the highest quality and service. The Condé Nast Traveler Magazine 2000 Gold List Readers’ Choice Poll included 33 Starwood properties as

Scale. As one of the largest hotel and leisure companies focusing on the luxury and upscale full-service lodging market, Starwood has the scale to support its core marketing and reservation functions. The Company also believes that its scale will contribute to lowering its cost of operations through purchasing economies in such areas as insurance, energy, telecommunications, employee benefits, food and beverage, furniture, fixtures and equipment and operating supplies.

Diversification of Cash Flow and Assets. Management believes that the diversity of the Company’s brands, market segments served, revenue sources and geographic locations provides a broad base from which to enhance revenue and profits and to strengthen the Company’s global brands. This diversity limits the Company’s exposure to any particular lodging asset, brand or geographic region.

While Starwood focuses on the luxury and upscale portion of the full-service lodging market, the Company’s brands cater to a diverse group of sub-markets within this market. For example, the St. Regis caters to high-end hotel and resort clientele while Four Points by Sheraton hotels deliver amenities at more affordable rates. Management believes that the diversity of the Company’s brands and customer base reduces the likelihood of competition for customers at any one of the Company’s hotels from other hotels within its portfolio. Instead, management believes that this diversity serves to increase the Company’s market share within markets where Starwood operates more than one brand.

Starwood derives its cash flow from multiple sources, including owned hotels, management and franchise fees, and VOI sales, and is geographically diverse with operations on six continents. The following table reflects the Company’s properties by revenue source as of December 31, 2000:

The following table shows the Company’s geographical presence by major geographic area for the year ended December 31, 2000:

Incorporated by reference in Note 19, “Business Segment and Geographical Information,” in the notes to financial statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data.”

The Company’s primary business objective is to maximize earnings and cash flow by increasing the profitability of the Company’s existing portfolio; selectively acquiring interests in additional assets; increasing the number of the Company’s hotel management contracts and franchise agreements; acquiring, developing and selling VOIs; and maximizing the value of its owned real estate properties, including selectively disposing of non-core hotels and “trophy” assets that may be sold at significant premiums. The Company plans to meet these objectives by leveraging its global assets, broad customer base and other resources and by taking advantage of the Company’s scale to reduce costs.

Growth Opportunities. Management has identified several growth opportunities with a goal of enhancing the Company’s operating performance and profitability, including:


	•	Refining the positioning of the Company’s brands to further its strategy of strengthening brand identity. By re-branding certain owned hotels to one of Starwood’s proprietary brands, Starwood will seek to further solidify its brand reputation and market presence, leading to enhanced revenue per available room (“REVPAR”) performance;

	•	Continuing to expand the Company’s role as a third-party manager of hotels and resorts. This allows Starwood to expand the presence of its lodging brands and gain additional cash flow generally with modest capital commitment;

	•	Franchising the Sheraton, Westin and Four Points by Sheraton brands to selected third-party operators, thereby expanding the Company’s market presence, enhancing the exposure of its hotel brands and providing additional income through franchise fees;

	•	Expanding the Company’s Internet presence and sales capabilities to increase revenue and improve customer service;

	•	Continuing to grow the Company’s frequent guest program, thereby increasing occupancy rates while providing the Company’s customers with benefits based upon loyalty to the Company’s hotels;

	•	Enhancing the Company’s marketing efforts by integrating the Company’s proprietary customer databases, so as to sell additional products and services to existing customers, improve occupancy rates and create additional marketing opportunities;

	•	Optimizing the Company’s use of its real estate assets to improve ancillary revenue, such as restaurant, beverage and parking revenue from the Company’s hotels and resorts;

	•	Continuing to build the new “W” hotel brand to appeal to upscale business travelers and other customers seeking full-service hotels in major markets;

	•	Developing additional vacation ownership resorts near select hotel locations, thereby allowing us to leverage our owned hotel assets; and

	•	Becoming the first hospitality company in the world to embrace Six Sigma, the internationally recognized program that dramatically accelerates and maximizes business performance. This initiative is expected to deliver significant long-term financial benefits.

Starwood intends to explore opportunities to expand and diversify the Company’s hotel portfolio through minority investments and selective acquisitions of properties domestically and internationally that meet some or all of the following criteria:


	•	Luxury and upscale hotels and resorts in major metropolitan areas and business centers;

	•	Major tourist hotels, destination resorts or conference centers that have favorable demographic trends and are located in markets with significant barriers to entry or with major room demand generators such as office or retail complexes, airports, tourist attractions or universities;


	•	Undervalued hotels whose performance can be increased by re-branding to one of the Company’s hotel brands, the introduction of better and more efficient management techniques and practices and/or the injection of capital for renovating, expanding or repositioning the property; and

	•	Portfolios of hotels or hotel companies that exhibit some or all of the criteria listed above, where the purchase of several hotels in one transaction enables Starwood to obtain favorable pricing or obtain attractive assets that would otherwise not be available.

Starwood may also selectively choose to develop and construct desirable hotels and resorts to help the Company meet its strategic goals, such as the development of the W Times Square, the conversion of the Days Inn Chicago to the W Lakeshore and the conversion of the Midland Hotel to the W Chicago, all expected to be completed in the second half of 2001.

The hotel and leisure industry is highly competitive. Competition is generally based on quality and consistency of room, restaurant and meeting facilities and services, attractiveness of locations, availability of a global distribution system, price and other factors. Management believes that Starwood competes favorably in these areas. Starwood’s properties compete with other hotels and resorts, including facilities owned by local interests and facilities owned by national and international chains, in their geographic markets. The principal competitors of Starwood include other hotel operating companies, ownership companies (including hotel REITs) and national and international hotel brands.

Starwood encounters strong competition as a hotel and resort operator and developer. There are over 500 hotel management companies in the United States, including several that operate more than 100 properties. While some of the Company’s competitors are private management firms, several are large national and international chains that own and operate their own hotels, as well as manage hotels for third-party owners, under a variety of brands that compete directly with the Company’s brands. In addition, hotel management contracts are typically long-term arrangements, but most allow the hotel owner to replace the management firm if certain financial or performance criteria are not met.

Starwood is subject to certain requirements and potential liabilities under various federal, state and local environmental laws, ordinances and regulations (“Environmental Laws”). For example, a current or previous owner or operator of real property may become liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of hazardous or toxic substances may adversely affect the owner’s ability to sell or rent such real property or to borrow using such real property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic wastes may be liable for the costs of removal or remediation of such wastes at the treatment, storage or disposal facility, regardless of whether such facility is owned or operated by such person. Starwood uses certain substances and generates certain wastes that may be deemed hazardous or toxic under applicable Environmental Laws, and Starwood from time to time has incurred, and in the future may incur, costs related to cleaning up contamination resulting from historic uses of certain of the Company’s current or former properties or the Company’s treatment, storage or disposal of wastes at facilities owned by others. Other Environmental Laws require abatement or removal of certain asbestos-containing materials (“ACMs”) (limited quantities of which are present in various building materials such as spray-on insulation, floor coverings, ceiling coverings, tiles, decorative treatments and piping located at certain of the Company’s hotels) in the event of damage or demolition, or certain renovations or remodeling. These laws also govern emissions of and exposure to asbestos fibers in the air. Environmental Laws also regulate polychlorinated biphenyls (“PCBs”), which may be present in electrical equipment. A number of the Company’s hotels have underground storage tanks (“USTs”) and equipment containing chlorofluorocarbons (“CFCs”); the operation and subsequent removal or upgrading of certain USTs and the use of equipment containing CFCs also are regulated by Environmental Laws. In connection with the Company’s ownership, operation and management

Environmental Laws are not the only source of environmental liability. Under the common law, owners and operators of real property may face liability for personal injury or property damage because of various environmental conditions such as alleged exposure to hazardous or toxic substances (including, but not limited to, ACMs, PCBs and CFCs), poor indoor air quality, radon or poor drinking water quality.

Although Starwood has incurred and expects to incur remediation and other environmental costs during the ordinary course of operations, management anticipates that such costs will not have a material adverse effect on the operations or financial condition of the Company.

The hotel and leisure industry is seasonal in nature; however, the periods during which the Company’s properties experience higher revenue activities vary from property to property and depend principally upon location. The Company’s revenues and EBITDA⁽¹⁾ historically have been lower in the first quarter than in the second, third or fourth quarters.

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 initially negatively impact Starwood’s revenues and EBITDA.

At December 31, 2000, Starwood employed approximately 129,000 persons at its corporate offices, owned and managed hotels and vacation ownership resorts, of whom approximately 47% were employed in the United States. At December 31, 2000, approximately 33% of the U.S.-based employees were covered by various collective bargaining agreements providing, generally, for basic pay rates, working hours, other conditions of employment and orderly settlement of labor disputes. Generally, labor relations have been maintained in a normal and satisfactory manner, and management believes that the Company’s employee relations are good.

Starwood is one of the largest hotel and leisure companies in the world, with operations in 80 countries around the world. Starwood considers its hotels generally to be premier establishments with respect to desirability of location, size, facilities, physical condition, quality and variety of services offered in the markets in which they are located. Although obsolescence arising from age and condition of facilities can adversely effect the Company’s hotels and resorts, Starwood expends substantial funds to renovate and maintain its facilities in order to remain competitive. For further information, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Expenditures,” in this Joint Annual Report.

The Company’s hotel and leisure business included 738 owned, managed or franchised hotels with approximately 227,000 rooms at December 31, 2000, predominantly under six brands: St. Regis (luxury full-service hotels and resorts), The Luxury Collection (luxury full-service hotels and resorts), Westin (luxury and

upscale full-service hotels and resorts), Sheraton (upscale full-service hotels and resorts), W (stylish boutique full-service urban hotels) and Four Points by Sheraton (moderately priced full-service hotels). At December 31, 2000, 162 of these hotels were owned or leased by Starwood or an entity in which Starwood has a majority equity interest, 263 were managed by Starwood on behalf of third-party owners (including entities in which Starwood has a minority equity interest) and 313 were owned and operated by franchisees using one of the Company’s brands or were otherwise represented by Starwood. Additionally, Starwood is currently selling VOI inventory at 12 resorts.

The following table sets forth the Company’s 162 owned, leased and consolidated joint venture hotels by geographic region:

Hotel and resort properties in the United States are often owned by entities that neither manage hotels nor own a brand name. Hotel owners typically enter into management contracts with hotel management companies to operate their hotels. When a management company does not offer a brand affiliation, the hotel owner often chooses to pay separate franchise fees to secure the benefits of brand marketing, centralized reservations and other centralized administrative functions, particularly in the sales and marketing area. Management believes that companies, such as Starwood, that offer both hotel management services and well-established worldwide brand names appeal to hotel owners by providing the full range of management and marketing services.

Managed Hotels. Through its subsidiaries, Starwood manages hotels worldwide, usually under a long-term agreement with the hotel owner (including entities in which Starwood has a minority equity interest). The Company’s responsibilities under hotel management contracts typically include hiring, training and supervising the managers and employees that operate these facilities. For additional fees, Starwood provides reservation services and coordinates national advertising and certain marketing and promotional services. Starwood prepares and implements annual budgets for the hotels it manages and is responsible for allocating property-owner funds for periodic maintenance and repair of buildings and furnishings. At December 31, 2000, Starwood managed 263 hotels worldwide under long-term agreements.

Management contracts typically provide for base fees tied to gross revenue and incentive fees tied to profits. In the Company’s experience, owners seek hotel managers that can provide attractively priced base, incentive, marketing and franchise fees combined with demonstrated sales and marketing expertise and operations-focused management designed to enhance profitability. Some of the Company’s management contracts permit the hotel owner to terminate the agreement when the hotel is sold or otherwise transferred to a third party, as well as if Starwood fails to meet established performance criteria. In addition, many hotel owners seek equity, debt or other investments from Starwood to help finance hotel renovations or conversion to a Starwood brand so as to align the interests of the owner and the Company. The Company’s ability or willingness to make such investments may determine, in part, whether Starwood will be offered, will accept, or will retain a particular management contract.

Brand Franchising. Through its subsidiaries, Starwood franchises its Sheraton, Westin and Four Points by Sheraton brand names and generally derives licensing and other fees from franchisees based on a fixed percentage of the franchised hotel’s room revenue, as well as fees for other services, including centralized

reservations, sales and marketing, public relations and national and international media advertising. In addition, a franchisee may also purchase hotel supplies, including brand-specific products, from certain Starwood-approved vendors. Starwood approves certain plans for, and the location of, franchised hotels and reviews their design.

As of December 31, 2000, there were 302 franchised properties with approximately 77,000 rooms operating under the Sheraton, Westin and Four Points by Sheraton brands.

The following table summarizes average occupancy rates, average daily rates (“ADR”) and REVPAR on a year-to-year basis for the Company’s 122 owned, leased and consolidated joint venture hotels (excluding 36 hotels under significant renovation in 2000, 4 hotels without prior year results and 12 hotels sold during 1999 and 2000) (“Same-Store Owned Hotels”) for the years ended December 31, 2000 and 1999:

In addition, during the year ended December 31, 2000, the Company invested approximately $544 million for capital improvements primarily at owned hotel assets, continuing the renovation program on its largest brand, Sheraton, and vacation ownership resort construction. These capital expenditures included significant new growth investment for the acquisition of land for vacation ownership project construction adjacent to the Westin Kierland Resort in Scottsdale, Arizona and 14 acres on the island of Maui, as well as the acquisition of a second fully-entitled site adjacent to the San Francisco Museum of Modern Art. Other major expenditures during 2000 and continuing into 2001 include the development of the W Times Square, the conversion of the Days Inn Chicago to the W Lakeshore and the conversion of the Midland Hotel to the W Chicago. During 2000, the Company also expanded the Westin Mission Hills Resort and completed significant renovation work at the Sheraton Bal Harbour and Westin Maui. Internationally, the 100-room expansion of the Westin Turnberry Resort in Scotland, including the addition of a second golf course and the Colin Montgomerie links golf academy, was completed. In 2000, the Company also signed management and franchise agreements for 75 hotels with approximately 16,800 rooms under its brands and began selling VOIs at four properties.

Incorporated by reference to the description of legal proceedings in Note 18, “Commitments and Contingencies,” in the notes to financial statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data.”

See Part III, Item 10, of this Joint Annual Report for information regarding the executive officers of the Registrants, which information is incorporated herein by reference.

Item 5. Market for Registrants’ Common Equity and Related Stockholder Matters.

The Shares are traded on the New York Stock Exchange (the “NYSE”) under the symbol “HOT.” The Class A Shares are all currently held by the Corporation and have never been traded.

The following table sets forth, for the fiscal periods indicated, the high and low sale prices per Share on the NYSE Composite Tape.

As of March 23, 2001, there were approximately 21,000 holders of record of Shares and one holder of record (the Corporation) of the Class A Shares.

The following table sets forth the frequency and amount of distributions made by the Trust to holders of Shares for the years ended December 31, 2000 and 1999:


(a)	The Trust declared distributions for the fourth quarter of 2000 and 1999 to shareholders of record on December 31, 2000 and 1999, respectively. The distributions were paid in January 2001 and 2000, respectively.

The Corporation has not paid any cash dividends since its organization and does not anticipate that it will make any such distributions in the foreseeable future.

As a consequence of the Reorganization, holders of Class B Shares are entitled, subject to certain conditions, to receive a non-cumulative annual dividend, which was set at an initial rate of $0.60 per Share for 1999, to the extent the dividend is authorized by the Board of Trustees of the Trust. The annual dividend was increased to an annual rate of $0.69 per Share in 2000. The Company increased the Trust dividend 16% in February 2001 to an annual rate of $0.80 per Share and expects to increase the Trust dividend 15% per year thereafter. Unless dividends for the then current quarterly dividend period have been paid on the Class B Shares, the Trust is not permitted to pay a dividend on the Class A Shares (except in certain circumstances). Under the terms of the Company’s current credit facilities, the Trust may pay unlimited dividends to the Corporation or any wholly owned subsidiary thereof and during any period of twelve consecutive calendar months, the Trust may pay cash dividends to its shareholders (excluding the Corporation and any wholly owned subsidiary) in an aggregate initial amount not to exceed the lesser of (a) $150,000,000 (increased to $180,000,000 in 2000 and increasing by 20% annually thereafter) and (b) 10% of EBITDA.

During 2000, the Trust consented to the exchange of approximately 508,000 shares of Class B Exchangeable Preferred Shares (“Class B EPS”) by certain stockholders for an equal number of shares of Class A Exchangeable Preferred Shares (“Class A EPS”). Additionally, the Trust consented to the exchange of approximately 3.1 million shares of Class A EPS for an equal number of Shares.

During 2000, the Company exchanged approximately 2.2 million limited partnership units of the Realty Partnership and the Operating Partnership held by third parties for Shares on a one-for-one basis.

The following financial and operating data should be read in conjunction with the information set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements of the Company and related notes thereto appearing elsewhere in this Joint Annual Report and incorporated herein by reference. The historical information represents the historical results of Sheraton Holding up to the date of the ITT Merger, because the ITT Merger was treated as a reverse purchase for accounting purposes. This income statement and operating data excludes the results of the discontinued lines of business, which include the Company’s gaming operations, ITT Educational Services, Inc. (“Educational Services”) and ITT World Directories (“WD”).


(a)	Excludes approximately $3.0 billion of consideration paid to Sheraton Holding stockholders in connection with the ITT Merger.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion presents an analysis of results of our operations for the years ended December 31, 2000, 1999 and 1998.

Revenues. Total revenues increased 13.5% to $4.345 billion for the year ended December 31, 2000 when compared to the corresponding period in 1999. The increase in revenues was due to the 7.9% increase in revenues for the Company’s owned, leased and consolidated joint venture hotels to $3.659 billion for the year ended December 31, 2000 when compared to $3.391 billion in the corresponding period of 1999 and the increase in other hotel and leisure revenues to $686 million for the year ended December 31, 2000 when compared to $438 million in the corresponding period of 1999.

The increase in revenues from owned, leased and consolidated joint venture hotels is due primarily to the increased revenues at the Company’s 158 hotels (excluding 16 hotels sold or without comparable results during 1999 and 2000) (“Comparable Owned Hotels”) and the addition of four hotels, including a full year of operations at the W hotels in San Francisco, California and Seattle, Washington, which opened in May 1999 and September 1999, respectively. These increases were offset by the loss of revenues on 12 hotels sold since April 1999 and the impact of hotels with rooms out of service due to significant renovations. The increase in revenues was further offset by currency weaknesses, primarily in the Euro.

Revenues at the Company’s Comparable Owned Hotels increased 6.7% to $3.527 billion for the year ended December 31, 2000 when compared to the same period of 1999 due primarily to an increase in REVPAR. REVPAR at 122 Same-Store Owned Hotels increased 7.3% to $114.90 for the year ended December 31, 2000 when compared to the corresponding 1999 period. The increase in REVPAR at these hotels was attributed to the increase in ADR of 4.5% to $160.55 for the year ended December 31, 2000 when compared to the corresponding 1999 period. Occupancy for these 122 Same-Store Owned Hotels rose to 71.6% from 69.7% in the year ended December 31, 2000 when compared to the same period in 1999. REVPAR at Same-Store Owned Hotels in North America increased 11.0% for the year ended December 31, 2000 when compared to the same period of 1999. REVPAR at the Company’s international Same-Store Owned Hotels, which decreased by 0.3% for the year ended December 31, 2000 when compared to the same period of 1999, was impacted primarily by the unfavorable effect of foreign currency translation.

The increase in other hotel and leisure revenues resulted primarily from the acquisition of Starwood Vacation Ownership, Inc. (formerly Vistana, Inc.) (“SVO”) in October 1999. The increase is also due to 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.

EBITDA. EBITDA for the Company’s owned, leased and consolidated joint venture hotels increased $148 million or 13.7% to $1.226 billion for the year ended December 31, 2000 when compared to $1.078 billion in the corresponding period in 1999. This increase was primarily due to an increase in EBITDA at the

Company’s Comparable Owned Hotels, which increased $115 million or 10.7% to $1.186 billion. These results were strongest in North America, where the Company has its largest concentration of hotels, offset by weak results internationally due primarily to unfavorable political and economic conditions. The addition of four hotels, including a full year of operations at the W hotels in San Francisco, California and Seattle, Washington, which opened in May 1999 and September 1999, respectively, contributed to the overall increase, offset by the sale of seven hotels since December 31, 1999.

Selling, General, Administrative and Other. Selling, general, administrative and other expenses were $403 million and $220 million for the years ended December 31, 2000 and 1999, respectively. The increase in selling, general, administrative and other expenses is due primarily to a full year of costs associated with the vacation ownership operations due to the acquisition of SVO in October 1999.

Depreciation and Amortization. Depreciation and amortization expense increased to $391 million and $90 million, respectively, in the year ended December 31, 2000 compared to $370 million and $82 million, respectively, in the corresponding period of 1999. The increases in depreciation and amortization expense for the year ended December 31, 2000 was primarily attributable to the acquisition of SVO in October 1999, the addition of four new hotels, including a full year of depreciation on the W hotels in San Francisco, California and Seattle, Washington, which opened in May 1999 and September 1999, respectively, and the additional depreciation resulting from an extensive renovation program, offset, in part, by the suspension of depreciation on hotels held for sale and hotels sold during the year.

Net Interest Expense. Interest expense for the years ended December 31, 2000 and 1999, which is net of interest income of $19 million and $16 million, respectively, and discontinued gaming operations allocations of $6 million and $163 million, respectively, decreased to $420 million from $484 million. This decrease was due primarily to the paydown of debt with approximately $3.3 billion of cash proceeds from the Caesars World, Inc. (“Caesars”) and the Desert Inn Resort & Casino (the “Desert Inn”) sales (interest reflected in discontinued operations and thereby excluded from net interest expense in 1999 was limited to $2.1 billion of allocated debt) and cash repatriation from overseas, partially offset by additional borrowings during 1999 and 2000 for Share repurchases, capital expenditures and the acquisition of the CIGA minority interest.

Income Tax Expense. The effective income tax rate for 2000 was 33%. As a result of the Reorganization, the tax provision for the year ended December 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, a one-time tax benefit of $37 million attributable to the resolution of certain employment related contingencies and other one-time pro forma comparable adjustments, the Company’s effective tax rate for the year ended December 31, 1999 was 36.5%. 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 and other items.

Minority Equity in Net Income. In June 2000, the Company completed the acquisition of the minority ownership interest of CIGA not previously owned by Starwood. The aggregate purchase price of the incremental shares was approximately $312 million. This acquisition resulted in an increase in net income of $10 million in 2000 when compared to 1999, excluding the minority interest in the gain on the sale of CIGA’s investment in Lampsa, SA, a Greek company that owned the Grande Bretagne Hotel in Athens, Greece.

During the first quarter of 1999, the Company provided for estimated after-tax losses on the gaming dispositions 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 Educational Services during the first quarter of 1999.

Due to the sale of Caesars in December 1999 and the Desert Inn in June 2000, results for the Company’s gaming operations are included in discontinued operations in the years ended December 31, 1999 and 2000. Results for the Desert Inn are included in discontinued operations through June 23, 2000 and for Caesars through December 30, 1999. The gaming operations net loss was $8 million and $27 million for the years

Gaming revenues decreased to $57 million for the year ended December 31, 2000 when compared to $1.541 billion in the corresponding period of 1999, and operating income (loss) for year ended December 31, 2000 decreased to a loss of $3 million when compared to operating income of $154 million for the same period of 1999. The decreases in 2000 were due to the sales of Caesars and the Desert Inn in December 1999 and June 2000, respectively.

Revenues. Revenues increased 16.7% to $3.829 billion for the year ended December 31, 1999 when compared to the corresponding period in 1998. The increase was primarily due to the 13.7% increase in revenues for the Company’s owned, leased and consolidated joint venture hotels to $3.391 billion for the year ended December 31, 1999 when compared to the corresponding period of 1998. The increase resulted primarily from the 5.3% increase in revenues at the Company’s Comparable Owned Hotels to $3.335 billion for the year ended December 31, 1999 when compared to $3.167 billion in the same period of 1998. The increase also resulted from the acquisition, in July 1999, of the Westin hotel in Maui, Hawaii (the Company previously had a 95% non-controlling interest in this property), the opening of the 423-room W hotel in San Francisco, California in May 1999 and the 426-room W hotel in Seattle, Washington in September 1999 and the reopening of the W hotel in New York, New York in December 1998, which was partially closed during most of 1998 due to significant renovation and conversion from the former Doral Inn. The increase in revenues for the year ended December 31, 1999 was offset, in part, by a $39 million decrease in revenues as a result of the sale of nine hotels in May 1998 and the sales of The Westin Central Park South in New York, New York in July 1999 and the Ritz Carlton in Kansas City, Missouri in November 1999. The increase in revenues at the Same-Store Owned Hotels resulted from an increase in REVPAR at these hotels of 4.3% to $106 for the year ended December 31, 1999 when compared to the same period of 1998. The increase in REVPAR at these hotels was attributed to an increase in ADR of 3.1% to $150 for the year ended December 31, 1999 when compared to the corresponding 1998 period. Occupancy for Same-Store Owned Hotels rose to 70.7% from 69.9% in the year ended December 31, 1999 when compared to the same period in 1998. REVPAR at Same-Store Owned Hotels in North America increased 4.9% for the year ended December 31, 1999 when compared to the same period of 1998. REVPAR at the Company’s international owned, leased and consolidated joint venture hotels increased 3.0% for the year ended December 31, 1999 when compared to the same period of 1998.

Other hotel and leisure revenues increased by $140 million for the year ended December 31, 1999 to $438 million. The increase was primarily due to the acquisition of SVO on October 1, 1999. VOI sales in the fourth quarter of 1999 increased 4.9% when compared to VOI sales reported by SVO in the same period of 1998.

EBITDA. EBITDA at the Company’s owned, leased and consolidated joint venture hotels rose approximately 13.1% to $1.078 billion for the year ended December 31, 1999 when compared to the same period in 1998. This increase is due, in part, to the addition of the Westin hotel in Maui, Hawaii and the W hotels in San Francisco, California and Seattle, Washington and the reopening of the W hotel in New York, New York discussed previously, offset by an approximate $13 million reduction in EBITDA as a result of the sale of nine hotels in May 1998 and The Westin Central Park South in New York, New York in July 1999 and the Ritz Carlton in Kansas City, Missouri in November 1999. EBITDA for the Company’s Same-Store Owned Hotels increased to $924 million for the year ended December 31, 1999 from $849 million for the year ended December 31, 1998. The EBITDA improvement at the Same-Store Owned Hotels was due primarily to the increase in ADR discussed previously.

Selling, General, Administrative and Other. Selling, general, administrative and other expenses increased 4.8% to $220 million for the year ended December 31, 1999 when compared to $210 million in the corresponding period of 1998, due primarily to the acquisition of SVO in October 1999.

Depreciation and Amortization. Depreciation and amortization expense increased to $370 million and $82 million, respectively, in the year ended December 31, 1999 compared to $297 million and $81 million, respectively, in the corresponding period of 1998. The increase in depreciation expense for the year ended December 31, 1999 was primarily attributed to the addition of the Westin hotel in Maui, Hawaii and the opening of the W hotels in San Francisco, California and Seattle, Washington, offset by a reduction in depreciation expense as a result of the sale of nine hotels in 1998 and two hotels in 1999. The increase in depreciation expense for the year ended December 31, 1999 was also attributed to the completion, in December 1998, of a significant renovation of the W hotel in New York, New York.

Net Interest Expense. Interest expense for the years ended December 31, 1999 and 1998, which is net of interest income of $16 million and $26 million, respectively, and discontinued operations allocations of $163 million and $175 million, respectively, was $484 million and $424 million, respectively. The increase relates primarily to the full year of interest on debt incurred to finance the ITT Merger and Westin Merger and the repurchase of Shares and capital expenditures, offset by the reduction in debt with approximately $6.8 billion in proceeds from dispositions of non-core assets since February 1998. In addition, 1998 interest expense included a $40 million non-recurring charge associated with the settlement of certain forward interest rate swap agreements.

Results for the Company’s gaming operations and former investments in WD and Educational Services are included in discontinued operations in the years ended December 31, 1999 and 1998. Net loss from discontinued operations was $0 and $80 million for the years ended December 31, 1999 and 1998, respectively. These results include the allocation of pretax corporate interest expense of $163 million and $175 million in the years ended December 31, 1999 and 1998, respectively.

The after-tax loss on the disposition of discontinued operations for the year ended December 31, 1999 was $71 million and includes, on an after-tax basis, a $173 million gain on the sale of the Company’s remaining interest in Educational Services, offset by a $183 million loss on the sale of Caesars and an estimated $61 million loss on the planned disposition of the Desert Inn. After-tax gains of $1.162 billion were recognized in the year ended December 31, 1998 in connection with the majority sale of Educational Services and the disposition of WD.

Revenues from discontinued gaming operations increased 11.9% to $1.541 billion for the year ended December 31, 1999 when compared to the corresponding period of 1998. Costs and expenses from discontinued gaming operations for the year ended December 31, 1999 increased 3.0% to $1.191 billion when compared to the same period of 1998. Costs and expenses in 1998 include a third quarter restructuring charge of $55 million relating to a write-down of certain receivables and an investment in a shared services center established by Sheraton Holding. The increase in revenues and costs and expenses resulted primarily from the opening of Caesars Indiana in November 1998. The results of the discontinued gaming operations from April 1, 1999 (date of announcement of the formal plan to dispose of gaming operations) through December 31, 1999 are included in the net loss on the disposition of discontinued operations for the year ended December 31, 1999 as noted previously.

EBITDA from discontinued gaming operations for the year ended December 31, 1999 was $350 million compared to $276 million in the corresponding period of 1998. EBITDA excludes the third quarter 1998 restructuring charge of $55 million discussed above. The increase in gaming EBITDA resulted from improved performance at Caesars Atlantic City and the opening of Caesars Indiana.

Starwood incurs capital expenditures for upgrading and, in some cases, repositioning its owned hotels and for ongoing maintenance of acquired and existing hotels in accordance with the Company’s standards. During

Cash flow from operating activities is the principal source of cash to be used to fund the Company’s operating expenses, interest expense, capital expenditures and distributions. Starwood anticipates that cash flow provided by operating activities will be sufficient to service short-term indebtedness, fund maintenance capital expenditures and meet operating cash requirements, including distributions to shareholders.

In addition to cash flow from operating activities, Starwood intends to finance the acquisition of, or investment in, additional hotels and resorts, hotel renovations and capital improvements and provide for general corporate purposes through the Company’s credit facilities described below, through dispositions of certain non-core assets and, when market conditions warrant, through the issuance of additional equity or debt securities. The Company has announced the expectation to market the CIGA portfolio of 22 hotels for sale, potentially encumbered by the Company’s management agreements, in whole or in part during 2001. Since February 1998 through the date of this filing, Starwood has completed over $7.1 billion of asset sales and dispositions, the proceeds of which were used primarily to reduce debt. During 2000, net cash used for financing activities included the $700 million paydown of the Sheraton Holding public debt.

Loans and Credit Facilities. Following is a summary of the Company’s debt portfolio as of December 31, 2000:

In December 2000, the Company increased the amount available under the Senior Credit Facility by $172.5 million (“Term Loan Add-on”). Additionally, in January 2001, the Company further increased the amount available under the Senior Credit Facility by an additional $150 million. The proceeds from the Term Loan Add-on were used to further reduce the amount outstanding under the Company’s Revolving Credit Facility.

In July 2000, the Company entered into a one-year, Euro 270 million loan (approximately $252 million based on exchange rates at the time) at an initial average interest rate of Euribor plus 112.5 basis points for the first six months and increasing to Euribor plus 137.5 basis points for the remaining six months. The proceeds from this loan were used to reduce the amount outstanding under the Company’s Revolving Credit Facility.

In January 1999, the Company completed a $542 million long-term financing (the “Mortgage Loan”), secured by mortgages on a portfolio of 11 hotels. The Mortgage Loan is due in February 2009 and the proceeds from the Mortgage Loan were used to pay down the one-year term loan under the Senior Credit Facility.

On February 23, 1998, Starwood entered into two credit facilities ($5.6 billion in total) with Lehman Brothers, Bankers Trust Company, The Chase Manhattan Bank and other financial institutions to fund the cash portion of the ITT Merger consideration, to refinance a portion of the Company’s existing indebtedness and to provide funds for general corporate purposes. The Senior Credit Facility and the Senior Secured Notes Facility comprise Starwood’s primary existing credit facilities. In September 1998, the Company increased its borrowings under the Senior Secured Notes Facility with a $1 billion, five-year term borrowing facility (“Tranche II Loans”). Starwood completed the sale of Caesars on December 30, 1999 and completed the sale of the Desert Inn on June 23, 2000 for aggregate net proceeds of approximately $3.3 billion. The proceeds from these sales were used to repay $2.5 billion of the Senior Secured Notes Facility and to reduce the amount outstanding under the Revolving Credit Facility.

Starwood has a substantial amount of indebtedness and a working capital deficiency of $757 million at December 31, 2000, including $585 million of current maturities of long-term debt. 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 $435 million at December 31, 2000) and capacity with additional borrowings, 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 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. See risk relating to debt financing.

During each of the quarters of 2000, the Trust paid a distribution of $0.1725 per Share. The Trust’s annual dividend increased 16% in February 2001 to an annual rate of $0.80 per Share. Total dividends paid in 2000 and 1999 were $134 million and $116 million, respectively.

At December 31, 2000, Starwood had approximately 194 million Shares, 7.7 million partnership units and 3.6 million exchangeable preferred shares outstanding.

In 1998, the Board of Directors of the Company approved the repurchase of up to $1 billion of Shares under a Share repurchase program (the “Share Repurchase Program”). Pursuant to the Share Repurchase Program, in 2000, Starwood repurchased 2.5 million Shares in the open market for an aggregate cost of $69 million. As of December 31, 2000, approximately $230 million remains available under the Share Repurchase Program.

During 2000, the Trust consented to the exchange of approximately 508,000 shares of Class B EPS into an equal number of shares of Class A EPS. Additionally, the Trust consented to the exchange of approximately 3.1 million shares of Class A EPS for an equal number of Shares.

On January 1, 1999, 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 substantially all of the 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 in the process of updating its information systems to make them Euro compliant. As of the date of this filing, five properties have converted to the Euro without any significant impact to the properties’ operations or information systems; however, there is no assurance that the Company or third-party vendors of applications used by the Company will successfully bring all of its systems into compliance. Failure of the Company to do so could result in disruptions in the processing of transactions in Euros or computed by reference to the Euro.

The Company seeks to reduce earnings and cash flow volatility associated with changes in interest rates and foreign currency exchange rates by entering into financial arrangements intended to provide a hedge against a portion of the risks associated with such volatility. The Company continues to have exposure to such risks to the extent they are not hedged.

Interest rate swap agreements are the primary instruments used to manage interest rate fluctuation affecting the Company’s variable rate debt. The Company currently has five outstanding long-term interest rate swap agreements under which the Company pays a fixed interest rate and receives variable interest rates. The following table sets forth the scheduled maturities and the total fair value of the Company’s debt portfolio:

Foreign currency forward transactions are used by the Company to hedge exposure to foreign currency exchange rate fluctuations. The gains or losses on the forward contracts are largely offset by the gains or losses of the underlying transactions, and consequently, a sudden significant change in foreign currency exchange

rates would not have a material impact on future net income or cash flows. The Company monitors its foreign currency exposure on a monthly basis to maximize the overall effectiveness of its foreign currency hedge positions. As of December 31, 2000, the Euro, the Polish Zloty and the French Franc were the principal currencies hedged by the Company. Changes in the value of forward foreign exchange contracts designated as hedges of foreign currency denominated assets and liabilities are classified in the same manner as changes in the underlying assets and liabilities. At December 31, 2000, the notional amount of the Company’s open forward foreign exchange contracts protecting the value of the Company’s foreign currency denominated assets and liabilities was approximately $44 million. These contracts mature in June, July and September of 2001. A hypothetical 10% change in currency exchange rates would result in an increase or decrease of approximately $5 million to the fair value of the forward foreign exchange contracts at December 31, 2000, which would be offset by an opposite effect on the related hedged positions.

The Company enters into a derivative financial arrangement only to the extent it meets the objectives described above, and the Company does not engage in such transactions for trading or speculative purposes.

See Notes 13 and 16 in the notes to financial statements filed as part of this Joint Annual Report and incorporated herein by reference for further description of derivative financial instruments.

The financial statements and supplementary data required by this Item are included in Item 14 of this Joint Annual Report and are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

The Board of Directors of the Corporation and the Board of Trustees of the Trust currently comprise members, each of whom is elected for a three-year term. The following table sets forth, for each of the members of the Board of Directors and the Board of Trustees as of the date of this Joint Annual Report, the class to which such Director or Trustee has been elected and certain other information regarding such Director or Trustee.

The following table includes certain information with respect to each of Starwood’s current executive officers.

Barry S. Sternlicht. Mr. Sternlicht has been Chairman and Chief Executive Officer of the Corporation since September 1997 and January 1999, respectively. Mr. Sternlicht has served as Chairman and Chief Executive Officer of the Trust since January 1995. Mr. Sternlicht also has been the President and Chief Executive Officer of Starwood Capital and its predecessor entities since its formation in 1991. Mr. Sternlicht was Chief Executive Officer of iStar from September 1996 to November 1997 and served as the Chairman of the Board of Directors (previously the Board of Trustees) of iStar from September 1996 to April 2000. Mr. Sternlicht has been a Director (or Trustee, as applicable) of iStar since September 1996.

Robert F. Cotter. Mr. Cotter has been the Chief Operating Officer of the Corporation since February 2000 and a Vice President of the Trust since August 2000. From December 1999 to February 2000, he was President, International Operations, and from March 1998 to December 1999, he served as President, Europe, of the Company. Prior to joining the Company, Mr. Cotter was President, Sheraton Europe Division, from June 1994 to March 1998 and previously held various other positions with Sheraton including President, Sheraton Asia-Pacific Divisions, and numerous sales and marketing positions in the United States and Asia.

Ronald C. Brown. Mr. Brown has been the Executive Vice President and Chief Financial Officer of the Corporation since March 1998 and has served as Vice President, Chief Financial Officer and Chief Accounting Officer of the Trust since January 1999. From July 1995 to March 1998, he was the Senior Vice

Kenneth S. Siegel. Mr. Siegel has been the Executive Vice President and General Counsel of the Corporation and Vice President and General Counsel of the Trust since November 2000. In February 2001, he was also appointed as the Secretary to both the Corporation and the Trust. Mr. Siegel was formerly the Senior Vice President and General Counsel of Gartner, Inc. from January 2000 to November 2000. Prior to that time, he served as Senior Vice President, General Counsel and Corporate Secretary of IMS Health Incorporated, an information services company, and its predecessors from February 1997 to December 1999. Prior to that time, Mr. Siegel was a Partner at Baker & Botts, LLP.

David K. Norton. Mr. Norton has been the Executive Vice President–Human Resources of the Corporation and Vice President–Human Resources of the Trust since May 2000. Prior to joining the Company, Mr. Norton held various positions with PepsiCo, Inc. from September 1990 to April 2000 including Senior Vice President, Human Resources, of Frito-Lay, a division of PepsiCo, and Senior Vice President, Human Resources, of PepsiCo Food Systems from December 1994 to October 1995.

Steven R. Goldman. Mr. Goldman has been the Executive Vice President, Acquisitions and Development, of the Corporation and a Vice President of the Trust since January 1999. He was Executive Vice President of the Trust from March 1998 to January 1999. From September 1996 March 1998, he was the Senior Vice President of the Trust and from March 1995 to September 1996, he served as Senior Vice President of the Corporation. Prior to joining the Company, Mr. Goldman was a Vice President of Starwood Capital, specializing in hotel acquisitions and hotel asset management, and was the Senior Development Manager of Disney Development Company, the real estate investment development and management division of The Walt Disney Company.

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that Directors and executive officers of the Company, and persons who own more than 10 percent of the outstanding Shares, file with the Securities and Exchange Commission (the “SEC”) (and provide a copy to the Company) certain reports relating to their ownership of Shares and other equity securities of the Company.

To the Company’s knowledge, based solely on a review of the copies of these reports furnished to the Company for the fiscal year ended December 31, 2000, and written representations that no other reports were required, all Section 16(a) filing requirements applicable to its Directors, executive officers and greater than 10 percent beneficial owners were complied with for the most recent fiscal year, except that Messrs. Eilian (a former Director of the Company) and Grose each failed to timely file one Form 4 with respect to one transaction; Mr. Goldman failed to timely file two Forms 4 with respect to two transactions; and Mr. Cotter failed to timely file a Form 3 and one Form 4 with respect to one transaction. The Directors who have elected to defer receipt of their directors’ fees failed to report on Forms 5 receipt of phantom stock units as a result of such elections. The number of such late filings were three for each of Messrs. Duncan and Mitchell, two for Mr. Troubh and one for each of Messrs. Eilian, Hippeau and Yih.

The information called for by Item 11 is incorporated by reference from the information under the following captions in the Proxy Statement: “Compensation of Directors and Trustees,” “Summary of Cash and Certain Other Compensation,” “Executive Compensation,” “Option Grants,” “Option Exercises and Holdings,” “Employment and Compensation Agreements with Executive Officers,” “Compensation Committee Interlocks and Insider Participation” and “Certain Relationships and Related Transactions.”

The information called for by Item 12 is incorporated by reference from the information under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement.

Policies of the Board of Directors of the Corporation and the Board of Trustees of the Trust

The policy of the Board of Directors of the Corporation and the Board of Trustees of the Trust provides that any contract or transaction between the Corporation or the Trust, as the case may be, and any other entity in which one or more of its Directors, Trustees or officers are directors or officers, or have a financial interest, must be approved or ratified by the Audit Committee or by a majority of the disinterested Directors or Trustees in either case after the material facts as to the relationship or interest and as to the contract or transaction are disclosed or are known to them.

General. Barry S. Sternlicht, Chairman, Chief Executive Officer and a Director of the Corporation, and Chairman, Chief Executive Officer and a Trustee of the Trust, controls and has been the President and Chief Executive Officer of Starwood Capital since its formation in 1991. In addition, Madison F. Grose is a Senior Managing Director of, and holds direct and indirect interests in, Starwood Capital and Jonathan D. Eilian (a former Director of the Corporation and Trustee of the Trust) holds direct and indirect interests in Starwood Capital. Prior to joining Starwood, Steven R. Goldman was an employee of Starwood Capital, and he continues to own an interest in certain portfolio investments of Starwood Capital.

Trademark License. An affiliate of Starwood Capital has granted to Starwood, subject to Starwood Capital’s unrestricted right to use such name, an exclusive, non-transferable, royalty-free license to use the “Starwood” name and trademarks in connection with the acquisition, ownership, leasing, management, merchandising, operation and disposition of hotels worldwide, and to use the “Starwood” name in its corporate name worldwide, in perpetuity.

Starwood Capital Noncompete. In connection with the Restructuring, Starwood Capital agreed that, with certain exceptions, Starwood Capital would not compete directly or indirectly with the Company within the United States and would present to the Company all opportunities presented to Starwood Capital to acquire fee interests in hotels in the United States and debt interests in hotels in the United States where it is anticipated that the equity will be acquired by the debt holder within one year from the acquisition of such debt (the “Starwood Capital Noncompete”). During the term of the Starwood Capital Noncompete, neither Starwood Capital nor any of its affiliates is permitted to acquire any such interest, or any ground lease interest or other equity interest, in hotels in the United States. The Starwood Capital Noncompete continues until no officer, director, general partner or employee of Starwood Capital is on either the Board of Directors of the Corporation or the Board of Trustees of the Trust (subject to exceptions for certain restructurings, mergers or other combination transactions with unaffiliated parties). Several properties managed by the Company, including the Westin Innisbrook Resort (the “Innisbrook”), the Westin Savannah Harbor Resort and the Turnberry Hotel, were opportunities presented to the Company by Starwood Capital. With the approval in each case of the Audit Committee of the Board of Directors of the Corporation and the Board of Trustees of the Trust, from time to time the Company has waived the restrictions of the Starwood Capital Noncompete in whole or in part with respect to particular acquisition opportunities in which the Company had no interest.

Portfolio Investments. An affiliate of Starwood Capital holds an approximately 25% non-controlling interest in a golf course management company that currently manages over 40 golf courses, including seven golf courses that are amenities to resorts that the Company manages. An entity in which Messrs. Sternlicht, Eilian and Grose have indirect interests owns the common area of the Sheraton Tamarron Resort which the Company manages. In addition, an affiliate of Starwood Capital has an indirect interest of approximately 50% in an entity that manages over 40 health clubs, including health club and spa space in a hotel owned by the

Other Management-Related Investments. Individuals affiliated with Starwood Capital, including Messrs. Sternlicht, Eilian and Grose, own indirect interests in an entity (the “Innisbrook Entity”) that owns the common area facilities and certain undeveloped land at the Innisbrook. In May 1997, the Innisbrook Entity entered into a management agreement for the Innisbrook property with Westin, which was then a privately held company partly owned by Starwood Capital and Goldman, Sachs & Co. When the Company acquired Westin in January 1998, it acquired Westin’s rights and obligations under this management agreement. The Company is currently attempting to resolve a disagreement with the Innisbrook Entity relating to various payment and other provisions of the management agreement.

Aircraft Lease. In February 1998, the Company leased a Gulfstream III Aircraft from Star Flight LLC, an affiliate of Starwood Capital. The term of the lease was one year and automatically renews for one-year terms until either party terminates the lease upon 90 days’ written notice. The rent for the aircraft, which was set at approximately 90% of fair market value (based on two estimates from unrelated third parties), is (i) a monthly payment of 1.25% of the lessor’s total costs relating to the aircraft (approximately $123,000 at the beginning of the lease with this amount increasing as additional costs are incurred by the lessor), plus (ii) $300 for each hour that the aircraft is in use.

Starwood has made non-interest-bearing loans to Steven R. Goldman, Executive Vice President, Acquisitions and Development, and Ronald C. Brown, Executive Vice President and Chief Financial Officer, during 1999 and to David K. Norton, Executive Vice President of Human Resources, during 2000. Each of these loans was made in connection with such executive’s employment and is secured by a second mortgage on such executive’s home. These loans had initial principal amounts of $525,000, $600,000 and $500,000, respectively, all of which are currently outstanding. These loans are due five years from the date of issuance or, generally, upon the individual’s termination.

In 2000, Starwood retained the law firm Verner, Liipfert, Bernhard, McPherson and Hand, of which Senator George J. Mitchell, a Director of the Corporation and Trustee of the Trust, is Special Counsel. Such firm was paid approximately $370,000 for services rendered during 2000. We expect that this firm will provide services to the Company in 2001.

During 2000, the Company retained the services of Waveland International (“Waveland”), an executive search firm, of which the husband of Susan Bolger, a former executive officer of the Company, is an employee. The Company paid Waveland $70,000 for such services.


	1.	The financial statements and financial statement schedules listed in the Index to Financial Statements and Schedules following the signature pages hereof.

	2.	Exhibits:


(1)	Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.

(2)	Filed herewith.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 29, 2001


	By:	/s/ BARRY S. STERNLICHT



	Barry S. Sternlicht
	Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Date: March 29, 2001


	By:	/s/ BARRY S. STERNLICHT



	Barry S. Sternlicht
	Chairman and Chief Executive Officer

We have audited the accompanying consolidated balance sheets of Starwood Hotels & Resorts Worldwide, Inc. (a Maryland corporation) and its subsidiaries (the “Company”) and Starwood Hotels & Resorts (a Maryland real estate investment trust) and its subsidiaries (the “Trust”) as of December 31, 2000 and 1999, and the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2000 of the Company and the consolidated statements of operations and cash flows for the years ended December 31, 2000 and 1999 and the period from February 23, 1998 to December 31, 1998 of the Trust as set forth in the accompanying Index to Financial Statements and Schedules. These financial statements and schedules are the responsibility of the Company’s and Trust’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company and the Trust at December 31, 2000 and 1999, and the results of the Company’s operations and cash flows for each of the three years in the period ended December 31, 2000 and the Trust’s operations and cash flows for the years ended December 31, 2000 and 1999 and the period from February 23, 1998 to December 31, 1998 in conformity with accounting principles generally accepted in the United States.

Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the Index to Financial Statements and Schedules are presented for purposes of complying with the Securities and Exchange Commission’s rules and are not a part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

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

[Continued from above table, first column(s) repeated]


		Cumulative
		Translation and			Retained
		Marketable			Earnings
		Securities			(Accumulated
		Adjustments			Deficit)

Balance at December 31, 1997		$	(135	)	$	(57	)




	Net income		—			1,302




	Sheraton Holding reverse purchase		—			—




	Cash dividend to Sheraton Holding stockholders		—			(890	)




	Stock option and restricted stock award transactions, net		—			—




	Share repurchases		—			—




	Issuance of forward equity contracts		—			—




	Settlement of forward equity contracts		—			—




	Issuance of equity put options		—			—




	Conversion and cancellation of Class A EPS, Class B EPS and Partnership Units		—			—




	Change in minority interest		—			—




	Foreign currency translation		14			—




	Unrealized gain on securities, net		1			—




	Dividends declared		—			(353	)

Balance at December 31, 1998			(120	)		2




	Net loss		—			(741	)




	Stock option and restricted stock award transactions, net		—			—




	Issuance of equity put options		—			—




	Settlement of equity put options		—			—




	Share repurchases		—			—




	Conversion and cancellation of Class A EPS, Class B EPS and Partnership Units		—			—




	SVO acquisition		—			—




	Foreign currency translation		(127	)		—




	Unrealized gain on securities, net		9			—




	Dividends declared		—			(117	)

Balance at December 31, 1999			(238	)		(856	)




	Net income		—			403




	Stock option and restricted stock award transactions, net		—			—




	Settlement of equity put options		—			—




	Share repurchases		—			—




	Conversion and cancellation of Class A EPS, Class B EPS and Partnership Units		—			—




	Foreign currency translation		(104	)		—




	Unrealized loss on securities, net		(11	)		—




	Dividends declared		—			(139	)

Balance at December 31, 2000		$	(353	)	$	(592	)


(a)	Represents common stock of Sheraton Holding prior to the ITT Merger and the Corporation’s common stock and the Trust’s shares of beneficial interest subsequent to the ITT Merger.

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

The accompanying consolidated balance sheets as of December 31, 2000 and 1999 and the consolidated statements of operations, comprehensive income, equity and cash flows for the years ended December 31, 2000, 1999 and 1998 represent (i) Starwood Hotels & Resorts Worldwide, Inc. (the “Corporation”) and its subsidiaries, including Sheraton Holding Corporation and its subsidiaries (“Sheraton Holding”) (formerly ITT Corporation) and Starwood Hotels & Resorts and its subsidiaries (the “Trust” and, together with the Corporation, “Starwood” or the “Company”), and (ii) the Trust. Because the Company’s acquisition of Sheraton Holding (the “ITT Merger”) was treated as a reverse purchase for financial accounting purposes, the statements of operations, comprehensive income, equity and cash flows for the year ended December 31, 1998 include the accounts of the Company and the Trust for the period from the closing of the ITT Merger on February 23, 1998 through December 31, 1998 and the accounts of Sheraton Holding for the year ended December 31, 1998.

The Company is one of the largest hotel companies in the world and the Trust is one of the largest real estate investment trusts (“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 Trust was formed in 1969 and elected to be taxed as a 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 has 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 (“Class A Shares”). 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 on or 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 Corporation, through its subsidiaries, is the general partner of, and held, as of December 31, 2000, an aggregate 95.3% partnership interest in, SLC Operating Limited Partnership (the “Operating Partnership”). The Trust, through its subsidiaries, is the general partner of, and held an aggregate 96.3% partnership interest

in, SLT Realty Limited Partnership (the “Realty Partnership” and, together with the Operating Partnership, the “Partnerships”) as of December 31, 2000. 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 December 31, 2000, there were approximately 7.7 million LP Units outstanding (including 4.3 million LP Units held by the Corporation). For all periods presented, the LP Units are assumed to have been converted to Shares for purposes of calculating basic and diluted weighted average Shares outstanding.

Principles of Consolidation. The accompanying consolidated financial statements of the Company and the Trust and their subsidiaries include the assets, liabilities, revenues and expenses of majority-owned subsidiaries over which the Company and/or the Trust exercise control, and for which control is other than temporary. Intercompany transactions and balances have been eliminated in consolidation.

Cash and Cash Equivalents. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Inventories. Inventories are comprised principally of vacation ownership interests (“VOIs”) and hotel operating supplies. VOI inventory is carried at cost, which is lower than fair value less cost to sell. Operating supplies are generally valued at the lower of cost (first-in, first-out) or market. Potential losses from obsolete and slow-moving inventories are provided for in the current period.

Investments. Investments in partnerships and joint ventures are accounted for using the equity method of accounting when the Company has a 20% to 50% ownership interest or exercises significant influence over the venture. If the Company’s interest exceeds 50% and the Company exercises control over the venture, the results of the partnership or joint venture are consolidated herein. All other investments are generally accounted for under the cost method.

Equity in earnings of unconsolidated subsidiaries accounted for on the equity basis were $37 million, $32 million and $20 million in 2000, 1999 and 1998, respectively.

The fair market value of investments is based on the market prices for the last day of the period if the investment trades on quoted exchanges. For non-traded investments, fair value is estimated based on the underlying value of the investment. The carrying value of other investments approximates fair value based on market prices and the value of the underlying collateral.

Plant, Property and Equipment. Plant, property and equipment, including capitalized interest of $3 million, $8 million and $14 million in 2000, 1999 and 1998, respectively, applicable to major project expenditures, are recorded at cost. Depreciation is provided on a straight-line basis over the estimated useful economic lives of 15 to 40 years for buildings and improvements; 3 to 10 years for furniture, fixtures and equipment; and the lesser of the leasehold term or 40 years for leasehold improvements. Gains or losses on the sale or retirement of assets are included in income when the assets are sold provided there is reasonable assurance of the collectibility of the sales price and any future activities to be performed by the Company relating to the hotel assets sold are insignificant.

The Company evaluates the carrying value of each of the Company’s assets for impairment. For assets in use, the expected undiscounted future cash flows of the assets are compared to the net book value of the assets. If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value is charged to current earnings. When assets are identified by management as held for sale, the Company discontinues depreciating the assets and estimates the fair value of such assets. If, in management’s opinion, the fair value of the assets which have been identified for sale is less than the net book value of the assets, a loss reserve is established. Fair value is determined based upon

discounted cash flows of the assets at rates deemed reasonable for the type of property and prevailing market conditions, appraisals and, if appropriate, current estimated net sales proceeds from pending offers.

Goodwill and Intangible Assets. Goodwill and intangible assets arose in connection with acquisitions, including the acquisition of management contracts, and are amortized using the straight-line method over 2 to 40 years. Accumulated amortization was $249 million and $154 million at December 31, 2000 and 1999, respectively. The Company continually reviews the carrying value of goodwill and intangible assets to assess recoverability from future operations using undiscounted cash flows. Impairments would be recognized in operating results if a permanent diminution in value is deemed to have occurred.

Frequent Guest Program. The Company accrues for the cost of redeeming points awarded to members of the frequent guest program at the time the points are awarded. This accrual is based on the discounted expected costs of redemption. The liability for this program is included in other long-term liabilities and accrued expenses in the accompanying consolidated balance sheets. Revenue is recognized by participating hotels and resorts when the points are redeemed for hotel stays.

Derivative Financial Instruments. The Company enters into interest rate swap agreements to manage interest rate exposure. The differential to be paid or received under these agreements is accrued consistent with the terms of the agreements and is recognized in interest expense over the term of the related debt using a method that approximates the effective interest method (the accrual accounting method). The related amounts payable to or receivable from counterparties are included in other liabilities or assets.

The Company enters into foreign currency forward contracts and foreign currency swaps as a means of hedging exposure to foreign currency fluctuations. All foreign currency forward contracts have an inverse correlation to the hedged items and are designated as, and considered effective as, hedges of the underlying assets or liabilities. Changes in the value of the derivative instruments designated as hedges of foreign currency denominated assets and liabilities are classified in the same manner as the classification of the changes in the underlying assets and liabilities. Discounts or premiums related to the contracts are recognized into income over the life of the contract.

The Company does not enter into these derivative financial instruments for trading or speculative purposes and closely monitors the financial stability and credit standing of its counterparties.

Foreign Currency Translation. Balance sheet accounts are translated at the exchange rates in effect at each year-end and income and expense accounts are translated at the average rates of exchange prevailing during the year. The national currencies of foreign operations are generally the functional currencies. Gains and losses from foreign currency translation and the effect of exchange rate changes on intercompany transactions of a long-term investment nature are generally included as a separate component of stockholders’ equity. Gains and losses from foreign currency transactions are reported currently in costs and expenses and were insignificant for all periods presented.

Income Taxes. Under the asset and liability method of accounting for income taxes, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets, including net operating loss carryforwards, and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the new rate is enacted.

The Trust has elected to be treated as a REIT under the provisions of the Code beginning with the 1995 calendar year. As a result, the Trust will not be subject to federal income tax on its taxable income at

corporate rates provided it distributes annually 100% of its taxable income to its shareholders and complies with certain other requirements.

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):

Employee stock options totaling approximately 1 million Shares were not included in the computation of diluted earnings per Share for the year ended December 31, 1999 as the effects were antidilutive. Class A Exchangeable Preferred Shares (“Class A EPS”) and Class B Exchangeable Preferred Shares (“Class B EPS”) of the Trust totaling approximately 8 million Shares were not included in the computation of diluted earnings per Share for the years ended December 31, 1999 and 1998 as the effects were antidilutive. Additionally, equity put options totaling approximately 1 million Shares were not included in the computation of diluted earnings per Share for the year ended December 31, 1998 as the effects were antidilutive.

Revenue Recognition. Generally, revenues are recognized when the services have been rendered. The following is a description of the composition of revenues for the Company:


	•	Owned, Leased and Consolidated Joint Ventures—Represents revenue primarily derived from hotel and leisure operations, including the rental of rooms and food and beverage sales, from a worldwide network of owned, leased or consolidated joint venture hotels and resorts operated primarily under the Company’s proprietary brand names including Sheraton, Westin, St. Regis, The Luxury Collection, Four Points by Sheraton and W.

	•	Management and Franchise Fees—Represents fees earned on hotels managed worldwide, usually under long-term contracts with the hotel owner, and franchise fees received in connection with the franchise of the Company’s Sheraton, Westin and Four Points by Sheraton brand names. Management fees are generally based on a combination of a percentage of gross revenues and an incentive fee, and franchise fees are generally based on a percentage of hotel room revenues.

	•	Other—Represents primarily the Company’s interest in unconsolidated joint ventures and the sale and financing of VOIs. VOI sales are included in revenue when minimum down payment requirements (at least 10%) have been met.

The Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) 101, “Revenue Recognition in Financial Statements,” in December 1999. SAB 101 summarizes certain of the SEC staff’s views in applying accounting principles generally accepted in the United States to revenue recognition in financial statements. The Company adopted SAB 101, as amended, in the fourth quarter of 2000 and

determined that it did not have a material impact on annual earnings or the timing of revenue and profit recognition between quarters during the year.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications. Certain reclassifications have been made to the prior years’ financial statements to conform to the current year presentation, including the reclassification of equity earnings from joint ventures in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-1, “Investor Balance Sheet and Income Statement Display under the Equity Method for Investments in Certain Partnerships and Other Ventures.”

Impact of Recently Issued Accounting Standards. In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities.” In June 1999, the FASB issued SFAS No. 137, which deferred the effective date of SFAS No. 133. This was followed in June 2000 by the issuance of SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities,” which amends SFAS No. 133. SFAS No. 133 and SFAS No. 138 establish new accounting rules and disclosure requirements for most derivative instruments and hedging activities. SFAS No. 133 and SFAS No. 138 require all derivatives to be recognized as assets or liabilities at fair value. Fair value adjustments are made either through earnings or equity, depending upon the exposure being hedged and the effectiveness of the hedge. The Company has adopted these standards effective January 1, 2001. The initial adoption of these standards will result in a reduction of other comprehensive income of approximately $6.2 million. The adoption will also impact asset and liabilities recorded on the balance sheet; however, it will not impact earnings.

Acquisition of CIGA S.p.A. In June 2000, the Company completed the acquisition of the minority ownership interest of CIGA S.p.A. (“CIGA”) not previously owned by Starwood. The aggregate purchase price of the incremental shares was approximately $312 million. The Company accounted for the acquisition of the outstanding CIGA shares as a step acquisition in accordance with Accounting Principles Board (“APB”) Opinion No. 16, “Business Combinations,” resulting in a preliminary allocation to property and goodwill of approximately $102 million.

Acquisition of Starwood Vacation Ownership, Inc. On October 1, 1999, the Company completed the acquisition of Starwood Vacation Ownership, Inc. (formerly Vistana, Inc.) (“SVO”), whereby SVO merged with and into a subsidiary of the Corporation and thereby became a wholly owned subsidiary of the Corporation. The Company financed the acquisition of SVO with cash of approximately $110 million, the assumption of approximately $280 million of debt and the issuance of approximately 10.1 million Shares. SVO’s principal operations include the acquisition, development and operation of vacation ownership resorts; marketing and selling VOIs in the resorts; and providing financing to customers who purchase such interests. The Company accounted for the acquisition of SVO as a purchase in accordance with APB Opinion No. 16. As such, the carrying values of the assets acquired (including net cash of approximately $35 million) and liabilities assumed were recorded at fair market value, resulting in goodwill of approximately $256 million. The results of SVO’s operations have been included in the accompanying financial statements since the acquisition date. The pro forma effect on the Company’s revenues, net income and earnings per Share for 1999 and 1998, as though the acquisitions occurred as of January 1 of each year, was not material.

ITT and Westin Mergers. On January 2, 1998, Starwood acquired Westin Hotels & Resorts Worldwide, Inc. and certain of its affiliates (“Westin”) for approximately $2.0 billion in cash and debt assumed (the “Westin Merger”). On February 23, 1998, pursuant to an Amended and Restated Agreement and Plan of Merger dated as of November 12, 1997, the Company acquired Sheraton Holding. The aggregate value of the Sheraton Holding acquisition in cash, Shares and assumed debt was approximately $14.6 billion.

The Company accounted for the ITT Merger as a reverse purchase in accordance with APB Opinion No. 16. Although the Company issued Shares to Sheraton Holding stockholders and survived the ITT Merger, the Trust and the Corporation are considered the acquired companies for accounting purposes since the prior Sheraton Holding stockholders held a majority of the outstanding Shares immediately after the ITT Merger was consummated. As such, the carrying value of the assets and liabilities of the Corporation and Trust (inclusive of Westin) was recorded at fair market value, resulting in goodwill and identified intangibles of approximately $2.5 billion.

Because the ITT Merger was treated as a reverse purchase for financial accounting purposes, the statements of operations, comprehensive income and cash flows for the year ended December 31, 1998 include the accounts of the Trust and the Corporation for the period from the closing of the ITT Merger on February 23, 1998 through December 31, 1998 and the accounts of Sheraton Holding for the entire year ending December 31, 1998. Historical stockholders’ equity of the Company prior to the ITT Merger has been retroactively restated for the equivalent number of shares received in the ITT Merger after giving effect to the difference in par value between Starwood’s and Sheraton Holding’s stock. Unless otherwise indicated, all references herein to the number of Shares and per Share amounts have been restated to reflect the impact of the reverse acquisition at the conversion factor of 1.543 Shares for each Sheraton Holding share acquired. Additionally, each Sheraton Holding stock option (“Sheraton Stock Option”) became a fully exercisable option pursuant to the number of Shares determined by applying the 1.543 conversion factor.

Unaudited Pro Forma Results. The following unaudited pro forma information reflects the ITT Merger, the Westin Merger and certain asset sales as if they occurred at the beginning of each period presented and does not purport to present what actual results would have been had such transactions, in fact, occurred at the beginning of each period presented, or to project results for any future period (in millions, except per Share data):

In September and October of 1999, the Company sold its 52.8% stake in Lampsa, SA, a Greek company that owns the Grande Bretagne Hotel in Athens, Greece. The Company owned its interest in Lampsa, SA through its then 70.3% ownership of CIGA. The Company received gross proceeds (before minority interest) of approximately $287 million as a result of this sale and recorded a pretax gain (before minority interest) of $276 million.

Gaming. On December 30, 1999, the sale of Caesars World, Inc. (“Caesars”) was completed. On June 23, 2000, the sale of the Desert Inn Resort & Casino (the “Desert Inn”) was completed (together with the sale of Caesars, the “Gaming Dispositions”). The Company received approximately $3.3 billion in proceeds from the Gaming Dispositions which was used to pay off $2.5 billion of increasing rate notes and to reduce its bank revolver. These sales constituted the disposition of Starwood’s gaming operations.

As a result of the Gaming Dispositions, the accompanying consolidated financial statements have been restated to reflect the results of operations and net assets of the gaming segment as a discontinued operation. This restatement includes the allocation of long-term debt of $165 million and $2.1 billion for the years ended December 31, 1999 and 1998, respectively, and the related interest expense of $6 million, $163 million and $161 million, for the years ended December 31, 2000, 1999 and 1998, respectively, to the discontinued gaming operations. These allocations were based upon the ratio of net gaming segment assets to the Company’s total capitalization. During the first quarter of 1999, the Company provided for estimated after-tax losses on the disposal of the discontinued gaming operations of $180 million ($158 million pretax), which included anticipated operating income of approximately $50 million prior to the disposal. In the fourth quarter of 1999, the Company provided for additional losses on the sale of its gaming operations in the amount of $55 million (including tax of $9 million), primarily due to the delay in the closing of the sale, lower than estimated operating profits prior to the sale and certain adjustments to the sale price made at closing. Additionally, the Company provided for additional losses on the disposal of the Desert Inn of $9 million (net of a $5 million tax benefit), primarily as a result of additional anticipated operating losses prior to the sale. Summary financial information of the discontinued gaming operations is as follows (in millions):

ITT Educational Services, Inc. In June 1998, the Company sold approximately 13.0 million shares of ITT Educational Services, Inc. (“Educational Services”) in a public offering for net proceeds of approximately $304 million. The Company recorded a gain of $253 million before income taxes of $93 million. Subsequent to this sale, the Company was a minority holder in Educational Services and, as such, accounted for its remaining interest under the equity method by recording its proportionate share of net losses totaling

$1 million for the period from June 1, 1998 to December 31, 1998. Summary financial information of Educational Services is as follows (in millions):

In February 1999, the Company completed the sale of its remaining interest in Educational Services, selling 8.0 million shares of common stock of Educational Services in an underwritten public offering at a price per share of $34.00 and sold 1.5 million shares of common stock at $32.73 per share directly to Educational Services. Starwood received aggregate net proceeds of approximately $310 million from these transactions, which were used to repay a portion of the Company’s outstanding debt. The Company recognized a gain of $272 million, before income taxes of $99 million, on the sale.

ITT World Directories. In February 1998, the Company disposed of ITT World Directories (“WD”), the subsidiary through which Sheraton Holding conducted its telephone directories publishing business, to VNU International B.V., a leading international publishing and information company based in the Netherlands, for gross consideration of $2.1 billion. The Company recorded a gain of $1.0 billion, net of income taxes of $514 million, on the disposition. Interest expense and debt related to the disposition of WD was allocated to discontinued operations. Summary financial information of WD is as follows (in millions):

During the first quarter of 2000, the Company prepaid $28.4 million on a mortgage loan resulting in an extraordinary loss on the early extinguishment of debt of $3 million (pretax).

In December 1999, the Company used the proceeds from the sale of Caesars to pay off $2.5 billion of increasing rate notes. This early extinguishment of debt required termination fees of $38 million and the write-off of $10 million of deferred loan fees associated with this debt. This $48 million (pretax) charge was recorded in December 1999 as an extraordinary loss on the early extinguishment of debt.

In August 1999, Caesars redeemed its senior subordinated notes for an aggregate payment of $152 million, recognizing an extraordinary pretax loss of $3 million.

At December 31, 2000, the Company has remaining accruals related to restructuring and other special charges, described below, of $100 million, $22 million of which is included in other long-term liabilities in the accompanying balance sheet. These accruals consist of $72 million for certain litigation costs and $28 million primarily related to remaining lease commitments which expire through 2006.

1999 Restructuring and Other Special Charges (Credits). During 1999, the Company recorded restructuring charges of $5 million (pretax) attributed to the rationalization of one of its technology centers. In addition, the Company recorded other special charges of $13 million attributed to severance benefits for the former President and Chief Operating Officer of the Corporation and $75 million attributed primarily to an accrual for certain litigation costs related to an unfavorable judgment in a matter involving the former Sheraton hotel in Washington, D.C. (see Note 18).

ITT Merger-Related Charges (Credits). In connection with the ITT Merger, the Company recorded restructuring and other special charges totaling $172 million (pretax) in 1998 for ITT Merger-related costs and the write-down of certain assets. During 1999, the Company reversed $8 million of these charges as the ITT Merger costs were less than originally anticipated.

In addition, during the third quarter of 1998, the Company recorded a non-recurring charge to selling, general and administrative expense of approximately $30 million primarily associated with the vesting, during the quarter, of certain restricted stock granted earlier in the year to the then President and Chief Operating Officer of the Corporation in connection with his appointment.

During 1997, Sheraton Holding recorded special charges as a result of the ITT Merger for conversion of the accounting of Sheraton Holding’s stock option plan to variable accounting due to limited stock appreciation rights subject to exercise and related charges for tax reimbursements to employees of $404 million. During 1998 and 1999, the Company reversed approximately $23 million and $50 million, respectively, in accruals related to the resolution of certain employment related contingencies.

Other Sheraton Holding Restructuring and Other Special Charges (Credits). During 1997, Sheraton Holding recorded pretax charges totaling $236 million to restructure and rationalize operations at its World Headquarters and the headquarters of its field operations. During 1999, the Company reversed $32 million of these charges as the costs were less than anticipated.

As of December 31, 2000, the Company identified six hotels totaling $70 million as non-core assets and classified them as held for sale. These hotels are included in plant, property and equipment in the accompanying 2000 consolidated balance sheet.

Income tax data from continuing operations of the Company is as follows (in millions):

No provision was made for U.S. taxes payable on undistributed foreign earnings amounting to approximately $32 million since these amounts are permanently reinvested.

Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities. Deferred tax assets (liabilities) include the following (in millions):

At December 31, 2000, the Company has net operating loss and tax credit carryforwards of approximately $478 million and $22 million, respectively, for federal income tax purposes. Substantially all operating loss carryforwards, which are expected to provide future tax benefits, expire in 2018.

A reconciliation of the tax provision of the Company at the U.S. statutory rate to the provision for income tax as reported is as follows (in millions):

Long-term debt and short-term borrowings consisted of the following (in millions):

Aggregate debt maturities for each of the years ending December 31 are as follows (in millions):

On July 25, 2000, the Company entered into a one-year, Euro 270 million loan (approximately $252 million). The interest rate on this loan at December 31, 2000 was Euribor plus 112.5 basis points. The proceeds from the loan were used to reduce the amount outstanding under the Company’s Revolving Credit Facility.

In January 1999, the Company completed a $542 million long-term financing (the “Mortgage Loan”), secured by mortgages on a portfolio of 11 hotels. The Mortgage Loan bears interest at a blended rate of 6.98%. The Mortgage Loan is due in February 2009 and the proceeds from the Mortgage Loan were used to pay down the one-year term loan under the Senior Credit Facility.

Repayment of amounts borrowed under the Senior Credit Facility is guaranteed by the Trust, the Company and substantially all their respective significant subsidiaries (including the Partnerships) other than foreign subsidiaries and joint venture entities (the “Guarantor Subsidiaries”) to the extent such entities are not borrowers or co-borrowers, and is secured by a pledge of all the capital stock, partnership interests and other equity interests of the Guarantor Subsidiaries.

The Company maintains lines of credit under which bank loans and other short-term debt are drawn. In addition, smaller credit lines are maintained by the Company’s foreign subsidiaries. The Company had approximately $435 million of available borrowing capacity under the Revolving Credit Facility as of December 31, 2000.

The Company is subject to certain restrictive debt covenants under its short-term borrowing and long-term debt obligations including defined financial covenants, escrow account funding requirements for capital purchases and tax payments and insurance premiums, limitations on capital expenditures and on the Company’s right to incur further debt and restrictions on transactions with affiliates and related persons, among other restrictions. The Company was in compliance with all of the short-term borrowing and long-term debt obligation covenants at December 31, 2000.

The weighted average interest rate for short-term borrowings was 6.04% and 6.47% at December 31, 2000 and 1999, respectively, and their fair values approximated carrying value given their short-term nature. These average interest rates are composed of interest rates on both U.S. dollar and non-U.S. dollar denominated indebtedness.

For adjustable rate debt, fair value approximates carrying value due to the variable nature of the interest rates. For fixed rate debt, fair value is determined based upon discounted cash flows for the debt at rates deemed reasonable for the type of debt and prevailing market conditions and, if appropriate, the length to maturity for the debt. The estimated fair value of long-term debt at December 31, 2000 and 1999 was $5.4 billion and $5.6 billion, respectively, and was determined based on quoted market prices and/or discounted cash flows using the Company’s incremental borrowing rates for similar arrangements.

Pension and Postretirement Benefit Plans. The Company and its subsidiaries sponsor numerous pension plans, including the ITT Corporation Salaried Retirement Plan and the ITT Sheraton Corporation Pension Plan for Hourly Employees (“ITT Plans”), and the Westin Supplemental Executive Retirement Plan. The ITT Plans are funded, except in some countries outside the U.S. where funding is not required. The ITT Plans’ assets are comprised primarily of fixed income investments. The Westin Supplemental Executive Retirement Plan is a non-contributory, non-qualified plan that provides benefits for certain executives. The plan is unfunded apart from general assets of the Company.

The Company also sponsors the ITT Sheraton Post-Retirement Welfare Program. The plan provides health care and life insurance benefits for certain eligible retired employees. The Company has prefunded a portion of the health care and life insurance obligations through trust funds where such prefunding can be accomplished on a tax effective basis. The Company also funds the health plan on a pay-as-you-go basis.

Effective January 1, 2000, the ITT Plans were merged and the ITT Corporation Salaried Retirement Plan (“Salaried Plan”) name was retained. Immediately after the merger, the merged Plans spun off an allocated portion of assets and liabilities to form the ITT Sheraton Corporation Ongoing Retirement Plan (“Ongoing Plan”). Additionally, the Company filed a request for an Internal Revenue Service determination letter concerning the termination of the Salaried Plan as of July 31, 2000. Since the Internal Revenue Service has not yet approved the request, the plan termination has not been reflected below. The Ongoing Plan purchased a group annuity for all participants retired prior to January 1, 2000, for approximately $80.9 million. The ending balance of the fair value of plan assets for the Salaried and Ongoing Plans reflects lump sum payments made to former terminated vested participants in 2000. The total payment was approximately $23.6 million from the Salaried Plan. As of December 31, 2000, the Ongoing Plan assets included approximately 348,000 Shares of the Company’s common stock.

The following table sets forth the benefit obligation, fair value of plan assets, and the funded status of the Company’s pension and other benefit plans, amounts recognized in the Company’s consolidated balance sheets at December 31, 2000 and 1999, and the principal weighted average assumptions inherent in their determination (amounts are in millions).

For measurement purposes, a 6.10% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000. The rate was assumed to decrease gradually to 5.00% in 2002 and remain at that level thereafter. Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would not have a material effect on the total of service and interest cost components or on the postretirement benefit obligation.

Defined Contribution Plans. The Company sponsors the Starwood Hotels & Resorts Worldwide, Inc. Savings and Retirement Plan, which is a voluntary defined contribution plan allowing participation by domestic employees that meet certain age and service requirements. Each participant may contribute on a pretax basis between 1% and 18% of his or her compensation to the plan. The plan also contains additional provisions for matching contributions to be made by the Company which are based on a portion of a participant’s eligible compensation. The amount of expense for matching contributions totaled $17 million in 2000, $19 million in 1999 and $15 million in 1998.

At December 31, 2000, the Trust owned equity interests in 99 hotels, of which 90 properties were owned and 9 were held pursuant to long-term leases.

All of the Trust’s hotels are leased to the Corporation as of December 31, 2000. The leases between the Trust and the Corporation are generally long-term and provide for annual base, or minimum rents, plus contingent, or percentage rents based on the gross revenues of the properties and are accounted for as operating leases. The leases are “triple-net” in that the lessee is generally responsible for paying all operating expenses of the properties, including maintenance, insurance and real property taxes. The lessee is also generally responsible for any payments required pursuant to underlying ground leases. Total rental expense incurred by the Corporation under such leases was approximately $520 million for the year ended December 31, 2000, of which approximately $169 million related to percentage rent.

The Corporation’s minimum future rents (inclusive of various ground leases) at December 31, 2000 payable under non-cancelable operating leases with the Trust and with others for the years ended December 31 are as follows (in millions):

The Corporation and the hotels lease certain equipment and facilities for the hotels’ operations under various lease agreements. The leases extend for varying periods through 2038 and generally are for a fixed amount each month. Future minimum lease payments under the non-cancelable operating leases are included in the other minimum future rents above.

Rent expense under other non-cancelable operating leases was $64 million, $41 million and $37 million in 2000, 1999 and 1998, respectively.

The Trust’s rents receivable from the Corporation relating to leased hotel properties at December 31, 2000 and 1999 was $34 million.

As a part of its Share repurchase program (see Note 14), the Company sold equity put options during 1998 for $1.8 million, which entitled the holder, at the expiration date, to sell one million Shares to the Company at contractually specified prices. During 1999, the Company repurchased 500,000 Shares for $16 million under a portion of the equity put option contracts and the remaining equity put option contracts expired.

In November 1999, in connection with the termination of a certain executive’s employment, the Company granted this executive the option to cause the Company to purchase from the executive 566,166 Shares for a purchase price of $34.25 per Share. This option was exercisable in the fourth quarter of 2000 at which time the executive sold 366,166 of these Shares on the open market and put the remaining 200,000 Shares to the Company at a total cost of $6.9 million. The Company recorded the fair market value of the options as compensation expense of $6.7 million in 1999.

Share Repurchases. In 1998, the Board of Directors of the Company approved the repurchase of up to $1 billion of Shares under a Share repurchase program (the “Share Repurchase Program”). Pursuant to the Share Repurchase Program, through December 31, 2000, Starwood has repurchased 15.8 million Shares (including 500,000 Shares of equity put option contracts) in the open market for an aggregate cost of $521 million. Additionally, the Company repurchased 6.8 million Shares for an aggregate cost of $385 million as settlement of the forward equity transactions described below.

Forward Equity Transactions. Pursuant to a Purchase Agreement dated October 10, 1997, the Company sold to UBS Limited (“UBS Ltd.”) 2.185 million Shares (“UBS Shares”) at a cash price of $57.25 per Share, and paid to Warburg Dillon Read LLC (formerly UBS Securities LLC), an affiliate of UBS Ltd., a placement fee equal to 2.5% of the gross proceeds to the Company from such sale of Shares. Concurrently therewith, the Company entered into an agreement that provided for a settlement payment to be made, in the form of Shares or cash, by the Company to an affiliate of Union Bank of Switzerland, London Branch, or by that affiliate to the Company, based on the market price of the Shares over a specified “unwind period,” as compared to a “forward price.” The Company settled its obligations under this agreement in September 1998 by repurchasing the UBS Shares for approximately $130 million in cash. As a result of this settlement, the Company has no further obligations under this agreement and Shares were reduced by approximately 2.185 million.

On February 24, 1998, the Company sold an aggregate of 4.641 million Shares to Merrill Lynch International, NMS Services, Inc., Lehman Brothers Inc. and certain affiliates for a cash purchase price per Share of $52.798, which price reflected a 2% discount from the last reported sale price of the Shares on the date of the purchase. Concurrently with these sales, the Company entered into three separate agreements with these purchasers and/or certain of their affiliates pursuant to which each of these purchasers or their respective affiliates agreed to sell, as directed by the Company in an underwritten fixed price offering or other specified methods, a sufficient number of the Shares to achieve net sales proceeds equal to the aggregate market value of the Shares purchased in February 1998, plus a forward accretion component, minus an adjustment for dividends paid on the purchased Shares. Additional Shares were required to be delivered by the Company as security in the event the market prices of the Shares dropped below certain specified levels. In October 1998, the Company settled its obligations under these agreements by repurchasing all of the Shares issued to these purchasers for an aggregate of approximately $255 million in cash. As a result of this settlement, the Company has no further obligations under these agreements and Shares outstanding were reduced by approximately 7.379 million (4.641 million original Shares issued and 2.738 million Shares previously issued as security).

Exchangeable Preferred Shares. During 1998, 6.3 million shares of Class A EPS and 5.5 million shares of Class B EPS were issued by the Trust in connection with the Westin Merger. Class A EPS have a par value of $0.01 per share and are convertible on a one-for-one basis (subject to certain adjustments) to Shares. Class B EPS have a liquidation preference of $38.50 per share and provide the holders with the right, from and after the fifth anniversary of the closing date of the Westin Merger, to require the Trust to redeem such shares at a price of $38.50. Shares of Class B EPS are convertible on a one-for-one basis (subject to certain adjustments) to Class A EPS. During 2000, the Trust consented to the conversion of approximately 508,000 shares of Class B EPS by certain stockholders into an equal number of shares of Class A EPS. Additionally, the Trust consented to the exchange of approximately 3.0 million shares of Class A EPS into an equal number of Shares. At December 31, 2000, the Trust had 150 million preferred shares authorized and 610,000 and 3.0 million of Class A EPS and Class B EPS outstanding, respectively.

In 1999, the Company adopted the 1999 Long-Term Incentive Compensation Plan (“1999 LTIP”) which superseded the 1995 Share Option Plan (the “1995 LTIP”) and provides for the purchase of Shares by Directors, officers, employees, consultants and advisors, pursuant to option grants. Although no additional awards will be granted under the 1995 LTIP, the 1995 LTIP will continue to govern awards that have been granted and remain outstanding under the 1995 LTIP. The aggregate number of Shares subject to non-qualified or incentive stock options, performance shares, restricted stock or any combination of the foregoing which are available to be granted under the 1999 LTIP at December 31, 2000 was approximately 15.9 million.

The Company applies APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations; accordingly, compensation cost is not recognized for grants of stock options at market price. Had compensation cost for grants been determined based on the fair value of the options at the grant dates consistent with SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company’s net income would have been reduced by $92 million ($0.47 per basic Share), $76 million ($0.40 per basic Share) and $86 million ($0.46 per basic Share) in 2000, 1999 and 1998, respectively. The fair value of each option grant used in the 2000, 1999 and 1998 pro forma amounts was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2000, 1999 and 1998, respectively: dividend yield of 2.4%, 2.9% and 2.6%, expected volatility of 46.1%, 41.9% and 47.6%, risk-free interest rates of 6.5%, 6.3% and 4.5% and an expected life of three years for all options.

The following table summarizes stock option activity for the Company, including stock options granted to the gaming operation employees:


(a)	Represents Company options of 17,055,147 outstanding at February 23, 1998 (the ITT Merger date) and shares granted by the Company during 1998.

(b)	Represents options exercised during 1998, including the Sheraton Stock Options which were exercised upon the occurrence of the accelerated exercisability event (the ITT Merger).

The following table summarizes information about outstanding stock options at December 31, 2000:

During 2000, the Company granted restricted stock awards for 197,089 Shares. Total restricted stock awards outstanding as of December 31, 2000 totaled 434,323 Shares, and approximately 44,948 Shares were

vested. The remaining restricted stock awards vest at varying rates over four years from the award grant date. Compensation expense of approximately $3.8 million, $0.6 million and $16 million was recorded during 2000, 1999 and 1998, respectively, related to restricted stock awards.

The Company enters into interest rate swap agreements to manage interest rate fluctuations of its variable rate debt. The Company currently has five outstanding interest rate swap agreements under which the Company pays a fixed rate and receives variable rates of interest. The aggregate notional amount of these interest rate swaps was approximately $1.052 billion and the estimated unrealized loss on these interest rate swaps was approximately $3.2 million at December 31, 2000. The unrealized loss represents the amount the Company would pay upon the termination of the swap agreements based on market rates.

The Company enters into forward foreign exchange contracts to hedge the foreign currency exposure associated with the Company’s foreign currency denominated assets and liabilities. The Company currently has four forward foreign exchange contracts outstanding with a dollar equivalent of the contractual amounts of these hedges at December 31, 2000 of approximately $44 million. These contracts mature in 2001.

During 1998, the Company delayed a long-term debt offering due to market conditions and the Reorganization. As a result, certain of the Company’s forward interest rate swaps with a notional amount of $500 million no longer correlated with this anticipated indebtedness. In accordance with the Company’s accounting policies, these forward interest rate swaps were marked to market by the Company and, as such, the Company recognized a loss of $40 million during 1998, which is included in interest expense. These contracts were terminated by the Company in 1998.

General. Barry S. Sternlicht, Chairman, Chief Executive Officer and a Director of the Corporation, and Chairman, Chief Executive Officer and a Trustee of the Trust, controls and has been the President and Chief Executive Officer of Starwood Capital Group, L.L.C. (“Starwood Capital”) since its formation in 1991. In addition, Madison F. Grose is a Senior Managing Director of, and holds direct and indirect interests in, Starwood Capital and Jonathan D. Eilian (a former Director of the Corporation and Trustee of the Trust) holds direct and indirect interests in Starwood Capital. Prior to joining Starwood, Steven R. Goldman was an employee of Starwood Capital, and he continues to own an interest in certain portfolio investments of Starwood Capital.

Corporation or the Board of Trustees of the Trust (subject to exceptions for certain restructurings, mergers or other combination transactions with unaffiliated parties). Several properties managed by the Company, including the Westin Innisbrook Resort (the “Innisbrook”), the Westin Savannah Harbor Resort and the Turnberry Hotel, were opportunities presented to the Company by Starwood Capital. With the approval in each case of the Audit Committee of the Board of Directors of the Corporation and the Board of Trustees of the Trust, from time to time the Company has waived the restrictions of the Starwood Capital Noncompete in whole or in part with respect to particular acquisition opportunities in which the Company had no interest.

Employee and Officer Loans. In connection with specific employees’ and officers’ relocation to Starwood headquarters in 2000, 1999 and 1998, Starwood made non-interest bearing loans to certain individuals. The original loan amounts totaled approximately $15 million and the amount outstanding at December 31, 2000 was approximately $13 million. These loans are generally due five years from the date of issuance or upon the individual’s termination.

Litigation. The Sheraton Corporation (“Sheraton Corp.”) (formerly ITT Sheraton Corporation), a subsidiary of the Company, is a defendant in certain litigation relating to Sheraton Corp.’s management of a hotel. The case is titled 2660 Woodley Road Joint Venture v. ITT Sheraton Corporation, Civil Action No. 97-450-JJF (U.S.D.C., D. Del.). In December 1999, following trial, the jury returned a verdict finding that Sheraton Corp. had violated its contractual obligations to the hotel owner and awarded contractual damages totaling $11 million. The jury also found for plaintiff on certain common law and other claims and awarded compensatory and other damages of $2 million and punitive damages of $38 million. The jury found for Sheraton Corp. and rejected plaintiff’s additional claims that Sheraton Corp. had violated the Racketeer Influenced and Corrupt Organizations Act, and that Sheraton Corp. had engaged in fraud. Sheraton Corp. believes that the jury’s determination against it on liability issues was erroneous as a matter of law, and that

the damage awards were excessive and not supported by the evidence. Sheraton Corp. has sought to have the verdict set aside in the trial court and, if necessary, will appeal to the United States Court of Appeals. There can be no assurance that Sheraton Corp. will be successful in having the verdict set aside or overturned or reduced on appeal, or that other owners of properties managed by Sheraton Corp. will not seek to assert similar claims.

The Company is involved in various other legal matters that have arisen in the normal course of business, some of which include claims for substantial sums. Accruals have been recorded when the outcome is probable and can be reasonably estimated. While the ultimate results of claims and litigation cannot be determined, the Company does not expect that the resolution of all legal matters will have a material adverse effect on its consolidated results of operations, financial position or cash flow.

Environmental Matters. The Company is subject to certain requirements and potential liabilities under various federal, state and local environmental laws, ordinances and regulations. Such laws often impose liability without regard to whether the current or previous owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Although the Company has incurred and expects to incur remediation and other environmental costs during the ordinary course of operations, management anticipates that such costs will not have a material adverse effect on the operations or financial condition of the Company.

Captive Insurance Company. Through its captive insurance company, which was acquired in connection with the Westin Merger, the Company provides insurance coverage for workers’ compensation, property and general liability claims arising at hotel properties owned or managed by the Company through policies written directly and through assumed reinsurance arrangements. Estimated insurance claims payable represent outstanding claims and those estimated to have been incurred but not reported based upon historical loss experience. Actual costs may vary from estimates based on trends of losses for filed claims and claims estimated to be incurred but not yet filed.

Estimated insurance claims payable at December 31, 2000 was $33 million. At December 31, 2000, standby letters of credit amounting to $25 million had been issued to provide collateral for the estimated claims. The letters of credit are guaranteed by the predecessor owner of Westin and Bankers Trust Company.

Guaranteed Loans and Commitments. The Company issues guarantees to lenders and other third parties in connection with financing transactions and other obligations. These guarantees were limited, in the aggregate, to approximately $82 million at December 31, 2000, including guarantees involving major customers. Additionally, the Company manages certain hotels for others under agreements that provide for payments or loans to the hotel owners if stipulated levels of financial performance are not maintained.

ITT Industries. In 1995, the former ITT Corporation, renamed ITT Industries, Inc. (“ITT Industries”), distributed to its stockholders all of the outstanding shares of common stock of ITT Corporation, then a wholly owned subsidiary of ITT Industries (the “Distribution”). In connection with this Distribution, ITT Corporation, which was then named ITT Destinations, Inc., changed its name to ITT Corporation.

For purposes of governing certain of the ongoing relationships between the Company and ITT Industries after the Distribution and spin-off of ITT Corporation and to provide for an orderly transition, the Company and ITT Industries have entered into various agreements including a spin-off agreement, Employee Benefits Services and Liability Agreement, Tax Allocation Agreement and Intellectual Property Transfer and License Agreements. The Company may be liable to or due reimbursement from ITT Industries relating to the resolution of certain pre-spin-off matters under these agreements.

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, VOIs and resorts operated primarily under the Company’s proprietary brand names including Sheraton, Westin, The Luxury Collection, St. Regis, W and Four Points by Sheraton hotels and resorts which are managed or franchised under these brand names in exchange for fees. Also included are earnings and losses from the Company’s interest in unconsolidated joint ventures.

The performance of the hotels and leisure segment is evaluated primarily on operating profit before corporate selling, general and administrative expense, interest, gains on the sale of real estate, investments and restructuring and other special charges. 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):


(a)	The following costs are not allocated to hotel and leisure in evaluating operating profit (in millions):

There were no individual international countries which comprised over 10% of the total revenues and long-lived assets of the Company as of December 31, 2000, 1999 or 1998.

The following unaudited quarterly results for 2000 and 1999 have been restated from amounts previously reported by the Company for the reclassification in accordance with EITF Issue No. 00-1 (see Note 2).

The following table presents a reconciliation of operating income to EBITDA⁽¹⁾ (in millions):


(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.

(2)	Includes depreciation expense of unconsolidated joint ventures.


(b)	Includes reversals of prior years’ restructuring and other special charges reserves of $90 million.

[Continued from above table, first column(s) repeated]

Accumulated

Depreciation &

Year of

Date

Description

Amortization

Construction

Acquired

Life

The St. Regis, New York

9.5

1904

06/98

Other hotel properties, each less than 5% of total

292.2

Various

301.7

Land

—

Furniture, fixtures, and equipment

187.4

Construction in progress

—

489.1


(a)	As of December 31, 2000, land, building, furniture, fixtures and equipment and construction in progress have a cost basis of $451.8 million, $2,486.2 million, $533.7 million and $24.9 million, respectively, for federal income tax purposes.

(b)	Building and improvements include amounts allocated for leasehold interest in land and net assets held for sale.

A reconciliation of the Trust’s investment in real estate, furniture and fixtures and related accumulated depreciation is as follows:


(a)	As of December 31, 2000, the aggregate cost (before allowance for loan losses) for federal income tax purposes is not significantly different from that used for book purposes.

(b)	Payment of principal and interest due monthly and based upon an 18-year amortization schedule with interest rate of 9% per annum. Principal and all accrued and unpaid interest are due June 1, 2002.

(c)	Interest only payable monthly; interest calculated based upon 11.5% interest rate, $1.8 million principal balance and actual/365-day basis. Principal and all accrued and unpaid interest are due June 4, 2003.

(d)	Interest only payable monthly; principal and all accrued and unpaid interest due October 1, 2006.

(e)	Interest only payable monthly; interest based on current principal balance and 10% interest rate. Principal balance comprised of initial advance of $105 million with additional advances up to $121 million available. Principal and all accrued and unpaid interest are due on demand.


(f)	Interest only payable monthly; principal and all accrued and unpaid interest are due December 2005.


(g)	Interest only payable monthly; principal and all accrued and unpaid interest are due on demand.

(h)	Interest only payable monthly; principal and all accrued and unpaid interest are due February 2005.


(i)	Interest only payable monthly; principal and all accrued and unpaid interest are due February 2005.


(a)	Per mortgage loan agreements, the borrowers are not required to pay monthly interest if the cash flows are insufficient. Thus, the Trust has accrued interest on the notes.


(1)	Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.

(2)	Filed herewith.

EX-10.43 2 p64722ex10-43.txt EX-10.43 1 Exhibit 10.43 TENTH AMENDMENT TO CREDIT AGREEMENT AND MODIFICATION TO PLEDGE AND SECURITY AGREEMENT TENTH AMENDMENT TO CREDIT AGREEMENT AND MODIFICATION TO PLEDGE AND SECURITY AGREEMENT (this "Amendment"), dated as of June 12, 2000, among STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust ("Starwood REIT"), SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership ("SLT RLP"), STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Corporation"), ITT CORPORATION, a Nevada corporation ("ITT" and, together with Starwood REIT, SLT RLP and the Corporation, the "Original Borrowers"), the other Credit Parties (as defined in the Credit Agreement referred to below), the lenders from time to time party to the Credit Agreement referred to below (the "Lenders"), BANKERS TRUST COMPANY and THE CHASE MANHATTAN BANK, as Administrative Agents (in such capacity, the "Administrative Agents") and LEHMAN COMMERCIAL PAPER INC. and BANK OF MONTREAL, as Syndication Agents (in such capacity, the "Syndication Agents") and BANKERS TRUST COMPANY, as Collateral Agent (in such capacity, the "Collateral Agent"). Unless otherwise defined herein, all capitalized terms used herein shall have the respective meanings provided such terms in the Credit Agreement referred to below. W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Original Borrowers, the Lenders, the Administrative Agents and the Syndication Agents are parties to that certain Credit Agreement, dated as of February 23, 1998 (as amended, modified or supplemented to the date hereof, the "Credit Agreement"); WHEREAS, prior to the consummation of the CIGA Tender Offer (as defined below), Sheraton International, Inc. ("Sheraton International"), a Wholly-Owned Subsidiary of the Corporation, owned approximately seventy-three percent (73%) of the ordinary shares (collectively, the "Ordinary Shares") of CIGA Compagnia Italiana Grandi Alberghi S.p.A., an Italian company ("CIGA") and forty-seven percent (47%) of the saving shares (collectively, the "Saving Shares") of CIGA; WHEREAS, Sheraton International has recently made and completed a tender offer for all of the remaining Ordinary Shares and Saving Shares of CIGA (the "CIGA Tender Offer") so that, after giving effect to the consummation of the CIGA Tender Offer, Sheraton International owned over ninety-nine percent (99%) of the Ordinary Shares of CIGA and over ninety-three percent (93%) of the Saving Shares of CIGA; WHEREAS, since the consummation of the CIGA Tender Offer, Sheraton International has (i) converted the remaining issued and outstanding Saving Shares of CIGA into Ordinary Shares of CIGA and (ii) exercised certain "squeeze-out" rights by purchasing all of the then remaining issued and outstanding Ordinary Shares, so that after giving effect to the consummation of the matters described in this recital, Sheraton International now owns one hundred percent (100%) of the Ordinary Shares of CIGA and there are no remaining Saving 2 Shares of CIGA (all of the foregoing, together with the CIGA Tender Offer, referred to herein, collectively, as the "CIGA Stock Purchase Transaction"); WHEREAS, the Corporation and certain of its Subsidiaries also desire to enter into a bridge loan facility with Credit Lyonnais, in its individual capacity and as the arranging bank, and certain other lenders (collectively, the "CIGA Lenders") which bridge loan shall be (i) in the original principal amount of up to EUR 290,000,000 and (ii) incurred only to the extent that such Indebtedness is permitted under Section 9.04(xii) of the Credit Agreement and there is unused capacity in the Recourse Basket in said Section, subject, however, to the limitations set forth in this Amendment and in said Section 9.04(xii) (all of the foregoing, collectively, the "CIGA Bridge Loan"); WHEREAS, the CIGA Bridge Loan requires, among other things, the following: (i) that the Corporation create a new domestic special purpose entity that is a direct Wholly-Owned Domestic Subsidiary of Sheraton International (such special purpose entity being referred to as the "CIGA Borrower"), which new entity will be the borrower under the CIGA Bridge Loan; (ii) that prior to the consummation of the CIGA Bridge Loan, Sheraton International shall contribute sixty-six percent (66%) of the Ordinary Shares of CIGA to the CIGA Borrower, so that after giving effect to such contribution (a) the CIGA Borrower shall own sixty-six percent (66%) of the issued and outstanding Ordinary Shares of CIGA and (b) Sheraton International shall continue to own no less than thirty-three percent (33%) of the issued and outstanding Ordinary Shares of CIGA; (iii) that the CIGA Borrower shall pledge to the CIGA Lenders all of the CIGA Borrower's right, title and interest in and to the Ordinary Shares of CIGA; (iv) that Sheraton International shall not pledge all or any portion of its right, title or interest in the remaining Ordinary Shares of CIGA to the Collateral Agent for the benefit of the Secured Creditors or any other Person; (v) that the CIGA Borrower shall not be added as a Guarantor under the Credit Agreement; and (vi) that the Corporation and Starwood REIT shall jointly and severally guaranty, on an unsecured basis, all of the obligations of the CIGA Borrower under the CIGA Bridge Loan (all of the transactions described in this and the following recital, together with the CIGA Stock Purchase Transaction and the CIGA Bridge Loan, being collectively referred to herein as the "CIGA Transactions"); WHEREAS, the Corporation and its Subsidiaries (i) incurred certain Revolving Loans under the Credit Agreement in connection with the consummation of the CIGA Tender Offer and the CIGA Stock Purchase Transaction, and (ii) intend to cause the CIGA Borrower to advance, distribute, pay as a Dividend, or loan to the Corporation and/or one or more of its Wholly-Owned Domestic Subsidiaries the Net Proceeds of the CIGA Bridge Loan, so that the Corporation may repay a portion of the then outstanding Revolving Loans; 3 WHEREAS, in connection with the consummation of the CIGA Transactions, the Corporation shall cause Sheraton International to pledge to the Collateral Agent for the benefit of the Secured Creditors all of Sheraton International's right, title and interest in the Capital Stock of the CIGA Borrower; WHEREAS, the Corporation and its Subsidiaries desire to modify the phrase "senior notes" contained in the definition of "Permanent Senior Notes" under the Credit Agreement in order to clarify that such phrase includes, without limitation, other notes evidencing senior term loan facilities and other similar types of senior Indebtedness incurred or issued by the Corporation but only if any such Indebtedness otherwise satisfies the terms and provisions set forth in the proviso of the definition of Permanent Senior Notes; WHEREAS, the Corporation and its Subsidiaries desire to modify certain requirements relating to the use of Net Proceeds of Permanent Senior Notes incurred or issued by the Corporation or the Corporate Borrowers under Section 9.04(viii) of the Credit Agreement, so that the Net Proceeds of such Indebtedness shall not be required to repay the then outstanding Senior Secured Bridge Notes; WHEREAS, the Corporation and its Subsidiaries also desire (i) to incur Indebtedness under Other Hedging Agreements which are non-speculative in nature, entered into in the ordinary course of business and reasonably necessary to hedge and protect against fluctuations in the Corporation's and its Subsidiaries' cash flow and earnings from changes in financial markets and (ii) to modify the definition of "Other Hedging Agreements" in order to clarify that such definition includes, without limitation, instruments to hedge and protect against fluctuations in the Corporation's and its Subsidiaries' cash flow and earnings from changes in financial markets; WHEREAS, the Corporation and its Subsidiaries desire (i) the flexibility to create and incur Liens securing Indebtedness otherwise permitted under Section 9.04(xii) of the Credit Agreement (but only to the extent of the then unused capacity in the Recourse Basket) and (ii) to modify certain restrictions contained in Section 9.04(iv) relating to the incurrence of Capitalized Lease Obligations and Non-Recourse Indebtedness; WHEREAS, the Corporation and its Subsidiaries desire the ability from time to time (but prior to June 30, 2001) to increase the Tranche II Term Loan Commitments by an aggregate amount up to $500 million, subject to the terms and conditions set forth herein; and WHEREAS, in connection with (i) the CIGA Transactions, (ii) the Other Hedging Agreements, and (iii) the other matters described in the preceding recitals, the Borrowers request certain modifications to provisions in the Credit Agreement and the Credit Documents and certain waivers from restrictions set forth in certain sections of the Credit Agreement and the Credit Documents in order to permit the Corporation and its Subsidiaries to enter into the CIGA Transactions, the Other Hedging Agreements and the other matters described herein, and to consummate all of the other transactions contemplated therein, in each case, subject to all of the terms and provisions herein contained and only to the extent set forth below. 4 NOW, THEREFORE, it is agreed: I. Waivers, Amendments and Agreements with Respect to the Credit Agreement. SECTION 1. CIGA Transactions. (a) Consent. Notwithstanding anything to the contrary contained in the Credit Agreement or the other Credit Documents, the Lenders hereby consent to the Corporation and its Subsidiaries creating the CIGA Borrower as a new domestic special purpose entity that is a direct Wholly-Owned Domestic Subsidiary of Sheraton International and entering into and consummating the CIGA Bridge Loan, the CIGA Stock Purchase Transactions and the other transactions specifically required in order to consummate any of the foregoing, in each case, (i) subject to the terms and provisions of this Amendment and (ii) so long as no Specified Default and no Event of Default then exists; provided that, with respect to the CIGA Bridge Loan, the CIGA Bridge Loan shall be repaid in full on or prior to June 30, 2002. (b) CIGA Borrower Not Required as Guarantor; Pledge and Security Agreement Collateral; Sections 8.13, 8.15, 9.16(b). Notwithstanding anything to the contrary contained in the Credit Agreement or the other Credit Documents (including without limitation, Sections 8.13, 8.15 and 9.16(b) of the Credit Agreement), the Corporation and its Subsidiaries shall be permitted to do the following, subject to the limitations set forth herein: (i) the CIGA Borrower shall not be required to pledge any of its right, title or interest in the Ordinary Shares of CIGA to the Collateral Agent for the benefit of the Secured Creditors and may instead pledge up to sixty-six percent (66%) of such Ordinary Shares to the CIGA Lenders; (ii) Sheraton International shall not be required to pledge all or any portion of its right, title or interest in the remaining Ordinary Shares of CIGA to any Person; and (iii) the CIGA Borrower shall not be required to be a Guarantor under the Credit Agreement or to satisfy the requirements of Sections 8.13, 8.15 or clause (y) of the proviso of Section 9.16(b) thereof; provided that (x) promptly after the creation of the CIGA Borrower, Sheraton International shall be required to pledge all of its right, title and interest in, to and under the Capital Stock of the CIGA Borrower to the Collateral Agent for the benefit of the Secured Creditors and (y) if at any time the CIGA Bridge Loan does not prohibit the CIGA Borrower and/or Sheraton International from pledging all or any portion of their respective interests in the Capital Stock of CIGA to the Collateral Agent for the benefit of the Secured Creditors, the CIGA Borrower and/or Sheraton International, as the case may be, shall promptly pledge to the Collateral Agent for the benefit of the Secured Creditors that portion of such Capital Stock that is not then pledged to the Collateral Agent for the benefit of the Secured Creditors and that is no longer prohibited from being pledged under the CIGA Bridge Loan; provided further that, promptly after the earlier to occur of (1) June 30, 2002 and (2) the date upon which the CIGA Bridge Loan is repaid in full (the 5 "CIGA Loan Outside Date"), (x) the preceding clauses (b)(i), (b)(ii) and (b)(iii) shall no longer apply, (y) the CIGA Borrower shall execute and deliver counterparts of the supplements to the Guaranty and Pledge and Security Agreement and take such other actions as may be required under said Guaranty, Pledge and Security Agreement and the provisions of Section 9.16 of the Credit Agreement, including, without limitation, pledging all of its interest in the Capital Stock of CIGA and (z) all of the Capital Stock of CIGA owned by the Corporation or any other Subsidiary that is not already pledged to the Collateral Agent shall be pledged to the Collateral Agent for the benefit of the Secured Creditors in accordance with the applicable provisions of Sections 8.13, 8.14 and 9.16 of the Credit Agreement; provided that, in the case of any required pledge of Capital Stock of CIGA, such pledge shall be required only to the extent that such pledge (1) is required under Section 2 of the Pledge and Security Agreement without regard to the provisions of this Amendment, (2) is not prohibited under the laws of Italy and (3) shall not cause any material adverse Federal income tax consequences to the Credit Parties. (c) Liens; Section 9.01. Section 9.01 of the Credit Agreement shall be amended by (i) deleting the last reference to the word "and" in clause (xvii), (ii) replacing the period at the end of clause (xviii) in said Section with the following word "; and", and (iii) inserting, immediately after clause (xviii) thereof, the following new clause (xix): "(xix) so long as no Specified Default and no Event of Default then exists or would exist immediately after giving effect thereto, Liens on Assets of the Corporation or any of its Subsidiaries (other than Assets constituting Collateral) securing any Indebtedness permitted under Section 9.04(xii), provided that, prior to the incurrence of any such Indebtedness, the Corporation shall deliver a certificate to the Paying Agent establishing compliance with the financial covenants contained in Sections 9.08 through 9.11, inclusive, and Section 9.23, for the Reference Period, on a Pro Forma Basis." (d) Indebtedness; Section 9.04. Section 9.04(vii) of the Credit Agreement is hereby amended by inserting, immediately after the phrase "to the extent permitted by Section 9.05(viii)," the following: "or Section 9.05(xvii)." (e) Advances, Investments and Loans; 9.05(xvii). Section 9.05 of the Credit Agreement is hereby amended by (i) deleting the last reference to the word "and" in clause (xv) thereof, (ii) deleting the period at the end of clause (xvi) in said Section and inserting the following word "; and" in its place, and (iii) inserting, immediately after clause (xvi) of said Section, the following new clause (xvii); "(xvii) Subject to Section 9.03, so long as no Specified Default and no Event of Default then exists or would exist immediately after giving effect thereto, in addition to any other investments permitted hereunder, the Corporation and its Subsidiaries shall be permitted to do any of the following: (A) create and establish the CIGA Borrower 6 and, in connection therewith, acquire all of the Capital Stock of the CIGA Borrower, (B) so long as no Specified Default and no Event of Default then exists or would exist immediately after giving effect thereto, make one or more contributions to the CIGA Borrower of up to sixty-six percent (66%) of the Ordinary Shares of CIGA, and (C)(i) so long as no Specified Default and no Event of Default then exists or would exist immediately after giving effect thereto, the CIGA Borrower may make one or more intercompany loans, distributions (in addition to, and not in limitation of, the payment of any Dividends to the extent permitted under Section 9.03 hereof) and advances of cash to Sheraton International in an aggregate amount not to exceed the principal amount borrowed by the CIGA Borrower under the CIGA Bridge Loan, and, so long as no Specified Default and no Event of Default then exists or would exist immediately after giving effect thereto, Sheraton International may repay any such distributions, advances and loans (together with any interest due thereon) so long as the proceeds of such distributions, advances and loans are promptly used to repay any amounts due under the CIGA Bridge Loan and (ii) so long as no Specified Default and no Event of Default then exists or would exist immediately after giving effect thereto, Sheraton International may make one or more distributions, advances, intercompany loans and such other Investments in or to CIGA Borrower as may be reasonably required (after giving effect to any payments made (or to be made) to the CIGA Borrower under preceding clause (C)(i)) for the following: (x) to pay any amounts due under the CIGA Bridge Loan so long as such amounts are promptly used for such purpose and (y) for the ordinary working capital of CIGA Borrower so long as (i) such amounts are not further distributed, advanced or loaned to CIGA or any other Subsidiary of the CIGA Borrower and (ii) any such Investment otherwise complies with Section 9.26; and provided that all intercompany loans and advances made pursuant to this clause (xvii) shall be subject to the provisions of validly executed Subordination Agreements as required by the last paragraph of Section 9.04." (f) Certain Restrictions on Subsidiaries; Section 9.13. Section 9.13 of the Credit Agreement is amended by (i) deleting the word "and" immediately preceding clause (xiii) thereof and replacing said word with a comma and (ii) inserting, immediately after the last word of clause (xiii), the following: 7 ", and (xiv) restrictions (and, under certain circumstances, prohibitions) contained in any of the documents evidencing, securing or otherwise relating to the CIGA Bridge Loan, with respect to (A) the payment or distribution of any Dividends, (B) the making of any intercompany loans or advances or (C) the transfer of any property or Assets, in each case, by the CIGA Borrower to Sheraton International if such prohibition or restriction arises only (x) after the occurrence (but only during the existence) of an event of default under the CIGA Bridge Loan (which event of default does not arise (i) solely as a result of the breach of a covenant prohibiting the taking of any of the actions described in preceding clauses (A), (B) or (C) (unless such action would cause a breach of a financial covenant described in the following clause (y), in which case, said clause (y) shall apply) or (ii) as a result of a breach of a financial covenant (except a financial covenant described in following clause (y))) or (y) if the taking of any of the actions described in preceding clauses (A), (B) or (C) would cause a default under the CIGA Bridge Loan in respect of a financial covenant described in Annex I attached hereto so long as such financial covenant is not more restrictive vis-a-vis the CIGA Borrower or Sheraton International than the financial covenants described in Annex I attached hereto with no changes or modifications thereto, except for immaterial changes or modifications approved by the Lead Agents." (g) Section 9.26; CIGA Transactions Restrictions. Section 9 of the Credit Agreement is amended by inserting, immediately after the last Section thereof, the following new Section 9.26: "9.26 CIGA Transactions Restrictions. (a) The CIGA Borrower shall own no Assets other than (i) its ownership interest in CIGA in an amount up to sixty-six percent (66%) of the Ordinary Shares of CIGA and (ii) cash and Cash Equivalents held for general corporate and administrative purposes or otherwise in the ordinary course of the CIGA Borrower's business (but in no event shall the CIGA Borrower hold cash or Cash Equivalents in an amount in excess of $5,000,000 (such amount, the "CIGA Borrower Working Capital Amount") for a period longer than five (5) consecutive Business Days); (b) the CIGA Borrower shall not acquire any Assets (other than as described in preceding clause (a)) without the prior written consent of the Required Lenders; (c) no Capital Stock of CIGA (other than the Ordinary Shares of CIGA owned by 8 the CIGA Borrower as described in preceding clause (A) which, subject to certain terms and conditions set forth in the Tenth Amendment, may be pledged to the CIGA Lenders) shall be pledged or encumbered (other than to the Collateral Agent for the benefit of the Secured Creditors); and (d) all obligations under the CIGA Bridge Loan shall be repaid in full on or prior to the CIGA Loan Outside Date, except as such outside date may be otherwise extended with the prior written consent of the Required Lenders." SECTION 2. Permanent Senior Notes and Other Permitted Indebtedness. (a) Indebtedness; Section 9.04(viii)(A). Clause (I) of Section 9.04(viii)(A)(3) of the Credit Agreement shall be amended and restated to read as follows: "(I) first, to repay the then outstanding Senior Secured Bridge Notes in such amounts, if any, as the Corporation shall determine, in its sole and absolute discretion,". (b) Definitions; Section 11.01. The definition of "Permanent Senior Notes" contained in Section 11 of the Credit Agreement is hereby amended by (i) inserting, immediately after the words "senior notes of the Corporation or the Corporate Borrowers", the following: "and other notes evidencing senior term loan facilities and other similar types of senior Indebtedness incurred or issued by the Corporation or the Corporate Borrowers", (ii) deleting the words "those provided in the Senior Secured Bridge Notes" in clause (I) of subsection (a) of the proviso of said definition and replacing same with the words "February 23, 2003", (iii) inserting, immediately after the parenthetical contained in clause (II) of the proviso of said definition, the following words ", but excluding the terms and provisions relating to interest rates, fees and other similar pricing provisions,", and (iv) deleting the words "the Senior Secured Bridge Notes" in said clause (II) and replacing same with the words "this Credit Agreement." SECTION 3. Other Hedging Agreements. (a) Indebtedness; Section 9.04. Section 9.04(iii) of the Credit Agreement is amended by inserting, immediately after the last word thereof, the following: "or any Indebtedness under Other Hedging Agreements which are non-speculative in nature, entered into in the ordinary course of business and determined by the Corporation to be reasonably necessary to hedge and protect against fluctuations in the Corporation's and/or its 9 Subsidiaries' cash flow and earnings from changes in financial markets." (b) Investments; Section 9.05. Section 9.05(iv) of the Credit Agreement is hereby amended by inserting, immediately after the phrase "enter into Interest Rate Protection Agreements," the following: "or Other Hedging Agreements". (c) Definitions; Section 11.01. The definition of "Other Hedging Agreement" contained in Section 11 of the Credit Agreement is hereby amended by (i) inserting, immediately after the last word of such definition, the following: "or instruments to hedge and protect against fluctuations in the Corporation's and/or its Subsidiaries cash flow and earnings from changes in financial markets". SECTION 4. Non-Recourse Indebtedness; Section 9.04(iv). Section 9.04(iv) of the Credit Agreement is amended by (x) deleting all of the words contained in clauses (i) and (iv) of said Section 9.04(iv) and (y) inserting in their place, in each case, the term "[Intentionally Deleted]". SECTION 5. Advances, Investments and Loans; Section 9.05(xiv). Section 9.05(xiv) of the Credit Agreement is hereby amended by deleting the amount "$50,000,000" therefrom and inserting "$100,000,000" in its place. SECTION 6. Technical Amendments; Section 9.04(xii). Section 9.04(xii) of the Credit Agreement is hereby further amended by (i) modifying and deleting the reference to "Section 4.02(e)" in clause (b) of the proviso of said Section 9.04(xii) and inserting in its place "Section 4.02(d)" and (ii) inserting, immediately after the phrase "additional Indebtedness of the Corporation and any of its Subsidiaries" in said Section 9.04(xii), the following: "(without duplication of any amounts guaranteed by or with recourse to one or more obligors and/or guarantors)". SECTION 7. New Commitments. (a) Without limiting the provisions of Section 7(b) below, each of the Corporation and Starwood REIT confirms to the Lenders that it has not heretofore obtained, and it has no further right to obtain, any New Tranche II Term Loan Commitments, New Revolving Loan Commitments or New Commitments, in each case, under, and as defined in, the Fourth Amendment. (b) The Lenders agree that, at any time and from time to time on or prior to June 30, 2001, the Borrowers shall have the right to increase the Tranche II Term Loan Commitments (each such increase, a "New Tranche II Term Loan Commitment" or a "New Commitment") as more fully described below, by an aggregate amount of up to $500,000,000 by notice (a "New Commitment Notice") to the Administrative Agents given at least 3 Business Days before the respective New Commitment Effective Date (as defined below) and upon the following terms and conditions: 10 (i) on each date upon which any New Tranche II Term Loan Commitment becomes effective in accordance with the terms of the respective Assumption Agreement described in clause (ii) below (each such date, a "New Commitment Effective Date"), no Specified Default and no Event of Default shall be in existence (and no Specified Default and no Event Default shall result therefrom); (ii) on or prior to each New Commitment Effective Date, each Lender (which may be an existing Lender or a new Lender) furnishing a New Commitment shall have executed and delivered to the Paying Agent an Assumption Agreement in the form of Annex II attached to this Amendment with respect to the New Commitments of such Lender (each an "Assumption Agreement"), appropriately completed to the reasonable satisfaction of the Paying Agent (and with such modifications as may be approved by the Paying Agent); (iii) the consent of the Paying Agent (which consent shall not to be unreasonably withheld or delayed) shall be required to each Lender which furnishes one or more New Commitments and the assumption of such New Commitments shall otherwise be made in compliance with the relevant requirements expressed in Section 13.04(b) of the Credit Agreement with respect to assignments (including, without limitation that the respective entity assuming any New Commitments shall be an Eligible Transferee, compliance with the minimum amounts provided in Section 13.04(b) and the requirement that the Paying Agent receive the fees provided in said Section 13.04(b)); (iv) on each New Commitment Effective Date, additional Tranche II Term Loans shall be extended pursuant to the New Commitments; (v) based on the information contained in the respective Assumption Agreement, and consistent with the requirements set forth above, on each New Commitment Effective Date Schedule I-A and Schedule II to the Credit Agreement shall be deemed amended accordingly; (vi) each Lender furnishing a New Tranche II Term Loan Commitment shall, on the respective New Commitment Effective Date, make Tranche II Term Loans to the Corporate Borrowers, consistent with the manner provided in Section 1.01 of the Credit Agreement, in an aggregate principal amount equal to the New Tranche II Term Loan Commitment of such Lender (which New Tranche II Term Loan Commitment shall terminate immediately after giving effect to such funding); (vii) notwithstanding anything to the contrary contained in the Credit Agreement, each Borrowing of Tranche II Term Loans outstanding pursuant to the Credit Agreement at any time after the first date upon which any New Tranche II Term Loans are extended shall consist exclusively of either (x) Existing Tranche II Term Loans (with each Lender which holds any outstanding Existing Tranche II Term Loans to participate proportionately in each outstanding Borrowing of Existing Tranche II Term Loans) or (y) New Tranche II Term Loans (with each Lender which holds any outstanding New Tranche II Term Loans to participate proportionately in each outstanding Borrowing of New Tranche II Term Loans); provided that the New Tranche II Term Loans made by each Lender at any time after the first New Commitment Effective Date pursuant to which New Tranche II Term Loans are 11 extended shall (1) be allocated proportionately to each Borrowing of New Tranche II Term Loans then outstanding (based upon the relative aggregate principal amounts of each such Borrowing), (2) bear interest at the same rates as are applicable thereto and (3) to the extent the amount so added to any such Borrowing is in respect of a Borrowing of Eurodollar Loans with an Interest Period which began prior to, and ends after, the respective New Commitment Effective Date, the Borrowers and such Lender may agree, as between themselves, for the payment of any amounts to the respective Lender to compensate it for extending the respective Tranche II Term Loans during an existing Interest Period; (viii) on or prior to each New Commitment Effective Date, but subject to the provisions of Section 1.06(j) of the Credit Agreement, the Corporate Borrowers shall execute and deliver to each Lender furnishing a New Tranche II Term Loan Commitment a Tranche II Term Note payable to the order of such Lender in the stated amount equal to such New Tranche II Term Loan Commitment (in each case appropriately completed); (ix) notwithstanding anything to the contrary contained in the Credit Agreement, the following provisions shall govern: (A) each Interim Tranche II Scheduled Repayment shall be applied only to the repayment of Existing Tranche II Term Loans on a pro rata basis (based upon the then outstanding amount of Existing Tranche II Term Loans); (B) on each New Commitment Effective Date, the Final Tranche II Scheduled Repayment shall be increased by the aggregate amount of the New Tranche II Term Loan Commitments furnished on such New Commitment Effective Date; (C) on the Tranche II Maturity Date, all then outstanding Tranche II Term Loans (including all then outstanding Existing Tranche II Term Loans and all New Tranche II Term Loans) shall be repaid in full; (D) in connection with any voluntary prepayment of Tranche II Term Loans by any Borrower under Section 4.01(v) of the Credit Agreement, such Borrower shall designate in the notice described in Section 4.01(i) of the Credit Agreement whether Existing Tranche II Term Loans and/or New Tranche II Term Loans shall be prepaid and, if applicable, the amount of Existing Tranche II Term Loans and/or New Tranche II Term Loans being so repaid, and the respective voluntary prepayment shall be applied to the Existing Tranche II Term Loans and/or New Tranche II Term Loans in accordance with such designation (with each Lender holding Existing Tranche II Term Loans or New Tranche II Term Loans, as the case may be, to receive its share of such prepayment on a pro rata basis, based upon the relative amounts of Existing Tranche II Term Loans or New Tranche II Term Loans, as the case may be, held by the various Lenders); (E)(1) each voluntary prepayment of New Tranche II Term Loans shall apply to reduce the then remaining Final Tranche II Scheduled Repayment, with the entire amount of such prepayment to be so applied only to the repayment of New Tranche II Term Loans on a pro rata basis (based on the then outstanding amount of New Tranche II Term Loans) and (2) each voluntary prepayment of Existing Tranche II Term Loans shall apply to reduce the 12 then remaining Tranche II Scheduled Repayments on a pro rata basis (based upon the then remaining amounts of such Tranche II Scheduled Repayments, after giving effect to all prior reductions thereto, but for purposes of such calculation reducing the Final Tranche II Scheduled Repayment by the aggregate principal amount of New Tranche II Term Loans then outstanding), with the entire amount of such prepayment to be applied only to the repayment of Existing Tranche II Term Loans on a pro rata basis (based upon the then outstanding amount of Existing Tranche II Term Loans); (F) if on any date any amount to be applied pursuant to the provisions of Section 4.02(h) of the Credit Agreement is to be applied (x) to reduce any Interim Tranche II Scheduled Repayments, the amount to be so applied shall be applied only to the repayment of Existing Tranche II Term Loans on a pro rata basis (based upon the then outstanding amount of Existing Tranche II Term Loans) or (y) to reduce the Final Tranche II Scheduled Repayment, the amount to be so applied shall be applied as follows: (1) an amount equal to (x) the amount to be applied to reduce the Final Tranche II Scheduled Repayment at such time multiplied by (y) the Existing Tranche II Term Loan Percentage shall be applied to the repayment of the Existing Tranche II Term Loans on a pro rata basis (based on the then outstanding amount of Existing Tranche II Term Loans) and (2) the balance shall be applied to the payment of the New Tranche II Term Loans on a pro rata basis (based on the then outstanding amount of New Tranche II Term Loans); and (G) on the date of each repayment of outstanding Tranche II Term Loans (excluding any repayment in full of all then outstanding Tranche II Term Loans) the respective repayments of principal shall be allocated amongst the then outstanding Borrowings in a manner consistent with the foregoing requirements of this clause (ix). Notwithstanding anything to the contrary contained above or elsewhere in this Tenth Amendment, it is acknowledged and agreed that no Lender shall be required to provide any New Commitment, except to the extent agreed in writing by such Lender with the Borrowers (with each Lender being entitled in its sole discretion not to furnish any New Commitment). Without limiting the representations and warranties contained in the Credit Agreement (which are made on the date of the occurrence of each Credit Event), the Borrowers represent and warrant that all extensions of credit pursuant to the New Commitments (or which would be in excess of the amount permitted pursuant to the Credit Agreement in the absence of the New Commitments), shall in each case be permitted to be incurred pursuant to clause (a) or clause (i) of the second paragraph, or pursuant to the first paragraph, of Section 5.9 of the Senior Secured Bridge Note Agreement (so long as same is in effect) and that the Liens securing such extensions of credit are permitted in accordance with Section 5.12 of the Senior Secured Bridge Note Agreement (so long as same remains in effect). (c) The Credit Agreement is hereby amended by adding, immediately after the end of Section 1.18 thereof, the following new provision: "1.19. Special Provisions Applicable to Tranche II Term Loans. At any time after the first New Commitment Effective Date as 13 contemplated by the Tenth Amendment, it is acknowledged and agreed that, with respect to Tranche II Term Loans, the provisions of this Section 1 shall be subject to the overriding rules provided in Section 7 of the Tenth Amendment (including, without limitation, as to the fact that Borrowings of Tranche II Term Loans will consist exclusively of either Existing Tranche II Term Loans or New Tranche II Term Loans)." (d) The Credit Agreement is hereby amended by inserting, immediately after the end of Section 4.04 thereof, the following new provision: "4.05. Special Provisions with respect to Tranche II Term Loans. At any time after the first New Commitment Effective Date as contemplated by the Tenth Amendment, it is acknowledged and agreed that, with respect to Tranche II Term Loans, the provisions of preceding Sections 4.01 through 4.03, inclusive, shall be subject to the overriding rules provided in Section 7 of the Tenth Amendment (including, without limitation, as to the fact that repayments of Tranche II Term Loans shall be allocated amongst the Existing Tranche II Term Loans and New Tranche II Term Loans on the basis provided in said Section 7 of the Tenth Amendment, with all Interim Tranche II Scheduled Repayments to be allocated exclusively to the Existing Tranche II Term Loans)." (e) Section 8.01(e) of the Credit Agreement is hereby amended by inserting, immediately after the words "Fourth Amendment," the words "or Tenth Amendment." (f) Section 9.04 of the Credit Agreement is hereby amended by deleting the second sentence of the first paragraph immediately following Section 9.04(xvi) of the Credit Agreement. (g) The second proviso in clause (iii) of Section 9.12 of the Credit Agreement is hereby amended by (i) deleting the words "the Fourth Amendment" and replacing the same with the words "the Tenth Amendment," and (ii) deleting the words "exceeds the New Commitment Amount" and replacing same with following the words "exceeds the aggregate proceeds of New Tranche II Term Loans actually made pursuant to New Tranche II Term Loan Commitments furnished under the Tenth Amendment." (h) The definition of "New Commitment Amount" set forth in Section 11.01 of the Credit Agreement is hereby amended by (i) deleting the first reference to the words "the Fourth Amendment" therein and replacing same with the words "the Tenth Amendment" and (ii) amending and restating clause (ii) of the proviso of said definition to read as follows: "(ii) the funding thereof required pursuant to clause (vi) of Section 7(b) of the Tenth Amendment, has actually occurred." 14 (i) Section 9.04(viii)(B) of the Credit Agreement is amended by inserting, immediately after the words "pursuant to Section 9.04(xiv)" in clause (z) thereof, the following: ", the aggregate proceeds of Tranche II Term Loans actually made pursuant to New Tranche II Term Loan Commitments furnished under, or as contemplated by, the Tenth Amendment,". (j) Section 9.04(xiv) of the Credit Agreement is amended by inserting, immediately after the words "pursuant to Section 9.04(viii)(B)" in clause (z) thereof, the following: ", the aggregate proceeds of Tranche II Term Loans actually made pursuant to New Tranche II Term Loan Commitments furnished under, or as contemplated by, the Tenth Amendment,". (k) Section 9.14(c) of the Credit Agreement is amended by inserting, immediately after the words "pursuant to Sections 9.04(viii)(B) and 9.04(xiv)" in clause (y) thereof, the following: "and the aggregate proceeds of Tranche II Term Loans actually made pursuant to New Tranche II Term Loan Commitments furnished under, or as contemplated by, the Tenth Amendment." (l) Exhibit M to the Credit Agreement is hereby amended by (i) inserting the following new paragraph numbered 8 immediately at the end of paragraph numbered 7 thereof: "8. If the assignment effected hereby involves any Tranche II Term Loans, as more fully provided in Section 7 of the Tenth Amendment, the Assignee hereby acknowledges and agrees that, to the extent provided in said Section 7, various repayments of outstanding Tranche II Term Loans shall be allocated to the Existing Tranche II Term Loans and not to the New Tranche II Term Loans. The Assignee is aware that Section 7 of the Tenth Amendment provides certain overriding provisions with respect to the Existing Tranche II Term Loans and the New Tranche II Term Loans and, if the assignment effected hereby involves any Tranche II Term Loans, the Assignee is familiar with the terms thereof. Furthermore, the Assignee agrees to keep records of its outstanding New Tranche II Term Loans as opposed to the outstanding principal of its Existing Tranche II Term Loans, if any, and agrees that if it makes any assignment or participation of any Tranche II Term Loans it shall clearly provide in the relevant documentation whether (and to what extent) the assignment is of Existing Tranche II Term Loans and/or New 15 Tranche II Term Loans and shall inform the assignee or participant, as the case may be, of the provisions of Section 7 of the Tenth Amendment." and (ii) modifying Section 4 of Annex I thereto by (x) deleting the heading "Outstanding Principal of Tranche II Term Loans" appearing therein and by inserting in lieu thereof the heading "Outstanding Principal of Existing Tranche II Term Loans" and adding a new column, immediately to the right of the two existing columns appearing therein, as set forth below: "Outstanding Principal of New Tranche II Term Loans $ ----------- -----------% $ ------------". (m) As used herein, the following terms shall have the following meanings: (i) "Existing Tranche II Term Loans" means, collectively all Tranche II Term Loans (other than any New Tranche II Term Loans). (ii) "Existing Tranche II Term Loan Percentage" means, as of any determination date, the fraction (expressed as a percentage) where the numerator is the aggregate amount of Existing Tranche II Term Loans outstanding as of such date less the aggregate principal amount thereof which are then scheduled to be repaid prior to the Tranche II Maturity Date pursuant to one or more Interim Tranche II Scheduled Repayments, and the denominator is the sum of the numerator and the aggregate amount of New Tranche II Term Loans outstanding as of such date. (iii) "Final Tranche II Scheduled Repayment" means the Tranche II Scheduled Repayment of $550 million as set forth in Section 4.02(b)(ii) of the Credit Agreement due on the Tranche II Maturity Date, as the same may have been reduced pursuant to Sections 4.01 and 4.02(c) through (j), inclusive, of the Credit Agreement and increased pursuant to Section 7(b)(ix) of this Amendment. (iv) "Interim Tranche II Scheduled Repayments" means, collectively, the Tranche II Scheduled Repayments (other than the Final Tranche II Scheduled Repayment). (v) "New Tranche II Term Loans" means, collectively, any Tranche II Term Loans actually made pursuant to the New Tranche II Term Loan Commitments furnished under this Amendment. SECTION 8. Certificates by Other Officers; Sections 8.01 and 8.07. Each of Sections 8.01(a), (b) , and (e) and Section 8.07 of the Credit Agreement shall be amended by (i) deleting the first parenthetical immediately after each occurrence of the phrase "the chief financial officer of the Corporation" in such Sections, and (ii) inserting in lieu thereof the following parenthetical in each such Section: 16 "(or by the Vice President, Finance & Treasurer or Senior Vice President and Corporate Controller of the Corporation)". SECTION 9. Certain Definitions. The following new definitions shall be inserted in proper alphabetical order in Section 11.01: "Assumption Agreement" has the meaning specified in the Tenth Amendment. "CIGA Borrower" shall have the meaning specified in the Tenth Amendment. "CIGA Borrower Working Capital Amount" shall have the meaning specified in Section 9.26. "CIGA Bridge Loan" shall have the meaning specified in the Tenth Amendment. "CIGA Lender" shall have the meaning specified in the Tenth Amendment. "CIGA Loan Outside Date" shall have the meaning specified in the Tenth Amendment. "CIGA Tender Offer" shall have the meaning specified in the Tenth Amendment. "CIGA Transactions" shall have the meaning specified in the Tenth Amendment. "Existing Tranche II Term Loans" has the meaning specified in the Tenth Amendment. "Existing Tranche II Term Loan Percentage" has the meaning specified in the Tenth Amendment. "Final Tranche II Scheduled Repayment" has the meaning specified in the Tenth Amendment. "Interim Tranche II Scheduled Repayments" has the meaning specified in the Tenth Amendment. "New Commitment" has the meaning specified in the Tenth Amendment. "New Commitment Effective Date" has the meaning specified in the Tenth Amendment. "New Commitment Notice" has the meaning specified in the Tenth Amendment. "New Tranche II Term Loan Commitment" has the meaning specified in the Tenth 17 Amendment. "New Tranche II Term Loans" has the meaning specified in the Tenth Amendment. "Ordinary Shares" shall have the meaning specified in the Tenth Amendment. "Saving Shares" shall have the meaning specified in the Tenth Amendment. "Sheraton International" shall mean Sheraton International, Inc., a Delaware corporation and a Wholly-Owned Domestic Subsidiary of the Corporation. "Tenth Amendment' shall mean that certain Tenth Amendment to Credit Agreement, dated as of June 12, 2000. "Tenth Amendment Effective Date" shall mean the date upon which the Tenth Amendment becomes effective in accordance with its terms. "Tranche II Term Loan Percentage" has the meaning specified in the Tenth Amendment. II. Modification of Pledge and Security Agreement. The parties hereto acknowledge and agree that, so long as (and only for so long as) (i) the Capital Stock of CIGA is not required to be pledged to the Secured Creditors in accordance with this Amendment and (ii) the Capital Stock of the Restricted Vistana Subsidiaries is not required to be pledged to the Secured Creditors in accordance with the Ninth Amendment, such Capital Stock of CIGA and the Capital Stock of the Restricted Vistana Subsidiaries, as the case may be, shall not be required to be pledged under the Pledge and Security Agreement. III. Miscellaneous Provisions A. Each Guarantor and each Borrower, by their signatures below, hereby confirms that (x) the Guaranty shall remain in full force and effect and the Guaranty covers the obligations of each of the Borrowers under the Credit Agreement, as modified and amended by this Amendment (including, without limitation, all extensions of credit pursuant to the New Commitments furnished from time to time as contemplated by this Amendment) and (y) the Pledge and Security Agreement (as modified by this Amendment) shall remain in full force and effect as security for the obligations under the Credit Agreement, as modified and amended by this Amendment (including without limitation all extensions of credit pursuant to the New Commitments furnished from time to time as contemplated by this Amendment) and the Guaranty. B. The Corporation represents to the Lenders that, on the Tenth Amendment Effective Date, after giving effect to the execution, delivery and performance by the Corporation of this Amendment and the transactions contemplated hereby, (i) there shall exist no Default or Event of Default and (ii) all representations and warranties contained in the Credit Agreement and in the other Credit Documents, as modified hereby, shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on 18 the Tenth Amendment Effective Date (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be true and correct in all material respects only as of such specified date). C. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. D. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrowers and the Paying Agent. E. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. F. This Amendment shall become effective on the date (the "Tenth Amendment Effective Date") when each of the Borrowers, each Guarantor and the Required Lenders shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Paying Agent (or its designee). G. From and after the Tenth Amendment Effective Date, all references in the Credit Agreement and each of the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as modified hereby. H. The Borrowers hereby covenant and agree that, so long as the Tenth Amendment Effective Date occurs, they shall pay (and shall be jointly and severally obligated to pay) each Lender which executes and delivers to the Paying Agent (or its designee) a counterpart hereof by the later to occur of (x) the close of business on the Tenth Amendment Effective Date or (y) 12:00 p.m. (New York time) on Thursday, June 29, 2000 (the "Outside Date"), or which is an immediate or successive assignee of any Lender described above (with respect to amounts obtained, directly or indirectly, by assignment from such Lender), a non-refundable cash fee in an amount equal to 5.0 basis points (0.05%) of an amount equal to the sum of the outstanding principal amount of Term Loans of such Lender and the Revolving Loan Commitment of such Lender, in each case as same is in effect on the Tenth Amendment Effective Date, which fees shall be paid by the Borrowers to the Paying Agent for distribution to the Lenders not later than the fifth Business Day following the Outside Date. [ANNEX I, ANNEX II AND SIGNATURE PAGES FOLLOW] 19 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation By: /s/ Ronald C. Brown --------------------------------------- Name: Ronald C. Brown Title: Executive Vice President & CFO STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust By: /s/ Ronald C. Brown --------------------------------------- Name: Ronald C. Brown Title: Vice President, Chief Financial Officer and Chief Accounting Officer SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown --------------------------------------- Name: Ronald C. Brown Title: Vice President, Chief Financial Officer and Chief Accounting Officer ITT CORPORATION, a Nevada corporation By: /s/ Ronald C. Brown --------------------------------------- Name: Ronald C. Brown Title: Executive Vice President & CFO STARWOOD HOTELS & RESORTS HOLDINGS, INC., an Arizona corporation By: /s/ Ronald C. Brown --------------------------------------- Name: Ronald C. Brown Title: Executive Vice President & CFO [Signature Page to Tenth Amendment] 20 CHARLESTON HOTEL ASSOCIATES, LLC, a New Jersey limited liability company, CRYSTAL CITY HOTEL ASSOCIATES, LLC, a New Jersey limited liability company, LONG BEACH HOTEL ASSOCIATES, LLC, a New Jersey limited liability company, SANTA ROSA HOTEL ASSOCIATES, LLC, a New Jersey limited liability company, SLT ALLENTOWN LLC, a Delaware limited liability company, SLT ARLINGTON LLC, a Delaware limited liability company, SLT ASPEN DEAN STREET, LLC, a Delaware limited liability company, SLT BLOOMINGTON LLC, a Delaware limited liability company, SLT DANIA LLC, a Delaware limited liability company, SLT DC MASSACHUSETTS AVENUE, LLC, a Delaware limited liability company, SLT INDIANAPOLIS LLC, a Delaware limited liability company, SLT KANSAS CITY LLC, a Delaware limited liability company, SLT LOS ANGELES LLC, a Delaware limited liability company, SLT MINNEAPOLIS LLC, a Delaware limited liability company, SLT PALM DESERT LLC, a Delaware limited liability company, 21 SLT PHILADELPHIA LLC, a Delaware limited liability company, SLT REALTY COMPANY, LLC, a Delaware limited liability company, SLT SAN DIEGO LLC, a Delaware limited liability company, SLT SOUTHFIELD LLC, a Delaware limited liability company, SLT ST. LOUIS LLC, a Delaware limited liability company, SLT TUCSON LLC, a Delaware limited liability company, STARLEX LLC, a New York limited liability company, STARWOOD ATLANTA II LLC, a Delaware limited liability company, STARWOOD ATLANTA LLC, a Delaware limited liability company, STARWOOD MISSION HILLS, L.L.C., a Delaware limited liability company, STARWOOD NEEDHAM LLC, a Delaware limited liability company, STARWOOD WALTHAM LLC, a Delaware limited liability company, By: SLT Realty Limited Partnership, a Delaware limited partnership, the managing member of each of the above listed entities By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown --------------------------------------- Name: Ronald C. Brown Title: Vice President, Chief Financial Officer and Chief Accounting Officer 22 BW HOTEL REALTY, LP, a Maryland limited partnership, CP HOTEL REALTY, LP, a Maryland limited partnership, EDISON HOTEL ASSOCIATES, LP, a New Jersey limited partnership, NOVI HOTEL ASSOCIATES, LP, a Delaware limited partnership, PARK RIDGE HOTEL ASSOCIATES LP, a Delaware limited partnership, SLT FINANCING PARTNERSHIP, a Delaware general partnership, SLT HOUSTON BRIAR OAKS, LP, a Delaware limited partnership, VIRGINIA HOTEL ASSOCIATES, LP, a Delaware limited partnership, PRUDENTIAL HEI JOINT VENTURE, a Georgia general partnership, By: SLT Realty Limited Partnership, a Delaware limited partnership, the general partner of each of the above listed entities By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ______________________________________________ Name: Ronald C. Brown Title: Vice President, Chief Financial Officer and Chief Accounting Officer HEI HOTELS, L.L.C., a Delaware limited liability company, SLC CENTRAL PARK SOUTH, LLC, a Delaware limited liability company, SLC INDIANAPOLIS LLC, a Delaware limited liability company, 23 STARWOOD MANAGEMENT COMPANY, LLC, a Delaware limited liability company, By: SLC Operating Limited Partnership, a Delaware limited partnership, the managing member of each of the above listed entities By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Ronald C. Brown _____________________________________ Name: Ronald C. Brown Title: Executive Vice President and CFO SLC OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership, By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Ronald C. Brown _____________________________________ Name: Ronald C. Brown Title: Executive Vice President and CFO MILWAUKEE BROOKFIELD LP, a Wisconsin limited partnership, By: SLC Operating Limited Partnership, a Delaware limited partnership, the general partner of each of the above listed entities By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, its general partner By: /s/ Ronald C. Brown _____________________________________ Name: Ronald C. Brown Title: Executive Vice President & CFO ITT BROADCASTING CORP., a Delaware corporation By: /s/ Ronald C. Brown _____________________________________ Name: Ronald C. Brown Title: Executive Vice President & CFO 24 ITT SHERATON CORPORATION, a Delaware corporation, DESTINATION SERVICES OF SCOTTSDALE, INC., a Delaware corporation, GENERAL FIDUCIARY CORPORATION, a Massachusetts corporation, GLOBAL CONNEXIONS INC., a Delaware corporation, ITT SHERATON RESERVATIONS CORPORATION, a Delaware corporation, MANHATTAN SHERATON CORPORATION, a New York corporation, SAN DIEGO SHERATON CORPORATION, a Delaware corporation, SAN FERNANDO SHERATON CORPORATION, a Delaware corporation, SHERATON 45 PARK CORPORATION, a Delaware corporation, SHERATON ASIA-PACIFIC CORPORATION, a Delaware corporation, SHERATON BOSTON CORPORATION a Massachusetts corporation, SHERATON CALIFORNIA CORPORATION, a Delaware corporation, SHERATON FLORIDA CORPORATION, a Delaware corporation, SHERATON HARBOR ISLAND CORPORATION, a Delaware corporation, SHERATON HARTFORD CORPORATION, a Connecticut corporation, SHERATON HAWAII HOTELS CORPORATION, a Hawaii corporation, 25 SHERATON INTERNATIONAL, INC., a Delaware corporation, SHERATON INTERNATIONAL DE MEXICO, INC., a Delaware corporation, SHERATON MANAGEMENT CORPORATION, a Delaware corporation, SHERATON OVERSEAS MANAGEMENT CORPORATION, a Delaware corporation, SHERATON WARSAW CORPORATION, a Delaware corporation, SHERATON MIAMI CORPORATION, a Delaware corporation, SHERATON MIDDLE EAST MANAGEMENT CORPORATION, a Delaware corporation, SHERATON NEW YORK CORPORATION, a New York corporation, SHERATON OVERSEAS TECHNICAL SERVICES CORPORATION, a Delaware corporation, SHERATON PEACHTREE CORPORATION, a Delaware corporation, SHERATON PHOENICIAN CORPORATION, a Delaware corporation, SHERATON SAVANNAH CORPORATION, a Delaware corporation, 26 ST. REGIS SHERATON CORPORATION, a New York corporation, WORLDWIDE FRANCHISE SYSTEMS, INC., a Delaware corporation, SHERATON VERMONT CORPORATION, a Vermont corporation By: /s/ Ronald C. Brown _______________________________ Name: Ronald C. Brown Title: Executive Vice President & CFO HUDSON SHERATON CORPORATION LLC, a Delaware limited liability company By: ITT SHERATON CORPORATION a Delaware corporation, its managing member By: /s/ Ronald C. Brown _______________________________ Name: Ronald C. Brown Title: Executive Vice President & CFO ITT MSG, INC., a Delaware corporation By: /s/ Ronald C. Brown _______________________________ Name: Ronald C. Brown Title: Executive Vice President & CFO W&S DENVER CORP., a Delaware corporation, W&S REALTY CORPORATION OF DELAWARE, a Delaware corporation, BENJAMIN FRANKLIN HOTEL, INC., a Washington corporation, LAUDERDALE HOTEL COMPANY, a Delaware corporation, WESTIN BAY HOTEL COMPANY, a Delaware corporation, CINCINNATI PLAZA COMPANY, a Delaware corporation, 27 SOUTH COAST WESTIN HOTEL COMPANY, a Delaware corporation, TOWNHOUSE MANAGEMENT INC., a Delaware corporation, WVC RANCHO MIRAGE, INC., a Delaware corporation, WESTIN ASSET MANAGEMENT COMPANY, a Delaware corporation, WESTIN HOTEL COMPANY, a Delaware corporation, W&S ATLANTA CORP., a Delaware corporation, By: /s/ Ronald C. Brown _____________________________ Name: Ronald C. Brown Title: Vice President, Chief Financial Officer and Chief Accounting Officer WESTIN SEATTLE HOTEL COMPANY, a Washington general partnership, By: Benjamin Franklin Hotel, Inc., its general partner By: /s/ Ronald C. Brown ___________________________ Name: Ronald C. Brown Title: Vice President, Chief Financial Officer and Chief Accounting Officer By: W&S Realty Corporation of Delaware, its general partner By: /s/ Ronald C. Brown ___________________________ Name: Ronald C. Brown Title: Vice President, Chief Financial Officer and Chief Accounting Officer WESTIN PREMIER, INC., a Delaware corporation, WESTIN VACATION MANAGEMENT CORPORATION, a Delaware corporation, 28 WESTIN VACATION EXCHANGE COMPANY, a Delaware corporation By: Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation, the sole stockholder of each of the above listed entities By: /s/ Ronald C. Brown ___________________________________________ Name: Ronald C. Brown Title: Executive Vice President & Chief Financial Officer W&S LAUDERDALE CORP., a Delaware corporation, W&S SEATTLE CORP., a Delaware corporation, By: SLT Realty Limited Partnership, a Delaware limited partnership, the sole stockholder of each of the above listed entities By: Starwood Hotels & Resorts a Maryland real estate investment trust, its general partner By: /s/ Ronald C. Brown ___________________________________________ Name: Ronald C. Brown Title: Vice President, Chief Financial Officer, Chief Accounting Officer DATA MARKETING ASSOCIATES, INC., a Nevada corporation, DATA MARKETING ASSOCIATES EAST, INC., a Florida corporation, 29 P.O.C. REALTY, INC., a Colorado corporation, THE SUCCESS COMPANIES, INC., a Nevada corporation, SUCCESS WEST COMMUNICATIONS, INC., a Nevada corporation, VACATION MARKETING SERVICES, INC., a Florida corporation, VACATION TITLE SERVICES, INC., a Florida corporation, VACATIONWORKS, INC., a Florida corporation, VCH COMMUNICATIONS, INC., a Florida corporation, VCH CONSULTING, INC., a Florida corporation, VCH CONTRACTING, INC., a Florida corporation, VCH PORTFOLIO SERVICES, INC., a Florida corporation, VCH SALES, INC., a Florida corporation, VCH SYSTEMS, INC., a Florida corporation, VCH TRADEMARK, INC., a Florida corporation, VCM OAKS, INC., a Florida corporation, VDI2, INC., a Florida corporation, 30 VISTANA ACCEPTANCE CORP., a Florida corporation, VISTANA ADMINISTRATION, INC., a Florida corporation, VISTANA CAVE CREEK, INC. an Arizona corporation, VISTANA DEVELOPMENT, INC., a Florida corporation d/b/a Vistana Development, Ltd., VISTANA EAST, INC., a Florida corporation, VISTANA INTERNATIONAL, INC., a Florida corporation, VISTANA MANAGEMENT, INC., a Florida corporation d/b/a Vistana Management, Ltd., VISTANA MB MANAGEMENT, INC., a South Carolina corporation, VISTANA NJ, INC., a New Jersey corporation, VISTANA OP INVESTMENT, INC., a Florida corporation, VISTANA PSL, INC., a Florida corporation, VISTANA SCOTTSDALE MANAGEMENT, INC., an Arizona corporation, VISTANA WEST, INC., a Florida corporation, POINTS OF COLORADO, INC., a Colorado corporation, 31 VISTANA, INC., a Florida corporation By: /s/ Ronald C. Brown ___________________________________________ Name: Ronald C. Brown Title: Vice President & Assistant Secretary SUCCESS OF ARIZONA, L.L.C., an Arizona limited liability company, SUCCESS OF COLORADO, L.L.C., a Nevada limited liability company, FIESTA VACATIONS, L.L.C., an Arizona limited liability company By: Vistana West, Inc., a Florida corporation, its Manager By: /s/ Ronald C. Brown ___________________________________________ Name: Ronald C. Brown Title: Vice President & Assistant Secretary SUCCESS DEVELOPMENTS, L.L.C., an Arizona limited liability company By: Points of Colorado, Inc., a Colorado corporation, its Manager By: /s/ Ronald C. Brown ___________________________________________ Name: Ronald C. Brown Title: Vice President & Assistant Secretary SUCCESS OF COLORADO REALTY, L.L.C., a Nevada limited liability company By: Success of Colorado, L.L.C., a Nevada limited liability company, a member By: Vistana West, Inc., a Florida corporation, its Manager By: /s/ Ronald C. Brown ___________________________________________ Name: Ronald C. Brown Title: Vice President & Assistant Secretary 32 BANKERS TRUST COMPANY, Individually and as Administrative Agent and as Paying Agent By: /s/ Laura S. Burwick _____________________________________ Name: Laura S. Burwick Title: Principal THE CHASE MANHATTAN BANK, Individually and as Administrative Agent By: /s/ Alan Breindel _____________________________________ Name: Alan Breindel Title: Managing Director LEHMAN COMMERCIAL PAPER, INC., Individually and as Syndication Agent By: /s/ G. Andrew Keith _____________________________________ Name: G. Andrew Keith Title: Authorized Signatory BANK OF MONTREAL, CHICAGO BRANCH, Individually and as Syndication Agent By: /s/ Thomas A. Batterham _____________________________________ Name: Thomas A. Batterham Title: Director 33 ARAB BANKING CORPORATION (B.S.C.) /s/ S. Milton By: _____________________________________ Name: S. Milton Title: General Manager BANCA POPOLARE DI MILANO /s/ Fulvio Montanari By: _____________________________________ Name: Fulvio Montanari Title: First Vice President /s/ Patrick F. Dillion By: _____________________________________ Name: Patrick F. Dillion Title: Vice President, Chief Credit Officer BANKBOSTON, N.A. /s/ Kathleen M. Ahern By: _____________________________________ Name: Kathleen M. Ahern Title: Director By: _____________________________________ Name: Title: BANK OF AMERICA, N.A. /s/ Ansel McDowell By: _____________________________________ Name: Ansel McDowell Title: Vice President 34 BANK LEUMI USA /s/ Joung Hee Hong By: _____________________________________ Name: Joung Hee Hong Title: Vice President BANK OF HAWAII /s/ Donna R. Parker By: _____________________________________ Name: Donna R. Parker Title: Vice President BANK POLSKA KASA OPIEKI S.A. PEKAO S.A. GROUP, NEW YORK BRANCH /s/ Barry W. Henry By: _____________________________________ Name: Barry W. Henry Title: Vice President THE BANK OF TOKYO-MITSUBISHI, LIMITED, NEW YORK BRANCH /s/ Jay Wallace By: _____________________________________ Name: Jay Wallace Title: EVP BANQUE WORMS CAPITAL CORP. /s/ Michele N. Reming By: _____________________________________ Name: Michele N. Reming Title: VP & General Counsel /s/ J.F. Marco By: _____________________________________ Name: J.F. Marco Title: AVP 35 BARCLAYS BANK PLC By: /s/ John Giannone _____________________________________ Name: John Giannone Title: Director BEAR STEARNS INVESTMENT PRODUCTS INC. By: /s/ Keith C. Barnard _____________________________________ Name: Keith C. Barnard Title: Senior Managing Director CHANG HWA COMMERCIAL BANK, LTD., NEWYORK BRANCH By: _____________________________________ Name: Title: CHIAO TUNG BANK CO., LTD. NEW YORK AGENCY By: _____________________________________ Name: Title: CIBC INC. By: /s/ Paul J. Chakmak _____________________________________ Name: Paul J. Chakmak Title: Managing Director CIBC World Markets Corp., AS AGENT 36 CREDIT INDUSTRIEL et COMMERCIAL By: /s/Sean Mounier ------------------------------------- Name: Sean Mounier Title: First Vice President By: /s/ Brian O'Leary ------------------------------------- Name: Brian O'Leary Title: Vice President CREDIT LYONNAIS NEW YORK BRANCH By: /s/ Mary P. Daly ------------------------------------- Name: Mary P. Daly Title: Vice President CREDIT SUISSE FIRST BOSTON By: -------------------------------------- Name: Title: THE DAI-ICHI KANGYO BANK, LIMITED, NEW YORK BRANCH By: /s/ Chimie T. Pemba ------------------------------------- Name: Chimie T. Pemba Title: Account Officer 37 DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN ISLANDS BRANCH By: _____________________________________ Name: Title: By: _____________________________________ Name: Title: ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG By: /s/ Paul Judicke _____________________________________ Name: Paul Judicke Title: Vice President Erste Bank New York Branch By: /s/ John S. Runnion _____________________________________ Name: John S. Runnion Title: First Vice President FIRST COMMERCIAL BANK By: /s/ Vincent T.C. Chen _____________________________________ Name: Vincent T.C. Chen Title: Senior Vice President & General Manager FIRST HAWAIIAN BANK By: /s/ Jeffrey N. Migashi _____________________________________ Name: Jeffrey N. Migashi Title: Assistant Vice President 38 FIRST SECURITY BANK, N.A. By: /s/ David P. Williams _____________________________________ Name: David P. Williams Title: Vice President FLEET BANK, N.A. By: /s/ John T. Harrison _____________________________________ Name: John T. Harrison Title: Senior Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ William E. Magee _____________________________________ Name: William E. Magee Title: Duly Authorized Signatory GOLDMAN SACHS CREDIT PARTNERS L.P. By: /s/ Robert S. Fanelli _____________________________________ Name: Robert S. Fanelli Title: Authorized Signatory GULF INTERNATIONAL BANK B.S.C. By: _____________________________________ Name: Title: HUA NAN COMMERCIAL BANK, LTD. NEW YORK AGENCY By: /s/ Derek Y.P. Chang _____________________________________ Name: Derek Y.P. Chang Title: SVP & General Manager 39 INDOSUEZ CAPITAL FUNDING IIA LIMITED By: INDOSUEZ CAPITAL, as Portfolio Manager By: /s/ Melissa Marano _____________________________________ Name: Melissa Marano Title: Vice President INDOSUEZ CAPITAL FUNDING III LIMITED By: INDOSUEZ CAPITAL, as Portfolio Manager By: /s/ Melissa Marano _____________________________________ Name: Melissa Marano Title: Vice President THE INDUSTRIAL BANK OF JAPAN, LIMITED NEW YORK BRANCH By: /s/ William Kennedy _____________________________________ Name: William Kennedy Title: Senior Vice President KZH CNC LLC By: /s/ Peter Chin _____________________________________ Name: Peter Chin Title: Authorized Agent LAND BANK OF TAIWAN, LOS ANGELES BRANCH By: /s/ Mayer Chen _____________________________________ Name: Mayer Chen Title: SVP & General Manager 40 MELLON BANK, N.A., solely in its capacity as Trustee for the GENERAL MOTORS CASH MANAGEMENT MASTER TRUST, (as directed by Shenkman Capital Management, Inc.), and not in its individual capacity By: _____________________________________ Name: Title: THE MITSUBISHI TRUST & BANKING CORPORATION By: /s/ Toshihiro Hayashi _____________________________________ Name: Toshihiro Hayashi Title: Senior Vice President PARIBAS By: /s/ John W. Kopcha _____________________________________ Name: John W. Kopcha Title: Director By: /s/ Sean T. Conlon _____________________________________ Name: Sean T. Conlon Title: Managing Director THE ROYAL BANK OF SCOTLAND, PLC By: _____________________________________ Name: Title: SAN PAOLO IMI S.P.A. By: /s/ Carlo Persico /s/ Robert Wurster _____________________________________ Name: Carlo Persico Robert Wurster Title: DGM 1st V.P. 41 SEQUILS I, LTD. By: TCW Advisors, Inc. as its Collateral Manager By: /s/ Mark L. Gold _____________________________________ Name: Mark L. Gold Title: Managing Director By: /s/ Richard F. Kurth _____________________________________ Name: Richard F. Kurth Title: Vice President SOCIETE GENERALE, SOUTHWEST AGENCY By: /s/ Huvishka Ali _____________________________________ Name: Huvishka Ali Title: Vice President SOUTHERN PACIFIC BANK By: /s/ Mun Young Kim _____________________________________ Name: Mun Young Kim Title: Vice President THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH By: /s/ Suresh S. Tata _____________________________________ Name: Suresh S. Tata Title: Senior Vice President 42 SYNDICATED LOAN FUNDING TRUST By: Lehman Commercial Paper Inc., not in its individual capacity, but solely as Asset Manager By: /s/ G. Andrew Keith ------------------------------------- Name: G. Andrew Keith Title: Authorized Signatory UNICREDITO ITALIANO By: /s/ Gianfranco Bisagni ------------------------------------- Name: Gianfranco Bisagni Title: First Vice President By: /s/ Saiyed A. Abbas ------------------------------------- Name: Saiyed A. Abbas Title: Vice President VAN KAMPEN SENIOR FLOATING RATE FUND By: Van Kampen Investment Advisory Corp. By: /s/ Darvin D. Pierce ------------------------------------- Name: Darvin D. Pierce Title: Vice President VAN KAMPEN PRIME RATE INCOME TRUST By: Van Kampen Investment Advisory Corp. By: /s/ Darvin D. Pierce ------------------------------------- Name: Darvin D. Pierce Title: Vice President 43 VAN KAMPEN CLO I, LIMITED By: VAN KAMPEN MANAGEMENT INC., as Collateral Manager By: /s/ Darvin D. Pierce _____________________________________ Name: Darvin D. Pierce Title: Vice President VAN KAMPEN SENIOR INCOME TRUST By: Van Kampen Investment Advisory Corp. By: /s/ Darvin D. Pierce _____________________________________ Name: Darvin D. Pierce Title: Vice President WACHOVIA BANK, N.A. By: /s/ C. Reid Harden _____________________________________ Name: C. Reid Harden Title: Vice President WESTDEUTSCHE LANDESBANK GIROZENTRALE By: /s/ Frank A. Anderson _____________________________________ Name: Frank A. Anderson Title: Director By: /s/ Andrew B. Stein _____________________________________ Name: Andrew B. Stein Title: Managing Director 44 SENIOR DEBT PORTFOLIO By: Boston Management and Research, as Investment Advisor By: _____________________________________ Name: Title: OXFORD STRATEGIC INCOME FUND By: EATON VANCE MANAGEMENT, as Investment Advisor By: _____________________________________ Name: Title: EATON VANCE SENIOR INCOME TRUST By: EATON VANCE MANAGEMENT, as Investment Advisor By: _____________________________________ Name: Title: EATON VANCE INSTITUTIONAL SENIOR LOAN FUND By: EATON VANCE MANAGEMENT, as Investment Advisor By: _____________________________________ Name: Title: 45 ANNEX I Excerpts of Financial Covenants under the CIGA Bridge Loan (1) So long as any CIGA Commitment is in force or any moneys or obligations of the CIGA Borrower are outstanding under the CIGA Bridge Loan, the CIGA Borrower undertakes that its Financial Indebtedness, plus the Financial Indebtedness of the CIGA Group, will not exceed 4.50 (four and a half) times the consolidated EBITDA of the CIGA Group for each prior 12 calendar month period occurring after July 1, 2000; (2) The CIGA Borrower also undertakes that, during the term of the CIGA Bridge Loan, CIGA will maintain a Tangible Net Worth of at least EUR 465,000,000 (four hundred and sixty five Million Euros); (3) The CIGA Borrower also undertakes that, during the term of the CIGA Bridge Loan, the amount of Indebtedness of the CIGA Group secured by an Encumbrance on assets will represent no more than 35% of the total combined Financial Indebtedness (including the CIGA Bridge Loan) of the CIGA Borrower and the CIGA Group, it being understood that no such Encumbrance shall be created to secure financing that would not be directly applied to the purchase or the improvement of the owned property of the CIGA Group; and (4) So long as any CIGA Commitment is in force or any moneys or obligations are outstanding under the CIGA Bridge Loan, the Guarantors undertake to comply with the financial covenants set forth in Section 9.08 (Combined Interest Coverage Ratio), Section 9.09 (Maximum Combined Leverage Ratio), Section 9.10 (Combined Adjusted Interest Coverage Ratio), and Section 9.23 (Unencumbered EBITDA Ratio) of the Credit Agreement, in each case, as the same may be amended or modified from time to time. As used in this ANNEX I only, the following terms shall have the following meanings: "CIGA COMMITMENT" means the commitment of each CIGA Lender to make available, through the Facility Agent, the Facility Amount on the terms and conditions of the CIGA Bridge Loan. "CIGA GROUP" means CIGA and its Subsidiaries. "CIGA GUARANTORS" means, collectively, Starwood Hotels & Resorts Worldwide, Inc. and Starwood Hotels & Resorts. "EBITDA" means Earnings Before Interest, Income Taxes, Depreciation and Amortization, excluding any extraordinary item and calculated in accordance with U.S. GAAP; provided that EBITDA shall be computed on a pro-forma basis to exclude the EBITDA actually derived during the computation period from assets of the CIGA Group sold or otherwise disposed of. "ENCUMBRANCE" means any mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment by way of security, title, retention or other security interest of any kind other than liens arising by operation of law. 46 "FACILITY AGENT" means Credit Lyonnais SA, a societe anonyme, duly organized under the laws of France. "FACILITY AMOUNT" means the total amount of Euros that the CIGA Lenders, through the Facility Agent, will make available to the CIGA Borrower for drawdown according to the terms and conditions of the CIGA Bridge Loan. "FINANCIAL INDEBTEDNESS" means indebtedness incurred in respect of: (a) money borrowed or raised (excluding money raised by way of the issue of equity share capital); (b) any bond, bill of exchange, note, loan stock, debenture, commercial paper or similar security or instrument; (c) acceptance, documentary credit or guarantee facilities; (d) deferred payments for assets or services acquired (excluding any such liability in respect of normal trade credit), for a period not exceeding twelve months; (e) rental payments under finance leases; (f) payments under hire purchase contracts; (g) factored debts, to the extent that there is recourse; (h) guarantees, bonds, standby letters of credit or other instruments issued in connection with the performance of contracts; (i) guarantees, indemnities or other assurances against financial loss in respect of indebtedness of any person falling within any of paragraphs (a) to (h) inclusive above, excluding any mortgages securing medium and long term loans already included in this definition; and (j) amounts raised or obligations incurred under any other transaction having the commercial effect of any of the above. "INDEBTEDNESS" means any obligation for the payment or repayment of money, whether present or future, actual or contingent, sole or joint. "STARWOOD GROUP" means Starwood Hotels & Resorts Worldwide, Inc. and Starwood Hotels & Resorts and their Subsidiaries. "TANGIBLE NET WORTH" means the shareholders' equity composed of: (i) share capital; (ii) share premium reserves; (iii) retained earnings or deficit; (iv) income of the year, decreased by (a) the intangible assets and (b) the amount of intercompany loans made by the CIGA Borrower or any company of the CIGA Group to any company of the Starwood Group that is not the CIGA Borrower or a company of the CIGA Group; provided that for the purpose of clause (b) above, the calculation of intercompany loans will be the amount of intercompany loans made after the date of the CIGA Bridge Loan in excess of EUR 45,000,000 (forty-five million Euros). In addition, any intercompany loans made by the CIGA Borrower to any Subsidiary of the Starwood Group from the proceeds of the CIGA Bridge Loan will not impact this calculation. Annex I, page 2 47 ANNEX II FORM OF ASSUMPTION AGREEMENT Date: ___________ Reference is made to the Credit Agreement described in Item 2 of Annex II-A hereto (as such Credit Agreement may hereafter be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"). Unless defined in Annex II-A hereto, terms defined in the Credit Agreement are used herein as therein defined. Each of Starwood Hotels & Resorts, a Maryland real estate investment trust ("Starwood REIT"), SLT Realty Limited Partnership, a Delaware limited partnership ("SLT RLP"), Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (the "Corporation") and ITT Corporation, a Nevada corporation ("ITT" and, together with Starwood REIT, SLT RLP and the Corporation, the "Starwood Entities") and _______________________ (the "New Lender") hereby agree as follows: 1. In accordance with the terms of the Credit Agreement (and the Tenth Amendment thereto) the New Lender hereby acknowledges and agrees that it hereby makes a New Tranche II Term Loan Commitment (as defined in the Tenth Amendment) in the amount specified in Item 4 of Annex II-A hereto. The New Lender further agrees to make Tranche II Term Loans (which shall constitute New Tranche II Term Loans) pursuant to its New Commitment (as defined in the Tenth Amendment) in accordance with the requirements of the Credit Agreement and the Tenth Amendment. 2. As more fully provided in Section 7 of the Tenth Amendment, the New Lender hereby acknowledges and agrees that, to the extent provided in said Section 7, various repayments of outstanding Tranche II Term Loans shall be allocated to the Existing Tranche II Term Loans and not to the New Tranche II Term Loans. The New Lender is aware that Section 7 of the Tenth Amendment provides certain overriding provisions with respect to the Existing Tranche II Term Loans and the New Tranche II Term Loans, and is familiar with the terms thereof. Furthermore, the New Lender agrees to keep records of its outstanding New Tranche II Term Loans as opposed to the outstanding principal of its Existing Tranche II Term Loans, if any, and agrees that if it makes any assignment or participation of any Tranche II Term Loans it shall clearly provide in the relevant documentation whether (and to what extent) the assignment is of Existing Tranche II Term Loans and/or New Tranche II Term Loans and shall inform the assignee or participant, as the case may be, of the provisions of Section 7 of the Tenth Amendment. 3. The New Lender acknowledges and agrees that no Agent and no other Lender (i) makes any representation or warranty or assumes any responsibility with respect to the financial condition of the Parent Companies or any of their Subsidiaries or the performance or observance by the Parent Companies or any of their Subsidiaries of any of their respective obligations under the Credit Agreement or the other Credit Documents to which they are a party or any other instrument or document furnished pursuant thereto or (ii) makes any representation or warranty or assumes any responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the other Credit 48 Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or the other Credit Documents or any other instrument or document furnished pursuant thereto. 4. The New Lender (i) confirms that it has received a copy of the Credit Agreement and the other Credit Documents, together with copies of the financial statements referred to therein and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assumption Agreement; (ii) agrees that it will, independently and without reliance upon the Administrative Agents or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Transferee as defined in the Credit Agreement; (iv) appoints and authorizes the Administrative Agents and the Collateral Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Credit Documents as are delegated to the Administrative Agents and the Collateral Agent, by the terms thereof, together with such powers as are reasonably incidental thereto; [and] (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement and the other Credit Documents are required to be performed by it as a Lender; [and (vi) to the extent legally entitled to do so, attaches the forms described in Section 13.04(b) of the Credit Agreement.(1) 5. Following the execution of this Assumption Agreement by the Starwood Entities and the New Lender, an executed original hereof (together with all attachments) will be delivered to the Paying Agent. The effective date of this Assumption Agreement shall be the date of execution hereof by the Starwood Entities and the New Lender, the receipt of the consent of the Paying Agent. the receipt by the Paying Agent of the administrative fee referred to in Section 13.04(b) of the Credit Agreement and the recordation of the assignment effected hereby on the Register by the Paying Agent as provided in Section 13.15 of the Credit Agreement, or such later date, if any, which may be specified in Item 5 of Annex II-A hereto (the "New Commitment Effective Date"). 6. Upon the delivery of a fully executed original hereof to the Paying Agent, as of the New Commitment Effective Date, the New Lender shall be a party to the Credit Agreement and, to the extent provided in this Assumption Agreement, have the rights and obligations of a Lender thereunder and under the other Credit Documents. 7. It is agreed that the New Lender shall be entitled to (x) interest on the Loans made by it and (y) Commitment Commission (if applicable) on the New Lender's participation in all Letters of Credit, in each case at the rates specified in the Credit Agreement, for periods after such extensions of credit are made by such New Lender pursuant to this Assumption Agreement and the terms of the Credit Agreement.. - ----------------------- (1) Include if the New Lender is organized under the laws of a jurisdiction outside of the United States. Annex II, page 2 49 8. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Annex II, page 3 50 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Assumption Agreement, as of the date first above written, such execution also being made on Annex II-A hereto. Accepted this ____ day of __________, 19__ STARWOOD HOTELS & RESORTS, a Maryland real estate investment trust By:_______________________________ Name: Title: STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation By:_______________________________ Name: Title: SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By:_______________________________ Name: Title: ITT CORPORATION, a Nevada corporation By:_______________________________ Name: Title: Annex II, page 4 51 [NAME OF NEW LENDER], as a New Lender By_____________________________ Title: Acknowledged and Agreed as of _________ ___, 19__: BANKERS TRUST COMPANY, as Paying Agent By__________________________ Title: Annex II, page 5 52 ANNEX II-A FOR ASSUMPTION AGREEMENT 1. Borrowers: Starwood Hotels & Resorts Worldwide, Inc. ITT Corporation 2. Name and Date of Credit Agreement: Credit Agreement, dated as of February 23, 1998, among Starwood Hotels & Resorts, SLT Realty Limited Partnership, Starwood Hotels & Resorts Worldwide, Inc., ITT Corporation (as successor in interest to Chess Acquisition Corp.), each Alternate Currency Revolving Loan Borrower from time to time party thereto, the Lenders from time to time party thereto, Bankers Trust Company and The Chase Manhattan Bank, as Administrative Agents, and Lehman Commercial Paper Inc. and Bank of Montreal, as Syndication Agents, as amended, modified or supplemented to the date hereof. 3. Date of Assumption Agreement: 4. Amounts of Tranche II Term Loans as of date of item #3 above (other extensions of credit, including pursuant to the Revolving Loan Commitments, may also be outstanding under the Credit Agreement): Tranche II Term Loans i. Aggregate Outstanding $__________ Principal Amount for all Lenders (before giving effect to New Commitment Effective Date) ii. New Tranche II Term Loan $__________ Commitment of New Lender Annex II, page 6 53 5. New Commitment Effective Date: 6. Notice: NEW LENDER: --------------------- --------------------- --------------------- --------------------- Attention: Telephone: Telecopier: Reference: Payment Instructions: NEW LENDER: --------------------- --------------------- --------------------- --------------------- Attention: Reference: Annex II, page 7 54 Accepted and Agreed: [NAME OF NEW LENDER] By STARWOOD HOTELS & RESORTS, ---------------------------------- a Maryland real estate investment trust By:_______________________________ Name: Title: STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation By:_______________________________ Name: Title: SLT REALTY LIMITED PARTNERSHIP, a Delaware limited partnership By: Starwood Hotels & Resorts, a Maryland real estate investment trust, its general partner By:_______________________________ Name: Title: ITT CORPORATION, a Nevada corporation By:_______________________________ Name: Title: Annex II, page 8 EX-10.56 3 p64722ex10-56.txt EX-10.56 1 Exhibit 10.56 TIER I SEVERANCE AGREEMENT THIS AGREEMENT, dated August 14, 2000 (the "Effective Date"), is made by and between Starwood Hotels and Resorts Worldwide, Inc., a Maryland corporation (the "Company"), and Robert F. Cotter (the "Executive"). WHEREAS, the Executive is employed by the Company as Chief Operating Officer; and WHEREAS, the Company considers it essential to the best interests of its stockholders to foster the continued employment of key management personnel; and WHEREAS, the Board recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of senior management personnel to the detriment of the Company and its stockholders; and WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's senior management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control. NOW, THEREFORE, the Company and the Executive hereby agree as follows: 1. Defined Terms. The definitions of capitalized terms used in this Agreement are provided in the last Section hereof. 2. Term of Agreement. The Term of this Agreement shall commence on the Effective Date and shall continue in effect through the third anniversary of the Effective Date; provided, however, that on each anniversary of the Effective Date during the Term of this Agreement, the Term shall automatically be extended for one additional year unless, not later than 90 days prior to any such anniversary, the Company or the Executive shall have given notice not to extend the Term; and further provided, however, that if a Change in Control or a Potential Change in Control shall have occurred during the Term, the Term shall expire no earlier than twenty-four (24) months beyond the month in which such Change in Control or a Potential Change in Control occurred. 3. Company's Covenants Summarized. In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions 2 described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 10 hereof, no Severance Payments shall be payable under this Agreement unless during the Term there shall have been (or, under the terms of the second sentence of Section 6 hereof, there shall be deemed to have been) a termination of the Executive's employment with the Company following a Change in Control. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. 4. The Executive's Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event a Potential Change in Control occurs during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of such Potential Change of Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive's employment for any reason. 5. Compensation Other Than Severance Payments. a. Payment of Salary During Disability. Following a Change in Control and during the Term, during any period that the Executive is unable to perform the Executive's full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay to the Executive the full salary to which the Executive is entitled at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period, until the Executive's employment is terminated by the Company for Disability. b. Accrued Salary. If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive such Executive's full salary through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason. 2 3 c. Post-Termination Benefits. If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive's normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason. 6. Severance Payments. a. If (i) the Executive's employment is terminated following a Change in Control and during the Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good Reason, or (ii) the Executive voluntarily terminates his employment for any reason during the one-month period commencing twelve (12) months following a Change in Control, then, in either such case, the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6 ("Severance Payments") and Section 7, in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof. For purposes of this Agreement, the Executive's employment shall be deemed to have been terminated following a Change in Control by the Company without Cause or by the Executive with Good Reason, if (i) the Executive's employment is terminated by the Company without Cause prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination was at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control (an "Acquiring Person"), (ii) the Executive terminates his employment for Good Reason prior to a Change in Control (whether or not a Change in Control ever occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of an Acquiring Person, or (iii) the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason and such termination or the circumstance or event which constitutes Good Reason is otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control ever occurs). For purposes of any determination regarding the applicability of the immediately preceding sentence, any position taken by the Executive shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that such position is not correct. (1) Lump Sum Payment. In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive, the 3 4 Company shall pay to the Executive a lump sum severance payment, in cash, equal to three times the sum of (i) the Executive's base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (ii) the average of the annual bonuses earned by the Executive in the three fiscal years ending immediately prior to the fiscal year in which occurs the Date of Termination or, if higher, immediately prior to the fiscal year in which occurs the first event or circumstance constituting Good Reason. For purposes of the preceding sentence, in determining any bonus amount for any fiscal year, bonuses paid with respect to any year in which employment of the Executive commenced shall be annualized based on the number of days employed by the Company during such year. (2) Continuation of Welfare Benefits. For the twenty-four (24) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents life, disability, accident and health insurance benefits and other benefits and perquisites (including employee stay rates) substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater cost to the Executive than the cost to the Executive immediately prior to such date or occurrence. Benefits otherwise receivable by the Executive pursuant to this Section 6(a)(2) shall be reduced to the extent benefits of the same type are received by the Executive from another employer during the twenty-four (24) month period following the Executive's termination of employment; provided, however, that the Company shall reimburse the Executive for the excess, if any, of the cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason. (3) Incentive Compensation. Notwithstanding any provision of any annual or long-term incentive plan to the contrary, the Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of (i) any unpaid incentive compensation which has been allocated or awarded to the Executive for a completed fiscal year or other measuring period preceding the Date of Termination under any such plan and which, as of the Date of Termination, is contingent only upon the continued employment of the Executive to a subsequent date, and (ii) the aggregate value of all contingent incentive compensation awards allocated or awarded 4 5 to the Executive for all then uncompleted periods under any such plan that the Executive would have earned on the last day of the performance award period, assuming the achievement, at the target level, of the individual and corporate performance goals established with respect to such award. Awards for uncompleted periods shall be based upon the number of days the Executive is employed by the Company during such year. (4) Accelerated Vesting of Stock Options. All stock options and restricted stock held by the Executive under any stock option or incentive plan maintained by the Company (including the Company's 1995 and 1999 Long-Term Incentive Plans) shall immediately vest and become exercisable as of the Date of Termination, to be exercised in accordance with the terms of the applicable plan. (5) Outplacement Services. The Company shall provide the Executive with outplacement services suitable to the Executive's position for a period of two (2) years or, if earlier, until the first acceptance by the Executive of an offer of employment. The cost of such outplacement services shall not exceed twenty percent (20%) of the Executive's base salary. (6) Deferred Compensation. The Company shall pay the Executive a lump sum payment of any of the Executive's deferred compensation. (7) 401(k) Contributions. All unvested 401(k) contributions in the Executive's 401(k) account shall immediately vest or the Company shall pay the Executive an amount equal to any such unvested amounts that are forfeited by reason of the Executive's termination of employment. (8) Loans. The Company shall forgive in full any home or relocation loans from the Company to the Executive, identified on Schedule A hereto, that are outstanding as of the Date of Termination and execute and record any instruments and documents necessary or desirable to evidence the satisfaction in full of such loans and the release of any lien securing such loan. In addition, the Company shall pay to Executive an amount required, in the good faith estimate of Executive's tax advisor, to permit Executive to pay any income tax incurred by Executive as a result of such loan forgiveness and the payment of such additional amounts by the Company. 5 6 7. 280G Gross Up Payments. a. Whether or not the Executive becomes entitled to the Severance Payments, if any of the payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (such payments or benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments. b. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of any such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), delivers an opinion to the Executive that such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless Tax Counsel delivers an opinion to the Executive that such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 7), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. c. In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, 6 7 the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive, to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined, pursuant to an administrative or judicial proceeding, to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. d. Timing of Payments. The payments provided in subsections (1) and (3) of Section 6 hereof and in Section 7 hereof shall be made not later than the fifth day following the Date of Termination; provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Executive or, in the case of payments under Section 7 hereof, in accordance with Section 7 hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from Tax Counsel, the Auditor or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement). e. Legal Fees. The Company also shall pay to the Executive, as incurred, all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive's employment, 7 8 in seeking to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder, unless it is determined that any such dispute or other action is frivolous and not in good faith. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 8. Termination Procedures and Compensation During Dispute. a. Notice of Termination. After a Change in Control and during the Term, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 12 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. b. Date of Termination. "Date of Termination," with respect to any purported termination of the Executive's employment after a Change in Control and during the Term, shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). c. Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 8(c)), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the 8 9 termination, the Date of Termination shall be extended until the earlier of (i) the date on which the Term ends or (ii) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided, however, that the Date of Termination shall be extended by a notice of dispute given by the Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence. d. Compensation During Dispute. If a purported termination occurs following a Change in Control and during the Term and the Date of Termination is extended in accordance with Section 8(c) hereof, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination, as determined in accordance with Section 8(c) hereof. Amounts paid under this Section 8(d) are in addition to all other amounts due under this Agreement (other than those due under Section 5(b) hereof) and shall not be offset against or reduce any other amounts due under this Agreement. 9. No Mitigation. The Company agrees that, if the Executive's employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof or Section 8(d) hereof. Further, the amount of any payment or benefit provided for in this Agreement (other than Section 6(a)(2) hereof) shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. 10. Successors; Binding Agreement. a. In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on 9 10 the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. b. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 11. Indemnification. The Company shall indemnify and hold Executive harmless for acts and omissions in his capacity as an officer, director or employee of the Company to the maximum extent permitted under applicable law. The Company shall maintain a Director's and Officer's Liability Insurance Policy, which shall provide liability coverage for Executive's benefit, and the Executive shall remain covered under such policy for a period of at least six (6) years following the earlier of termination of employment or the occurrence of a Change in Control. 12. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted below the Executive's signature on the final page hereof and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt: To the Company: Starwood Hotels and Resorts Worldwide, Inc. 777 Westchester Avenue White Plains, NY 10604 Attention: General Counsel 13. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach 10 11 by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party; provided, however, that this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive's employment with the Company only in the event that the Executive's employment with the Company is terminated on or following a Change in Control, by the Company other than for Cause or by the Executive other than for Good Reason. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6, 7, 8, and 9 hereof) shall survive such expiration. 14. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 15. Settlement of Disputes; Arbitration. a. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. b. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in New York, in accordance with the rules of the American Arbitration Association then in effect; provided, however, that the evidentiary standards set forth in this Agreement shall apply. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding any provision of this Agreement to the contrary, the 11 12 Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 16. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below: a. "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. b. "Auditor" shall have the meaning set forth in Section 7 hereof. c. "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code. d. "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act. e. "Board" shall mean the Board of Directors of the Company. f. "Cause" for termination by the Company of the Executive's employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, and Executive has not cured any such failure that is capable of being cured in all material respects within ten (10) days of receiving such written demand, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Board by clear and convincing evidence that Cause exists. g. A "Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly 12 13 from the Company or its affiliates) representing 25% or more of the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (3) below; or (2) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least 70% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation and in proportion to their relative voting power immediately prior to such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; or (4) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 70% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. 13 14 Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. h. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. i. "Company" shall mean Starwood Hotels and Resorts Worldwide, Inc., and, except in determining under Section 17(g) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. j. "Date of Termination" shall have the meaning set forth in Section 8 hereof. k. "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties. l. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. m. "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code. n. "Executive" shall mean the individual named in the first paragraph of this Agreement. o. "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent) after any Change in Control, or prior to a Change in Control under the circumstances described in clauses (ii) and (iii) of the second sentence of Section 6(a) hereof (treating all references in paragraphs (1) through (7) below to a "Change in Control" as references to a "Potential Change in Control"), of any one of the 14 15 following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (1), (5), (6) or (7) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (1) the assignment to the Executive of any duties inconsistent with the Executive's status as a senior executive officer of the Company or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the Change in Control; (2) a reduction by the Company in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (3) the relocation of the Executive's principal place of employment to a location more than 35 miles from the Executive's principal place of employment immediately prior to the Change in Control or the Company's requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations; (4) the failure by the Company to pay to the Executive any portion of the Executive's current compensation, or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (5) the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive's total compensation, including but not limited to the Company's stock option, bonus and other plans or any substitute plans adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive's participation relative to other participants, as existed immediately prior to the Change in Control; 15 16 (6) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to the Change in Control, the taking of any other action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy or any employment agreement in effect at the time of the Change in Control; or (7) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 8(a) hereof; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist. p. "Gross-Up Payment" shall have the meaning set forth in Section 7 hereof. q. "Notice of Termination" shall have the meaning set forth in Section 8 hereof. r. "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or 16 17 indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. s. "Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (1) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (2) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (3) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates); or (4) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. t. "Retirement" shall be deemed the reason for the termination by the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees. u. "Severance Payments" shall have the meaning set forth in Section 6 hereof. v. "Tax Counsel" shall have the meaning set forth in Section 7 hereof. w. "Term" shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein). x. "Total Payments" shall mean those payments so described in Section 7 hereof. 17 18 STARWOOD HOTELS AND RESORTS WORLDWIDE, INC. By: /s/ David K. Norton ---------------------------------------------------- Name: David K. Norton Title: Executive Vice President-Human Resources EXECUTIVE /s/ Robert F. Cotter ----------------------------------- Robert F. Cotter Address: ----------------------------------- ----------------------------------- ----------------------------------- (Please print carefully) 18 EX-10.57 4 p64722ex10-57.txt EX-10.57 1 Exhibit 10.57 September 25, 2000 Mr. Kenneth S. Siegel 57 Greenfield Drive Weston, CT 06883 Dear Ken: The specifics of your offer of employment with Starwood Hotels & Resorts Worldwide, Inc. are outlined below: START DATE: Subject to the terms of this letter, your employment with Starwood will begin on November 15, 2000. POSITION: Your position will be Executive Vice President, General Counsel at the White Plains office, and you shall perform such duties and services as are assigned to you by the Company from time to time. You acknowledge that your prospective employment will be subject to all policies and practices of the Company as may currently exist or as may be curtailed, modified or implemented from time to time. Further, you shall devote your full time and attention to the affairs of the Company and to your duties as Executive Vice President, General Counsel. You will be reporting to the Company's Chief Executive Officer. BASE SALARY: Your base salary will be $375,000 annually (Grade 15), paid in semi-monthly intervals of $15,635, and subject to applicable withholdings for FICA, state and federal taxes. The Starwood salary program provides performance-based salary reviews for future salary progression. ANNUAL INCENTIVE (BONUS): You will be eligible to participate in the Starwood Annual Incentive Plan (AIP). Your target incentive is 75% of base salary. Your actual incentive payout will be based upon Company performance and your achieving specified performance criteria to be established and approved with your manager. Payment of your 2000 bonus will be guaranteed at $150,000, provided that you are still employed by the Company at the time such bonuses are paid in accordance with the AIP and Company practices. Thereafter, any annual bonus shall not be deemed earned by you until the Company has determined your entitlement to such bonus and only if you are Page 2 2 employed by the Company at the time such bonus is payable in accordance with the AIP and Company practices. The Company does not pay pro-rata bonuses upon departure. LONG TERM INCENTIVE: You will be eligible to participate in the Starwood 1999 Long Term Incentive Compensation Plan ("LTIP"). This plan provides for the award of stock options at the Company's discretion to high performing executives. The actual number of shares granted, if any, will be based upon your performance. For your 2001 annual option grant (to be granted in February 2001), you will be guaranteed a minimum grant of at least the mid-point of the range of option grants established for your pay grade (grade 15). SIGN-ON STOCK OPTIONS: Effective the first day of the month following your employment, you will be granted 87,500 stock options pursuant to the terms of the LTIP. The options will have an exercise price equal to the closing price of Starwood stock as reported in the New York Stock Exchange Composite Transactions on the business day immediately preceding the date of grant. The stock options will vest in accordance with the LTIP and will otherwise be governed by the provisions of the LTIP. Further details will be provided in the award notification to be delivered to you following your employment. BENEFITS: Starwood offers "StarShare", a comprehensive array of employee benefit programs, to provide peace of mind on various personal concerns. New employees are eligible for the StarShare health and welfare benefit programs and the 401(k) plan on the first day of the month following 90 days of employment. You and your eligible dependents will be covered by these benefits as per your coverage elections. Information on these plans and other benefit programs such as the HOT Rates (the employee discount room rates program), short-term disability, long-term disability, employee life insurance, and vacation programs will be provided to you after you begin your employment with us. In the event that changes are made to any of the benefit plans, the changes will apply to you as they do other employees of the Company. COBRA PAYMENTS: We realize that there may be a transitional benefits cost to you because of the waiting period before you become eligible for the Starwood health plans. Therefore, during your benefits waiting period, Starwood agrees to reimburse you for any COBRA payments until the date you become eligible for Starwood health benefits. Starwood will reimburse you the difference between the applicable contribution rate and your COBRA amount. Page 3 3 VACATION BENEFITS: You will be entitled to take four weeks of paid vacation for each full calendar year you remain employed by the Company. In all other respects, your vacation benefits will be governed by Starwood's vacation policy as is in effect from time to time. EXCLUSIVE DISPUTE RESOLUTION PROCEDURE: Any and all disputes relating to this offer letter, your employment with Starwood or the termination of that employment will be resolved solely and exclusively through binding arbitration pursuant to the employment rules of the American Arbitration Association. Accordingly, you acknowledge and agree that this offer of employment and the benefits provided herein are contingent upon your execution of the Arbitration Agreement attached hereto as Attachment A. EMPLOYMENT TERM: In accepting this offer you understand and agree that your employment with the Company is "at will." As such, you agree that either you or Starwood may end the employment relationship at any time, with or without notice and with or without cause. By signing below, you understand and acknowledge that except for this letter, there is not and shall not be any written contract between you and the Company concerning this offer of employment or your prospective employment, and that this letter is not intended to be and is not a contract of employment. SEVERANCE: In the event that Starwood terminates your employment for any reason other than "cause," Starwood will pay to you 12 months of your then current base salary, in a lump sum less all applicable withholdings (the "Termination Payments"). Starwood will reimburse you for your COBRA expenses minus your last level of contribution for up to 12 months commencing on the termination date. You will not be entitled to any Termination Payments if you resign your employment with the Company. As a condition for, and prior to, your entitlement to and receipt of any Termination Payments, you must enter into a written waiver and release of any and all claims against Starwood arising out of or relating to your employment with Starwood, in such form that Starwood may reasonably require. For purposes of this paragraph, "cause," shall mean (i) any material breach by you of any of the duties, responsibilities or obligations of your employment, or any of the policies or practices of Starwood; (ii) any willful failure or refusal by you to properly perform (as determined by Starwood in its reasonable discretion and judgment) the duties, responsibilities or obligations of your employment, or to properly perform or follow (as determined by Starwood in its reasonable discretion and judgment) any lawful order or direction by Starwood; (iii) any acts or omissions by you that constitute (as determined by Starwood in its reasonable discretion and judgment) fraud, dishonesty, breach of your duty of loyalty, gross negligence, civil or criminal illegality, or any other misconduct in your employment or which could tend to bring Starwood into disrepute, could create civil or criminal liability for Starwood or could adversely affect Starwood's business or interests. Page 4 4 OTHER CONDITIONS AND OBLIGATIONS: You have represented, and hereby confirm, that you are not subject to any currently effective employment contract, or any other contractual or other binding obligations pursuant to which your employment or employment activities with or on behalf of the Company may be subject to any restrictions, including without limitation, any agreements or other obligations or documents relating to non-competition, confidentiality, trade secrets, proprietary information or works for hire. As a further condition of this offer and your right to receive any of the benefits detailed herein, you agree to execute and be bound by the Non-solicitation, Confidentiality Agreement attached hereto as Attachment B. INTEGRATED AGREEMENT: This offer letter represents the sole and complete understanding between you and the Company relating to your employment and there are no other written or oral agreements, understandings or representations relating to this offer of employment. The terms of your employment, including the at-will nature of the employment, may be amended only through a written instrument signed by you and the Executive Vice President, Human Resources. You should not resign from your current employment until you have received notification from the Company of the completion of all pre-employment investigation and verification. By signing and returning this letter, you confirm that this letter accurately sets forth the current understanding between you and Starwood and that you accept and agree to the terms as outlined. Very truly yours, /s/ David Norton D. Norton Executive Vice President, Human Resources Starwood Hotels & Resorts Worldwide, Inc. cc: Personnel File ACCEPTED AND AGREED TO: /s/Kenneth S. Siegel 9/26/00 ________________________ _______________________ Kenneth S. Siegel Date Page 5 5 Attachment A ARBITRATION AGREEMENT In consideration of Starwood Hotels & Resorts Worldwide, Inc. ("Starwood") having extended an offer of employment to me and/or having hired me, I agree that all disputes and claims that I may have, now or in the future, with or against Starwood, any of Starwood's affiliated or subsidiary companies and/or any of Starwood's partners or joint venturers, and/or any officer, employee, director or agent of Starwood, any affiliated or subsidiary company, or partner or joint venturer (collectively, "Claims"), shall be submitted to the American Arbitration Association to be resolved and determined through final and binding arbitration before a single arbitrator and to be conducted in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association. Starwood and I hereby agree that the Claims subject to arbitration shall include but not be limited to any and all Claims that arise out of or are related to the offer of employment extended by Starwood to me, any withdrawal or rescission of that offer, any aspect of my employment with Starwood or the terms and conditions of that employment, any termination of that employment and any Claim of discrimination or harassment based upon age, race, religion, sex, ethnicity, marital status, veteran status, national origin, disability, medical condition, sexual orientation or any other unlawful basis, or any other unlawful conduct, under any applicable Federal, State, local or other statutes, orders, laws, ordinances, regulations or the like, or case law, that relate to employment or employment practices, including without limitation, Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, as amended, the Civil Rights Acts of 1866 and 1871, as amended, the Age Discrimination in Employment Act of 1967, as amended, the Americans with Disabilities Act of 1990, as amended, the Family and Medical Leave Act of 1993, as amended, the Employee Retirement Income Security Act of 1990, as amended, the Worker Adjustment Retraining and Notification Act, as amended, the Fair Labor Standards Act, as amended, the Vietnam Era Veterans' Readjustment Assistance Act, as amended, the Equal Pay Act, as amended, and the state and local analogues to the foregoing. Starwood and I further agree that the Claims subject to arbitration shall exclude any Claims required by any applicable Federal, State, local or other statute to be submitted to another forum (for example, a workers' compensation claim or a claim for unemployment insurance benefits). Starwood and I agree that any arbitration award rendered as the result of any arbitration under this Agreement shall be final and binding and may be entered and enforced as a court judgment in accordance with applicable law. Starwood and I further agree that this Agreement, any arbitration under this Agreement and any arbitration award rendered in such arbitration shall be governed by the Federal Arbitration Act. 6 Attachment A I specifically acknowledge that I understand that the right to the determination and/or trial of any Claims in court before a judge or a jury is a valuable right, and that by signing this Agreement I hereby knowingly and voluntarily waive my right to assert any Claims in any court of competent jurisdiction and that I hereby knowingly and voluntarily further waive the right to a determination and/or trial before a judge or a jury. I further understand and acknowledge that this Agreement is not intended to be and shall not be deemed to constitute a contract of employment, and that if hired by Starwood my employment shall be at will, which means that Starwood and I shall be free to terminate that employment at any time for any reason with or without notice and with or without cause. I UNDERSTAND THAT I HAVE THE RIGHT TO CONSULT AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT. I ACKNOWLEDGE THAT MY SIGNATURE BELOW SIGNIFIES THAT I HAVE FULLY REVIEWED AND UNDERSTAND ALL OF THE TERMS OF THIS AGREEMENT AND THAT I HAVE AGREED TO THOSE TERMS. Dated: 9/26/00 /s/Kenneth S. Siegel -------- ----------------------- Kenneth S. Siegel Dated: 9/29/00 /s/David Norton -------- ----------------------- D. Norton Executive Vice President, Human Resources Starwood Hotels & Resorts Worldwide, Inc. 7 Attachment B NON-SOLICITATION, CONFIDENTIALITY AGREEMENT ------------------------------------------- This Non-solicitation, Confidentiality Agreement ("Agreement") is entered into as of this day of 2000, (the "Effective Date"), by and between Starwood Hotels and Resorts Worldwide, Inc. (the "Company") and Kenneth S. Siegel (the "Employee"). WHEREAS, the Company devotes significant time, resources and effort to the training and advancement of its management, and its management team constitutes a significant asset and important competitive advantage; and WHEREAS, the Employee has and will have access to important and sensitive confidential information; and WHEREAS, the Company has determined that it is in the best interests of the Company and its shareholders to enter into an agreement with Employee whereby Employee will be prohibited from soliciting employees of the Company in accordance with the terms and conditions of this Agreement; and WHEREAS, in consideration of the Company's offer of employment and its offer of stock options to the Employee, Employee agrees to enter into this Agreement. THEREFORE, the Company and Employee agree as follows: 1. Non-solicitation. During the period in which Employee is employed by the Company, and for a period of two (2) years following the date of any termination of employment from the Company, Employee shall not, without the prior written consent of the Company, except in the course of carrying out Employee's duties hereunder, solicit or attempt to solicit for employment with or on behalf of any corporation, partnership, joint venture of other business entity, any person who is, or at any time during the six-month period preceding the solicitation of such person was, a management-level employee of the Company (including, without limitation, for this purpose any director level employee of the Company and any General Manager of any hotel owned (in whole or in part) or managed by the Company). 2. Confidentiality. Employee acknowledges that during the course of his employment with the Company, Employee will receive, and will have access to, "Confidential Information," as such term is defined below, of the Company and that such information is a special, valuable and unique asset belonging to the Company. Accordingly, Employee is willing to enter into the covenants contained in this Agreement in order to provide the Company with what Employee considers to be reasonable protection for the Company's interest. All notes, memoranda, papers, documents, correspondence or writings (which shall include information recorded or stored in writing, on magnetic tape or disc, or otherwise recorded or stored for reproduction, whether by mechanical or electronic means and whether or not such reproduction will 8 Attachment B result in a permanent record being made) ("Documents") which from time to time may be in Employee's possession (whether prepared by Employee or not) relating, directly or indirectly, to the business of the Company shall be and remain the property of the Company and shall be delivered by Employee to the Company immediately upon request, and in any event upon termination of Employee's employment, and Employee shall not make or keep any copies or extracts of the Documents. At any time during or after Employee's employment with the Company ends, without the prior written consent of the Company, except (i) in the course of carrying out Employee's duties hereunder or (ii) to the extent required by a court or governmental agency, or by applicable law or under compulsion of legal process, Employee shall not disclose to any third person any information concerning the business of the Company, including, without limitation, any trade secrets, customer lists and details of contracts with or requirements of customers, the identity of any owner of a managed hotel, information relating to any current, past or prospective management agreement or joint venture, information pertaining to business methods, sales plans, management organization, computer systems and software, operating policies or manuals, personnel records or information, information relating to current, past or contemplated employee benefits or compensation data or strategies, business, financial, development or marketing plans, or manpower strategies or plans, financial records or other financial, commercial, business or technical information relating to the Company (collectively, "Confidential Information"), unless such Confidential Information has been previously disclosed to the public by the Company or is in the public domain (other than by reason of Employee's breach of this Section 2). 3. Equitable Relief. 3.1 Employee acknowledges that the restrictions specified in Sections 1, 2 and 3 hereof are reasonable in view of the nature of the business in which the Company is engaged and Employee's knowledge of, and responsibilities with respect to, the Company's business, and that any breach of Sections 1, 2 or 3 hereof may cause the Company irreparable harm for which there is no adequate remedy at law, and as a result of this, the Company will be entitled to the issuance by a court of competent jurisdiction of an injunction, restraining order or other equitable relief in favor of the Company, without the necessity of posting a bond, restraining Employee from committing or continuing to commit any such violation. Any right to obtain an injunction, restraining order or other equitable relief hereunder will not be deemed to be a waiver of any right to assert any other remedy the Company may have at law or in equity, including, without limitation, the right to cancel payments to which Employee is otherwise entitled under Employee's employment agreement. 3.2 Any proceeding or action seeking equitable relief for violation of Sections 1, 2 and 3 hereof must be commenced in the federal courts in the Southern District of the State of New York, or in the absence of federal jurisdiction in state court in the State of New York. Employee hereby irrevocably and unconditionally submits to the exclusive jurisdiction of such courts and agrees to take any and all future action necessary to submit to the jurisdiction of such courts. Employee irrevocably waives any objection that Employee now has or hereafter may have to the laying of 9 Attachment B venue of any suit, action or proceeding brought in any such court and further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Final judgment against Employee in any such suit will be conclusive and may be enforced in other jurisdictions by suit on the judgment, a certified or true copy of which will be conclusive evidence of the fact and the amount of any liability therein described, or by appropriate proceedings under an applicable treaty or otherwise. 4. Governing Law. This Agreement shall be governed by the laws of the State of New York, without regard to the principles of conflicts of laws. Employee acknowledges that he has had a reasonable opportunity to review and consider the terms described above and to consult with an attorney if he so chooses prior to signing this Agreement. Fully understanding the above terms, Employee is entering into this letter agreement knowingly and voluntarily IN WITNESS WHEREOF, the Parties have executed this Agreement on the day and year first above written. Dated: 9/26/00 /s/Kenneth S. Siegel -------- ------------------------- Kenneth S. Siegel Dated: 9/29/00 /s/David Norton ------- -------------------------- D. Norton Executive Vice President, Human Resources Starwood Hotels & Resorts Worldwide, Inc. EX-10.58 5 p64722ex10-58.txt EX-10.58 1 Exhibit 10.58 SEVERANCE AGREEMENT THIS AGREEMENT, dated September 26, 2000 (the "Effective Date"), is made by and between Starwood Hotels and Resorts Worldwide, Inc., a Maryland corporation (the "Company"), and Kenneth Siegel (the "Executive"). WHEREAS, the Executive is employed by the Company as Executive Vice President, General Counsel; and WHEREAS, the Company considers it essential to the best interests of its stockholders to foster the continued employment of key management personnel; and WHEREAS, the Board recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of senior management personnel to the detriment of the Company and its stockholders; and WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's senior management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control. NOW, THEREFORE, the Company and the Executive hereby agree as follows: 1. Defined Terms. The definitions of capitalized terms used in this Agreement as provided in the last Section hereof. 2. Term of Agreement. The Term of this Agreement shall commence on the Effective Date and shall continue in effect through the third anniversary of the Effective Date; provided, however, that on each anniversary of the Effective Date during the Term of this Agreement, the Term shall automatically be extended for one additional year unless, not later than 90 days prior to any such anniversary, the Company or the Executive shall have given notice not to extend the Term; and further provided, however, that if a Change in Control or a Potential Change in Control shall have occurred during the Term, the Term shall expire no earlier than twenty-four (24) months beyond the month in which such Change in Control or a Potential Change in Control occurred. 2 3. Company's Covenants Summarized. In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 10 hereof, no Severance Payments shall be payable under this Agreement unless during the Term there shall have been (or, under the terms of the second sentence of Section 6 hereof, there shall be deemed to have been) a termination of the Executive's employment with the Company following a Change in Control. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. 4. The Executive's Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event a Potential Change in Control occurs during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of such Potential Change of Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive's employment for any reason. 5. Compensation Other Than Severance Payments. a. Payment of Salary During Disability. Following a Change in Control and during the Term, during any period that the Executive is unable to perform the Executive's full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay to the Executive the full salary to which the Executive is entitled at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period, until the Executive's employment is terminated by the Company for Disability. b. Accrued Salary. If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive such Executive's full salary through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason. 2 3 c. Post-Termination Benefits. If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive's normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason. 6. Severance Payments. a. If the Executive's employment is terminated following a Change in Control and during the Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good Reason, then, in any such case, the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6 ("Severance Payments") and Section 7, in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof. For purposes of this Agreement, the Executive's employment shall be deemed to have been terminated following a Change in Control by the Company without Cause or by the Executive with Good Reason, if (i) the Executive's employment is terminated by the Company without Cause prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination was at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control (an "Acquiring Person"), (ii) the Executive terminates his employment for Good Reason prior to a Change in Control (whether or not a Change in Control ever occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of an Acquiring Person, or (iii) the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason and such termination or the circumstance or event which constitutes Good Reason is otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control ever occurs). For purposes of any determination regarding the applicability of the immediately preceding sentence, any position taken by the Executive shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that such position is not correct. (1) Lump Sum Payment. In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to two times the sum of (i) the Executive's base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance 3 4 constituting Good Reason, and (ii) the average of the annual bonuses earned by the Executive in the three fiscal years ending immediately prior to the fiscal year in which occurs the Date of Termination or, if higher, immediately prior to the fiscal year in which occurs the first event or circumstance constituting Good Reason. For purposes of the preceding sentence, in determining any bonus amount for any fiscal year, bonuses paid with respect to any year in which employment of the Executive commenced shall be annualized based on the number of days employed by the Company during such year. (2) Continuation of Welfare Benefits. For the twenty-four (24) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents life, disability, accident and health insurance benefits and other benefits and perquisites (including employee stay rates) substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater cost to the Executive than the cost to the Executive immediately prior to such date or occurrence. Benefits otherwise receivable by the Executive pursuant to this Section 6(a)(2) shall be reduced to the extent benefits of the same type are received by the Executive from another employer during the twenty-four (24) month period following the Executive's termination of employment; provided, however, that the Company shall reimburse the Executive for the excess, if any, of the cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason. (3) Incentive Compensation. Notwithstanding any provision of any annual or long-term incentive plan to the contrary, the Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of (i) any unpaid incentive compensation which has been allocated or awarded to the Executive for a completed fiscal year or other measuring period preceding the Date of Termination under any such plan and which, as of the Date of Termination, is contingent only upon the continued employment of the Executive to a subsequent date, and (ii) the aggregate value of all contingent incentive compensation awards allocated or awarded to the Executive for all then uncompleted periods under any such plan that the Executive would have earned on the last day of the performance award period, assuming the achievement, at the target level, of the individual and corporate performance goals established with respect to such award. Awards for uncompleted periods shall be prorated based upon the number of days the Executive is employed by the Company during such year. 4 5 (4) Accelerated Vesting of Stock Options. All stock options and restricted stock held by the Executive under any stock option or incentive plan maintained by the Company including the Company's 1995 and 1999 Long-Term Incentive Plans) shall immediately vest and become exercisable as of the Date of Termination, to be exercised in accordance with the terms of the applicable plan. (5) Outplacement Services. The Company shall provide the Executive with outplacement services suitable to the Executive's position for a period of two (2) years or, if earlier, until the first acceptance by the Executive of an offer of employment. The cost of such outplacement services shall not exceed twenty percent (20%) of the Executive's base salary. (6) Deferred Compensation. The Company shall pay the Executive a lump sum payment of any of the Executive's deferred compensation. (7) 401(k) Contributions. All unvested 401(k) contributions in the Executive's 401(k) account shall immediately vest or the Company shall pay the Executive an amount equal to any such unvested amounts that are forfeited by reason of the Executive's termination of employment. (8) Loans. The Company shall forgive in full any home, relocation and other loans from the Company to the Executive, identified on Schedule A hereto, that are outstanding as of the Date of Termination and execute and record any investments and documents necessary or desirable to evidence the satisfaction in full of such loans and the release of any lien securing such loan. In addition, the Company shall pay to Executive an amount required, in the good faith estimate of Executive's tax advisor, to permit Executive to pay any income tax incurred by Executive as a result of such loan forgiveness and the payment of such additional amounts by the Company. 7. 280G Cap. a. Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit received or to be received by the Executive in connection with a Change in Control or the termination of the Executive's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person)(all 5 6 such payments and benefits, including the Severance Payments, being hereinafter called "Total Payments"), would not be deductible (in whole or part), by the Company, an affiliate or Person making such payment or providing such benefit as a result of section 280G of the Code, then, to the extent necessary to make such portion of the Total Payments deductible (and after taking into account any reduction in the Total Payments provided by reason of section 280G of the Code in such other plan, arrangement or agreement), the cash Severance Payments shall first be reduced (if necessary, to zero), and all other Severance Payments shall thereafter be reduced (if necessary, to zero); provided, however, that the Executive may elect to have the noncash Severance Payments reduced (or eliminated) prior to any reduction of the cash Severance Payments. b. For purposes of this limitation, (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a "payment" within the meaning of section 280G(b) of the Code shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, including by reason of section 280G(b)(4)(A) of the Code, (iii) the Severance Payments shall be reduced only to the extent necessary so that the Total Payments (other than those referred to in clauses (i) or (ii)) in their entirety constitute reasonable compensation for services actually rendered within the meaning of section 280G(b)(4)(B) of the Code or are otherwise not subject to disallowance as deductions by reason of section 280G of the Code, in the opinion of Tax Counsel, and (iv) the value of any noncash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. c. If it is established pursuant to final determination of a court or an Internal Revenue Service proceeding that, notwithstanding the good faith of the Executive and the Company in applying the terms of this Section 7(c), the Total Payments paid to or for the Executive's benefit are in an amount that would result in any portion of such Total Payments being subject to the Excise Tax, then, if such repayment would result in (i) no portion of the remaining Total Payments being subject to the Excise Tax and (ii) a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, the Executive shall have an obligation to pay the Company upon demand an amount equal to the sum of (i) the excess of the Total Payments paid to or for the Executive's benefit over the Total Payments that could have been paid to or for the Executive's benefit without any portion of such Total Payments being subject to the Excise Tax; and (ii) interest on the amount set forth in clause (i) of this sentence at the rate provided in section 1274(b)(2)(B) of the Code from the date of the Executive's receipt of such excess until the date of such payment. 6 7 8. Termination Procedures and Compensation During Dispute. a. Notice of Termination. After a Change in Control and during the Term, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 12 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. b. Date of Termination. "Date of Termination," with respect to any purported termination of the Executive's employment after a Change in Control and during the Term, shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). c. Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 8 (c)), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the earlier of (i) the date on which the Term ends or (ii) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided, however, that the Date of Termination shall be extended by a notice of dispute given by the Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence. 7 8 d. Compensation During Dispute. If a purported termination occurs following a Change in Control and during the Term and the Date of Termination is extended in accordance with Section 8(c) hereof, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination, as determined in accordance with Section 8(c) hereof. Amounts paid under this Section 8(d) are in addition to all other amounts due under this Agreement (other than those due under Section 5(b) hereof) and shall not be offset against or reduce any other amounts due under this Agreement. 9. No Mitigation. The Company agrees that, if the Executive's employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof or Section 8(d) hereof. Further, the amount of any payment or benefit provided for in this Agreement (other than Section 6(a)(2) hereof) shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owned by the Executive to the Company, or otherwise. 10. Successors; Binding Agreement. a. In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. b. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein shall be paid in 8 9 accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 11. Indemnification. The Company shall indemnify and hold Executive harmless for acts and omissions in his capacity as an officer, director or employee of the Company to the maximum extent permitted under applicable law. The Company shall maintain a Director's and Officer's Liability Insurance Policy, which shall provide liability coverage for Executive's benefit, and the Executive shall remain covered under such policy for a period of at least six (6) years following the earlier of termination of employment or the occurrence of a Change in Control. 12. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted below the Executive's signature on the final page hereof and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt: To the Company: Starwood Hotels and Resorts Worldwide, Inc. 777 Westchester Avenue White Plains, NY 10604 Attention: Executive Vice President, Human Resources 13. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party; provided, however, that this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive's employment with the Company only in the event that the Executive's employment with the Company is terminated on or following a Change in Control, by the Company other than for Cause or by the Executive other than for Good Reason. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the 9 10 Executive has agreed. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6, 7, 8, and 9 hereof) shall survive such expiration. 14. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 15. Settlement of Disputes; Arbitration. a. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. b. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in New York, in accordance with the rules of the American Arbitration Association then in effect; provided, however, that the evidentiary standards set forth in this Agreement shall apply. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 16. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below: a. "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. b. "Auditor" shall have the meaning set forth in Section 7 hereof. c. "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code. d. "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act. 10 11 e. "Board" shall mean the Board of Directors of the Company. f. "Cause" for termination by the Company of the Executive's employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, and Executive has not cured any such failure that is capable of being cured in all material respects within ten (10) days of receiving such written demand, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Board by clear and convincing evidence that Cause exists. g. A "Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing 25% or more of the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (3) below; or (2) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or 11 12 consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least 70% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation and in proportion to their relative voting power immediately prior to such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; or (4) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 70% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. h. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. i. "Company" shall mean Starwood Hotels and Resorts Worldwide, Inc., and, except in determining under Section 17(g) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. j. "Date of Termination" shall have the meaning set forth in Section 8 hereof. k. "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of 12 13 Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties. l. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. m. "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code. n. "Executive" shall mean the individual named in the first paragraph of this Agreement. o. "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent) after any Change in Control, or prior to a Change in Control under the circumstances described in clauses (ii) and (iii) of the second sentence of Section 6(a) hereof (treating all references in paragraphs (1) through (7) below to a "Change in Control" as references to a "Potential Change in Control"), of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (1), (5), (6) or (7) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (1) the assignment to the Executive of any duties inconsistent with the Executive's status as a senior executive officer of the Company or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the Change in Control; (2) a reduction by the Company in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (3) the relocation of the Executive's principal place of employment to a location more than 35 miles from the Executive's principal place of employment immediately prior to the Change in Control or the Company's requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations; (4) the failure by the Company to pay to the Executive any portion of the Executive's current compensation, or to 13 14 pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (5) the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive's total compensation, including but not limited to the Company's stock option, bonus and other plans or any substitute plans adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive's participation relative to other participants, as existed immediately prior to the Change in Control; (6) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to the Change in Control, the taking of any other action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy or any employment agreement in effect at the time of the Change in Control; or (7) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 8(a) hereof; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. 14 15 For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist. p. "Notice of Termination" shall have the meaning set forth in Section 8 hereof. q. "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. r. "Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (8) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (9) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (10) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates); or (11) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. s. "Retirement" shall be deemed the reason for the termination by the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees. 15 16 t. "Severance Payments" shall have the meaning set forth in Section 6 hereof. u. "Tax Counsel" shall have the meaning set forth in Section 7 hereof. v. "Term" shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein). 2. "Total Payments" shall mean those payments so described in Section 7 hereof. STARWOOD HOTELS AND RESORTS WORLDWIDE, INC. By: /s/ David Norton ------------------------------------ Name: David Norton Title: Executive Vice President, Human Resources Dated: 9/29/ , 2000 -------------------------- EXECUTIVE /s/ Kenneth S. Siegel --------------------------------------- Kenneth S. Siegel Dated: Sept. 26 , 2000 ----------------------------- Address: 57 Greenfield Dr, Weston, CT 06883 ---------------------------------------- 16 17 ------------------------ ------------------------ (Please print carefully) 17 EX-10.59 6 p64722ex10-59.txt EX-10.59 1 Exhibit 10.59 SEVERANCE AGREEMENT THIS AGREEMENT, dated June 9, 2000 (the "Effective Date"), is made by and between Starwood Hotels and Resorts Worldwide, Inc., a Maryland corporation (the "Company"), and David Norton (the "Executive"). WHEREAS, the Executive is employed by the Company as Executive Vice President, Human Resources; and WHEREAS, the Company considers it essential to the best interests of its stockholders to foster the continued employment of key management personnel; and WHEREAS, the Board recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of senior management personnel to the detriment of the Company and its stockholders; and WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's senior management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control. NOW, THEREFORE, the Company and the Executive hereby agree as follows: 1. Defined Terms. The definitions of capitalized terms used in this Agreement are provided in the last Section hereof. 2. Term of Agreement. The Term of this Agreement shall commence on the Effective Date and shall continue in effect through the third anniversary of the Effective Date; provided, however, that on each anniversary of the Effective Date during the Term of this Agreement, the Term shall automatically be extended for one additional year unless, not later than 90 days prior to any such anniversary, the Company or the Executive shall have given notice not to extend the Term; and further provided, however, that if a Change in Control or a Potential Change in Control shall have occurred during the Term, the Term shall expire no earlier than twenty-four (24) months beyond the month in which such Change in Control or a Potential Change in Control occurred. 2 3. Company's Covenants Summarized. In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 10 hereof, no Severance Payments shall be payable under this Agreement unless during the Term there shall have been (or, under the terms of the second sentence of Section 6 hereof, there shall be deemed to have been) a termination of the Executive's employment with the Company following a Change in Control. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. 4. The Executive's Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event a Potential Change in Control occurs during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of such Potential Change of Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive's employment for any reason. 5. Compensation Other Than Severance Payments. a. Payment of Salary During Disability. Following a Change in Control and during the Term, during any period that the Executive is unable to perform the Executive's full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay to the Executive the full salary to which the Executive is entitled at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period, until the Executive's employment is terminated by the Company for Disability. b. Accrued Salary. If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive such Executive's full salary through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason. 2 3 c. Post-Termination Benefits. If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive's normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason. 6. Severance Payments. a. If the Executive's employment is terminated following a Change in Control and during the Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good Reason, then, in any such case, the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6 ("Severance Payments") and Section 7, in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof. For purposes of this Agreement, the Executive's employment shall be deemed to have been terminated following a Change in Control by the Company without Cause or by the Executive with Good Reason, if (i) the Executive's employment is terminated by the Company without Cause prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination was at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control (an "Acquiring Person"), (ii) the Executive terminates his employment for Good Reason prior to a Change in Control (whether or not a Change in Control ever occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of an Acquiring Person, or (iii) the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason and such termination or the circumstance or event which constitutes Good Reason is otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control ever occurs). For purposes of any determination regarding the applicability of the immediately preceding sentence, any position taken by the Executive shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that such position is not correct. (1) Lump Sum Payment. In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to two times the sum of (i) the Executive's base salary as in effect immediately prior to the Date of Termination or, if higher, in effect 3 4 immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (ii) the average of the annual bonuses earned by the Executive in the three fiscal years ending immediately prior to the fiscal year in which occurs the Date of Termination or, if higher, immediately prior to the fiscal year in which occurs the first event or circumstance constituting Good Reason. For purposes of the preceding sentence, in determining any bonus amount for any fiscal year, bonuses paid with respect to any year in which employment of the Executive commenced shall be annualized based on the number of days employed by the Company during such year. (2) Continuation of Welfare Benefits. For the twenty-four (24) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents life, disability, accident and health insurance benefits and other benefits and perquisites (including employee stay rates) substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater cost to the Executive than the cost to the Executive immediately prior to such date or occurrence. Benefits otherwise receivable by the Executive pursuant to this Section 6(a)(2) shall be reduced to the extent benefits of the same type are received by the Executive from another employer during the twenty-four (24) month period following the Executive's termination of employment; provided, however, that the Company shall reimburse the Executive for the excess, if any, of the cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason. (3) Incentive Compensation. Notwithstanding any provision of any annual or long-term incentive plan to the contrary, the Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of (i) any unpaid incentive compensation which has been allocated or awarded to the Executive for a completed fiscal year or other measuring period preceding the Date of Termination under any such plan and which, as of the Date of Termination, is contingent only upon the continued employment of the Executive to a subsequent date, and (ii) the aggregate value of all contingent incentive compensation awards allocated or awarded to the Executive for all then uncompleted periods under any such plan that the Executive would have earned on the last day of the performance award period, assuming the achievement, at the target level, of the individual and corporate performance goals established with respect to such award. Awards 4 5 for uncompleted periods shall be prorated based upon the number of days the Executive is employed by the Company during such year. (4) Accelerated Vesting of Stock Options. All stock options and restricted stock held by the Executive under any stock option or incentive plan maintained by the Company (including the Company's 1995 and 1999 Long-Term Incentive Plans) shall immediately vest and become exercisable as of the Date of Termination, to be exercised in accordance with the terms of the applicable plan. (5) Outplacement Services. The Company shall provide the Executive with outplacement services suitable to the Executive's position for a period of two (2) years or, if earlier, until the first acceptance by the Executive of an offer of employment. The cost of such outplacement services shall not exceed twenty percent (20%) of the Executive's base salary. (6) Deferred Compensation. The Company shall pay the Executive a lump sum payment of any of the Executive's deferred compensation. (7) 401(k) Contributions. All unvested 401(k) contributions in the Executive's 401(k) account shall immediately vest or the Company shall pay the Executive an amount equal to any such unvested amounts that are forfeited by reason of the Executive's termination of employment. (8) Loans. The Company shall forgive in full any home, relocation and other loans from the Company to the Executive, identified on Schedule A hereto, that are outstanding as of the Date of Termination and execute and record any investments and documents necessary or desirable to evidence the satisfaction in full of such loans and the release of any lien securing such loan. In addition, the Company shall pay to Executive an amount required, in the good faith estimate of Executive's tax advisor, to permit Executive to pay any income tax incurred by Executive as a result of such loan forgiveness and the payment of such additional amounts by the Company. 7. 280G Cap. a. Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit received or to be received by the Executive in 5 6 connection with a Change in Control or the termination of the Executive's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments and benefits, including the Severance Payments, being hereinafter called "Total Payments") would not be deductible (in whole or part), by the Company, an affiliate or Person making such payment or providing such benefit as a result of section 280G of the Code, then, to the extent necessary to make such portion of the Total Payments deductible (and after taking into account any reduction in the Total Payments provided by reason of section 280G of the Code in such other plan, arrangement or agreement), the cash Severance Payments shall first be reduced (if necessary, to zero), and all other Severance Payments shall thereafter be reduced (if necessary, to zero); provided, however, that the Executive may elect to have the noncash Severance Payments reduced (or eliminated) prior to any reduction of the cash Severance Payments. b. For purposes of this limitation, (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a "payment" within the meaning of section 280G(b) of the Code shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, including by reason of section 280G(b)(4)(A) of the Code, (iii) the Severance Payments shall be reduced only to the extent necessary so that the Total Payments (other than those referred to in clauses (i) or (ii)) in their entirety constitute reasonable compensation for services actually rendered within the meaning of section 280G(b)(4)(B) of the Code or are otherwise not subject to disallowance as deductions by reason of section 280G of the Code, in the opinion of Tax Counsel, and (iv) the value of any noncash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. c. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that, notwithstanding the good faith of the Executive and the Company in applying the terms of this Section 7(c), the Total Payments paid to or for the Executive's benefit are in an amount that would result in any portion of such Total Payments being subject to the Excise Tax, then, if such repayment would result in (i) no portion of the remaining Total Payments being subject to the Excise Tax and (ii) a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, the Executive shall have an obligation to pay the Company upon demand an amount equal to the sum of (i) the excess of the Total Payments paid to or for the Executive's benefit over the Total Payments that could have been paid to or 6 7 for the Executive's benefit without any portion of such Total Payments being subject to the Excise Tax; and (ii) interest on the amount set forth in clause (i) of this sentence at the rate provided in section 1274(b)(2)(B) of the Code from the date of the Executive's receipt of such excess until the date of such payment. 8. Termination Procedures and Compensation During Dispute. a. Notice of Termination. After a Change in Control and during the Term, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 12 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. b. Date of Termination. "Date of Termination," with respect to any purported termination of the Executive's employment after a Change in Control and during the Term, shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). c. Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 8(c)), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the earlier of (i) the date on which the Term ends or (ii) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been 7 8 perfected); provided, however, that the Date of Termination shall be extended by a notice of dispute given by the Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence. d. Compensation During Dispute. If a purported termination occurs following a Change in Control and during the Term and the Date of Termination is extended in accordance with Section 8(c) hereof, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination, as determined in accordance with Section 8(c) hereof. Amounts paid under this Section 8(d) are in addition to all other amounts due under this Agreement (other than those due under Section 5(b) hereof) and shall not be offset against or reduce any other amounts due under this Agreement. 9. No Mitigation. The Company agrees that, if the Executive's employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof or Section 8(d) hereof. Further, the amount of any payment or benefit provided for in this Agreement (other than Section 6(a)(2) hereof) shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. 10. Successors; Binding Agreement. a. In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. b. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while 8 9 any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 11. Indemnification. The Company shall indemnify and hold Executive harmless for acts and omissions in his capacity as an officer, director or employee of the Company to the maximum extent permitted under applicable law. The Company shall maintain a Director's and Officer's Liability Insurance Policy, which shall provide liability coverage for Executive's benefit, and the Executive shall remain covered under such policy for a period of at least six (6) years following the earlier of termination of employment or the occurrence of a Change in Control. 12. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted below the Executive's signature on the final page hereof and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt: To the Company: Starwood Hotels and Resorts Worldwide, Inc. 777 Westchester Avenue White Plains, NY 10604 Attention: General Counsel 13. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party; provided, however, that this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive's employment with the Company only in the event that the Executive's employment with the Company is terminated on or following a Change in Control, by the Company other than for Cause or by the Executive other than for Good Reason. The validity, interpretation, construction and performance of this 9 10 Agreement shall be governed by the laws of the State of New York. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6, 7, 8, and 9 hereof) shall survive such expiration. 14. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 15. Settlement of Disputes; Arbitration. a. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. b. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in New York, in accordance with the rules of the American Arbitration Association then in effect; provided, however, that the evidentiary standards set forth in this Agreement shall apply. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 16. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below: a. "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. b. "Auditor" shall have the meaning set forth in Section 7 hereof. c. "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code. 10 11 d. "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act. e. "Board" shall mean the Board of Directors of the Company. f. "Cause" for termination by the Company of the Executive's employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, and Executive has not cured any such failure that is capable of being cured in all material respects within ten (10) days of receiving such written demand, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Board by clear and convincing evidence that Cause exists. g. A "Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing 25% or more of the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (3) below; or (2) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or 11 12 (3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least 70% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation and in proportion to their relative voting power immediately prior to such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; or (4) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 70% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. h. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. i. "Company" shall mean Starwood Hotels and Resorts Worldwide, Inc., and, except in determining under Section 17(g) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. j. "Date of Termination" shall have the meaning set forth in Section 8 hereof. 12 13 k. "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties. l. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. m. "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code. n. "Executive" shall mean the individual named in the first paragraph of this Agreement. o. "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent) after any Change in Control, or prior to a Change in Control under the circumstances described in clauses (ii) and (iii) of the second sentence of Section 6(a) hereof (treating all references in paragraphs (1) through (7) below to a "Change in Control" as references to a "Potential Change in Control"), of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (1), (5), (6) or (7) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (1) the assignment to the Executive of any duties inconsistent with the Executive's status as a senior executive officer of the Company or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the Change in Control; (2) a reduction by the Company in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (3) the relocation of the Executive's principal place of employment to a location more than 35 miles from the Executive's principal place of employment immediately prior to the Change in Control or the Company's requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company's 13 14 business to an extent substantially consistent with the Executive's present business travel obligations; (4) the failure by the Company to pay to the Executive any portion of the Executive's current compensation, or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (5) the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive's total compensation, including but not limited to the Company's stock option, bonus and other plans or any substitute plans adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive's participation relative to other participants, as existed immediately prior to the Change in Control; (6) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to the Change in Control, the taking of any other action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy or any employment agreement in effect at the time of the Change in Control; or (7) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 8(a) hereof; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or 14 15 mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist. p. "Notice of Termination" shall have the meaning set forth in Section 8 hereof. q. "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. r. "Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (8) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (9) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (10) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates); or (11) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. 15 16 s. "Retirement" shall be deemed the reason for the termination by the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees. t. "Severance Payments" shall have the meaning set forth in Section 6 hereof. u. "Tax Counsel" shall have the meaning set forth in Section 7 hereof. v. "Term" shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein). w. "Total Payments" shall mean those payments so described in Section 7 hereof. STARWOOD HOTELS AND RESORTS WORLDWIDE, INC. By: /s/ Thomas C. Janson ------------------------------------------------ Name: Thomas C. Janson Title: Executive Vice President and General Counsel Dated: June 12, 2000 EXECUTIVE /s/ David Norton -------------------------------- David Norton Dated: June 9, 2000 Address: 16 17 ------------------------- ------------------------- ------------------------- (Please print carefully) 17 EX-12.1 7 p64722ex12-1.htm EX-12.1 ex12-1






Commission File Number: 1-7959		Commission File Number: 1-6828

STARWOOD HOTELS & RESORTS WORLDWIDE, INC. (Exact name of Registrant as specified in its charter)		STARWOOD HOTELS & RESORTS (Exact name of Registrant as specified in its charter)





Maryland (State or other jurisdiction of incorporation or organization)		Maryland (State or other jurisdiction of incorporation or organization)





52-1193298 (I.R.S. employer identification no.)		52-0901263 (I.R.S. employer identification no.)





777 Westchester Avenue White Plains, NY 10604 (Address of principal executive offices, including zip code)		777 Westchester Avenue White Plains, NY 10604 (Address of principal executive offices, including zip code)





(914) 640-8100 (Registrant’s telephone number, including area code)		(914) 640-8100 (Registrant’s telephone number, including area code)


Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share (“Corporation Share”), of Starwood Hotels & Resorts Worldwide, Inc. (the “Corporation”), the Class B shares of beneficial interest, par value $0.01 per share (“Class B Shares”), of Starwood Hotels & Resorts (the “Trust”), and Preferred Stock Purchase Rights of the Corporation, all of which are attached and trade together as a Share		New York Stock Exchange


Document		Where Incorporated

Proxy Statement		Part III (Items 11 and 12)


PART I
	Forward-Looking Statements
	Item 1. Business.
	General
	Item 2. Properties.
	Item 3. Legal Proceedings.
	Item 4. Submission of Matters to a Vote of Security Holders.
	Item 5. Market for Registrants’ Common Equity and Related Stockholder Matters.
	Item 6. Selected Financial Data.
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
	Item 8. Financial Statements and Supplementary Data.
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
PART III
	Item 10. Directors, Trustees and Executive Officers of the Registrants.
	Item 11. Executive Compensation.
	Item 12. Security Ownership of Certain Beneficial Owners and Management.
	Item 13. Certain Relationships and Related Transactions.
PART IV
	Item 14. Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K.
EX-10.43
EX-10.56
EX-10.57
EX-10.58
EX-10.59
EX-12.1
EX-21.1
EX-23.1


	Number of
	Properties

Owned hotels^(a)		162




Managed and franchised hotels		526




Unconsolidated joint ventures		50

Total hotel properties		738

Vacation ownership resorts		12


		Page





PART I




	Forward-Looking Statements		1




Item 1.	Business		7




Item 2.	Properties		12




Item 3.	Legal Proceedings		14




Item 4.	Submission of Matters to a Vote of Security Holders		14




	Executive Officers of the Registrants		15




PART II




Item 5.	Market for Registrants’ Common Equity and Related Stockholder Matters		15




Item 6.	Selected Financial Data		16




Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17




Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		23




Item 8.	Financial Statements and Supplementary Data		24




Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		24




PART III




Item 10.	Directors, Trustees and Executive Officers of the Registrants		24




Item 11.	Executive Compensation		29




Item 12.	Security Ownership of Certain Beneficial Owners and Management		30




Item 13.	Certain Relationships and Related Transactions		30




PART IV




Item 14.	Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K		32


⁽¹⁾	The Company owns or has rights to various trademarks, trade names and service marks used in our business, including those listed above, and related logos. This Joint Annual Report also includes trademarks, trade names and service marks owned by other companies.


	Number of
	Properties

North America^(a)		469




Europe		109




Latin America		35




Asia Pacific		71




Africa and the Middle East		54

Total		738


Region	Hotels		Rooms

North America^(a)		113		40,934




Europe		30		6,924




Latin America		15		5,655




Asia Pacific		4		1,762

Worldwide		162		55,275



	Year Ended December 31,

	2000			1999			Variance

Worldwide (122 hotels with approximately 39,000 rooms)




REVPAR	$	114.90		$	107.09			7.3	%




ADR	$	160.55		$	153.67			4.5	%




Occupancy		71.6	%		69.7	%		1.9





North America (80 hotels with approximately 27,000 rooms)




REVPAR	$	112.97		$	101.76			11.0	%




ADR	$	154.51		$	144.49			6.9	%




Occupancy		73.1	%		70.4	%		2.7





International (42 hotels with approximately 12,000 rooms)




REVPAR	$	119.53		$	119.88			(0.3	)%




ADR	$	176.13		$	176.52			(0.2	)%




Occupancy		67.9	%		67.9	%		—


	High		Low

2000




Fourth quarter	$	37.50	$	25.56




Third quarter	$	35.18	$	28.26




Second quarter	$	33.14	$	22.88




First quarter	$	27.11	$	19.30





1999




Fourth quarter	$	24.50	$	19.50




Third quarter	$	31.00	$	21.75




Second quarter	$	37.75	$	28.00




First quarter	$	34.19	$	22.69


	Distributions
	Made

2000




Fourth quarter	$	0.1725	^(a)




Third quarter	$	0.1725




Second quarter	$	0.1725




First quarter	$	0.1725





1999




Fourth quarter	$	0.15	^(a)




Third quarter	$	0.15




Second quarter	$	0.15




First quarter	$	0.15



	At December 31,

	2000		1999		1998		1997		1996


	(In millions)




Balance Sheet Data




Total assets	$	12,660	$	12,925	$	13,417	$	6,790	$	7,452




Long-term debt, net of current maturities and including redeemable Class B EPS	$	5,074	$	4,779	$	5,951	$	—	$	841


		Amount					Interest Rate at
		Outstanding at					December 31,			Average
		December 31, 2000			Interest Terms		2000			Maturity

		(Dollars in millions)




Floating Rate Debt




Senior Credit Facility:




	Five-Year Term Loan	$	925			LIBOR+0.625%		7.19	%		2.1 years




	Term Loan Add-on		173			LIBOR+1.25%		7.81	%		2.1 years




	Revolving Credit Facility		620			LIBOR+0.625%		7.19	%		2.1 years




Senior Secured Notes Facility:




	Tranche II Loans		1,000			LIBOR+2.75%		9.31	%		2.1 years




Mortgages and other			613			Various		6.91	%		2.5 years




Interest rate swaps			(1,052	)				7.19	%		—

Total/average		$	2,279					8.09	%		2.2 years

Fixed Rate Debt




Sheraton Holding public debt		$	1,296					7.08	%		10.2 years




Mortgages and other			915					7.32	%		11 years




Interest rate swaps			1,052					6.56	%		—

Total/average		$	3,263					6.98	%		10.5 years

Total Debt




Total debt and average terms		$	5,542					7.44	%		5.5 years


																Total Fair
	At December 31,												Total at			Value at
													December 31,			December 31,
	2001		2002		2003		2004		2005		Thereafter		2000			2000

Liabilities




Fixed rate (in millions)	$	77	$	39	$	285	$	35	$	503	$	1,272	$	2,211		$	2,101




Average interest rate														7.19	%




Floating rate (in millions)	$	508	$	257	$	2,438	$	24	$	41	$	63	$	3,331		$	3,331




Average interest rate														7.80	%




Interest Rate Swaps




Long-term variable to fixed (in millions)	$	152	$	200	$	700							$	1,052




Average pay rate														5.90	%




Average receive rate														LIBOR


Name (Age)	Principal Occupation and Business Experience	Service Period

Jean-Marc Chapus (41)	Managing Director and Portfolio Manager of Trust Company of the West, an investment consulting firm, and President of TCW/ Crescent Mezzanine L.L.C., a private investment fund, since March 1995. Mr. Chapus is currently a member of the Board of Directors of Magnequench International, Inc., Auto Town, Inc. and Petco Animal Supplies, Inc.	Director from August 1995 to November 1997; since April 1999 Trustee since November 1997


Name	Age		Position(s)

Barry S. Sternlicht		40	Chairman, Chief Executive Officer and a Director of the Corporation and Chairman, Chief Executive Officer and a Trustee of the Trust




Robert F. Cotter		49	Chief Operating Officer of the Corporation and a Vice President of the Trust




Ronald C. Brown		46	Executive Vice President and Chief Financial Officer of the Corporation and Vice President, Chief Financial Officer and Chief Accounting Officer of the Trust




Kenneth S. Siegel		45	Executive Vice President, General Counsel and Secretary of the Corporation and Vice President, General Counsel and Secretary of the Trust




David K. Norton		45	Executive Vice President–Human Resources of the Corporation and Vice President–Human Resources of the Trust




Steven R. Goldman		39	Executive Vice President, Acquisitions and Development, of the Corporation and a Vice President of the Trust


Item 14.	*Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K.*


Exhibit
Number		Description of Exhibit

	2.1	Formation Agreement, dated as of November 11, 1994, among the Trust, the Corporation, Starwood Capital and the Starwood Partners (incorporated by reference to Exhibit 2 to the Trust’s and the Corporation’s Joint Current Report on Form 8-K dated November 16, 1994). (The SEC file numbers of all filings made by the Corporation and the Trust pursuant to the Securities Act of 1934, as amended, and referenced herein are: 1-7959 (the Corporation) and 1-6828 (the Trust)).
	2.2	Form of Amendment No. 1 to Formation Agreement, dated as of July 1995, among the Trust, the Corporation and the Starwood Partners (incorporated by reference to Exhibit 10.23 to the Trust’s and the Corporation’s Joint Registration Statement on Form S-2 filed with the SEC on June 29, 1995 (Registration Nos. 33-59155 and 33-59155-01)).
	2.3	Transaction Agreement, dated as of September 8, 1997, by and among the Trust, the Corporation, Realty Partnership, Operating Partnership, WHWE L.L.C., Woodstar Investor Partnership (“Woodstar”), Nomura Asset Capital Corporation, Juergen Bartels, Westin Hotels & Resorts Worldwide, Inc., W&S Lauderdale Corp., W&S Seattle Corp., Westin St. John Hotel Company, Inc., W&S Denver Corp., W&S Atlanta Corp. and W&S Hotel L.L.C. (incorporated by reference to Exhibit 2 to the Trust’s and the Corporation’s Joint Current Report on Form 8-K dated September 9, 1997, as amended by the Form 8-K/ A dated December 18, 1997).
	2.4	Amended and Restated Agreement and Plan of Merger, dated as of November 12, 1997, by and among the Corporation, the Trust, Chess Acquisition Corp. (“Chess”) and ITT Corporation (incorporated by reference to Exhibit 2.1 to the Trust’s and the Corporation’s Joint Current Report on Form 8-K dated November 13, 1997).
	2.5	Agreement and Plan of Restructuring, dated as of September 16, 1998, and amended as of November 30, 1998, among the Corporation, ST Acquisition Trust (“ST Trust”) and the Trust (incorporated by reference to Annex A to the Trust’s and the Corporation’s Joint Proxy Statement dated December 3, 1998 (the “1998 Proxy Statement”)).
	2.6	Form of Stock Purchase Agreement, dated as of February 23, 1998, between the Trust and the Corporation (incorporated by reference to Exhibit 10.4 to the Trust’s and the Corporation’s Joint Annual Report on Form 10-K for the year ended December 31, 1997 (the “1997 Form 10-K”)).
	3.1	Amended and Restated Declaration of Trust of the Trust, amended and restated as of January 6, 1999 (incorporated by reference to Exhibit 1 to the Trust’s Registration Statement on Form 8-A filed on December 21, 1998 (the “Trust Form 8-A”), except that the following changes were made on January 6, 1999, upon the filing by the Trust and ST Trust of the Articles of Merger of ST Trust into the Trust (the “Articles of Merger”) with, and the acceptance thereof for record by, the State Department of Assessments and Taxation of the State of Maryland (the “SDAT”): Section 6.14 specifies January 6, 1999 as the date of the Intercompany Agreement; Section 6.19.1 specifies January 6, 1999 as the date of the acceptance for record by the SDAT of the Articles of Merger; and the definition of “Intercompany Agreement” in Section 6.19.2 specifies January 6, 1999 as the date of the Intercompany Agreement).
	3.2	Charter of the Corporation, amended and restated as of February 1, 1995, as amended through March 26, 1999 (incorporated by reference to Exhibit 3.2 to the Trust’s and the Corporation’s Joint Annual Report on Form 10-K for the year ended December 31, 1998, as amended by the Form 10-K/ A filed May 17, 1999 (as so amended, the “1998 Form 10-K”)).


Signature	Title	Date

/s/ BARRY S. STERNLICHT Barry S. Sternlicht	Chairman, Chief Executive Officer and Director (Principal Executive Officer)	March 29, 2001

/s/ RONALD C. BROWN Ronald C. Brown	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	March 29, 2001

/s/ JEAN-MARC CHAPUS Jean-Marc Chapus	Director	March 29, 2001

/s/ BRUCE W. DUNCAN Bruce W. Duncan	Director	March 29, 2001

/s/ MADISON F. GROSE Madison F. Grose	Director	March 29, 2001

/s/ ERIC HIPPEAU Eric Hippeau	Director	March 29, 2001

/s/ EARLE F. JONES Earle F. Jones	Director	March 29, 2001

/s/ GEORGE J. MITCHELL George J. Mitchell	Director	March 29, 2001

/s/ STEPHEN R. QUAZZO Stephen R. Quazzo	Director	March 29, 2001

/s/ DANIEL H. STERN Daniel H. Stern	Director	March 29, 2001


		Page

Report of Independent Public Accountants			F-2




Starwood Hotels & Resorts Worldwide, Inc.:




	Consolidated Balance Sheets as of December 31, 2000 and 1999		F-3




	Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998		F-4




	Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2000, 1999 and 1998		F-5




	Consolidated Statements of Equity for the Years Ended December 31, 2000, 1999 and 1998		F-6




	Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998		F-7




Starwood Hotels & Resorts:




	Consolidated Balance Sheets as of December 31, 2000 and 1999		F-8




	Consolidated Statements of Operations for the Years Ended December 31, 2000 and 1999 and the Period from February 23, 1998 to December 31, 1998		F-9




	Consolidated Statements of Cash Flows for the Years Ended December 31, 2000 and 1999 and the Period from February 23, 1998 to December 31, 1998		F-10




Notes to Financial Statements			F-11




Schedules:




	Schedule II — Valuation and Qualifying Accounts		S-1




	Schedule III — Real Estate and Accumulated Depreciation		S-2




	Schedule IV — Mortgage Loans on Real Estate		S-4


		Forward Equity
		Contracts			Class B EPS						Class A EPS					Shares^(a)					Additional
		and Equity																			Paid-in			Deferred
		Put Options			Shares			Amount			Shares			Amount		Shares			Amount		Capital			Compensation

Balance at December 31, 1997		$	—			—		$	—			—		$	—		127		$	2	$	2,934		$	—




	Net income		—			—			—			—			—		—			—		—			—




	Sheraton Holding reverse purchase		125			5			212			6			—		57			2		4,022			—




	Cash dividend to Sheraton Holding stockholders		—			—			—			—			—		—			—		(2,144	)		—




	Stock option and restricted stock award transactions, net		—			—			—			—			—		1			—		32			(1	)




	Share repurchases		—			—			—			—			—		(10	)		—		(371	)		—




	Issuance of forward equity contracts		245			—			—			—			—		8			—		—			—




	Settlement of forward equity contracts		(370	)		—			—			—			—		(10	)		—		—			—




	Issuance of equity put options		32			—			—			—			—		—			—		(30	)		—




	Conversion and cancellation of Class A EPS, Class B EPS and Partnership Units		—			(1	)		(63	)		(2	)		—		3			—		50			—




	Change in minority interest		—			—			—			—			—		—			—		78			—




	Foreign currency translation		—			—			—			—			—		—			—		—			—




	Unrealized gain on securities, net		—			—			—			—			—		—			—		—			—




	Dividends declared		—			—			—			—			—		—			—		—			—

Balance at December 31, 1998			32			4			149			4			—		176			4		4,571			(1	)




	Net loss		—			—			—			—			—		—			—		—			—




	Stock option and restricted stock award transactions, net		—			—			—			—			—		1			—		12			(4	)




	Issuance of equity put options		19			—			—			—			—		—			—		(13	)		—




	Settlement of equity put options		(32	)		—			—			—			—		—			—		17			—




	Share repurchases		—			—			—			—			—		(3	)		—		(64	)		—




	Conversion and cancellation of Class A EPS, Class B EPS and Partnership Units		—			—			(13	)		—			—		5			—		14			—




	SVO acquisition		—			—			—			—			—		10			—		248			—




	Foreign currency translation		—			—			—			—			—		—			—		—			—




	Unrealized gain on securities, net		—			—			—			—			—		—			—		—			—




	Dividends declared		—			—			—			—			—		—			—		—			—

Balance at December 31, 1999			19			4			136			4			—		189			4		4,785			(5	)




	Net income		—			—			—			—			—		—			—		—			—




	Stock option and restricted stock award transactions, net		—			—			—			—			—		2			—		47			1




	Settlement of equity put options		(19	)		—			—			—			—		—			—		13			—




	Share repurchases		—			—			—			—			—		(3	)		—		(69	)		—




	Conversion and cancellation of Class A EPS, Class B EPS and Partnership Units		—			(1	)		(19	)		(3	)		—		6			—		20			—




	Foreign currency translation		—			—			—			—			—		—			—		—			—




	Unrealized loss on securities, net		—			—			—			—			—		—			—		—			—




	Dividends declared		—			—			—			—			—		—			—		—			—

Balance at December 31, 2000		$	—			3		$	117			1		$	—		194		$	4	$	4,796		$	(4	)



	Year Ended
	December 31,						Period from
							February 23, 1998
	2000			1999			to December 31, 1998

Revenues




Unconsolidated joint ventures and other	$	3		$	4		$	3




Rent and interest, Corporation		692			787			590

		695			791			593


Costs and Expenses




Selling, general and administrative		3			5			22




Depreciation		183			169			123




Amortization		7			6			5

		193			180			150

		502			611			443




Interest expense, net of interest income of $0, $0 and $6		(39	)		(47	)		(20	)




Gain (loss) on sales of real estate and investments		1			(137	)		—




Income tax expense		(1	)		(2	)		(1	)




Minority equity in net income		(3	)		(2	)		(10	)

Net income	$	460		$	423		$	412


	Five Months
	Ended
	May 31, 1998

Income Statement Data




Revenues	$	114




Operating income	$	12




Interest income	$	2




Income tax expense	$	(6	)




Minority equity in net income	$	(1	)




Income from discontinued operations	$	7


	Period from
	January 1, 1998 to
	February 19, 1998

Income Statement Data




Revenues	$	8




Operating loss	$	(8	)




Interest expense, including allocated interest	$	(14	)




Income tax benefit	$	7




Minority equity in net income	$	1




Loss from discontinued operations	$	(14	)



								Foreign
		Pension Benefits						Pension Benefits						Other Benefits

		2000			1999			2000			1999			2000			1999

Change in Benefit Obligation




Benefit obligation at beginning of year		$	240		$	271		$	53		$	80		$	31		$	36




	Service cost		—			3			1			1			—			—




	Interest cost		15			17			3			3			2			2




	Actuarial (gain) loss		31			(34	)		4			(4	)		—			(5	)




	Acquisitions		—			—			37			7			—			—




	Divestitures		—			—			—			(30	)		—			—




	Settlements		(105	)		—			2			—			—			—




	Effect of foreign exchange rates		—			—			(4	)		(1	)		—			—




	Benefits paid		(1	)		(17	)		(2	)		(3	)		(2	)		(2	)

Benefit obligation at end of year		$	180		$	240		$	94		$	53		$	31		$	31

Change in Plan Assets




Fair value of plan assets at beginning of year		$	242		$	240		$	63		$	47		$	22		$	20




	Actual return on plan assets		31			18			6			12			—			2




	Employer contribution		1			1			1			—			2			2




	Acquisitions		—			—			37			8			—			—




	Settlements		(105	)		—			2			—			—			—




	Effect of foreign exchange rates		—			—			(4	)		(1	)		—			—




	Benefits paid		(1	)		(17	)		(2	)		(3	)		(2	)		(2	)

Fair value of plan assets at end of year		$	168		$	242		$	103		$	63		$	22		$	22


					Weighted Average
					Exercise Price
		Options			Per Share

Outstanding at December 31, 1997			13,268,977		$	29.29




	Granted^(a)		19,783,847			43.18




	Exercised^(b)		(12,536,071	)		28.45




	Forfeited		(2,393,977	)		44.61

Outstanding at December 31, 1998			18,122,776			43.80




	Granted		9,155,246			23.76




	Exercised		(346,575	)		22.46




	Forfeited		(6,009,005	)		50.41

Outstanding at December 31, 1999			20,922,442			34.26




	Granted		10,614,800			24.22




	Exercised		(1,682,653	)		21.10




	Forfeited		(1,689,378	)		33.96

Outstanding at December 31, 2000			28,165,211		$	31.33

Exercisable at December 31, 1999			10,443,940		$	35.36

Exercisable at December 31, 2000			13,362,454		$	37.00



	Options Outstanding						Options Exercisable

			Weighted Average
			Remaining		Weighted Average				Weighted Average
Range of	Number		Contractual Life		Exercise		Number		Exercise
Exercise Prices	Outstanding		in Years		Price/Share		Exercisable		Price/Share

$11.00 – $15.33		1,147,225		4.77	$	15.17		1,147,225	$	15.17
$17.41 – $21.8		1 2,023,460		8.76		21.40		768,960		21.22
$22.00 – $23.9		2 2,938,057		6.33		23.21		2,314,057		23.39
$24.00 – $24.0		0 11,340,093		8.75		24.00		1,068,122		24.00
$24.25 – $36.3		8 2,617,578		7.68		29.62		1,241,261		31.33
$36.54 – $47.0		0 2,005,319		6.92		40.35		1,563,894		39.79
$49.19 – $53.9		4 2,500,780		6.74		50.58		1,955,104		50.69
$54.63 – $58.8		1 3,592,699		7.10		54.70		3,303,831		54.69

Total/average		28,165,211		7.72		31.33		13,362,454		37.00



	Revenues						Long-Lived Assets

	2000		1999		1998		2000		1999		1998


	(In millions)




United States	$	3,230	$	2,705	$	2,180	$	6,362	$	6,329	$	6,242




All other international		1,115		1,124		1,101		1,939		1,900		2,014

Total	$	4,345	$	3,829	$	3,281	$	8,301	$	8,229	$	8,256



		Three Months Ended

		March 31			June 30		September 30			December 31			Year


		(In millions, except per Share data)




2000




Revenues		$	996		$	1,142	$	1,102		$	1,105		$	4,345




Costs and expenses		$	811		$	857	$	834		$	815		$	3,317




Income from continuing operations		$	53		$	114	$	103		$	131		$	401




Discontinued operations		$	—		$	5	$	—		$	—		$	5




Extraordinary item		$	(3	)	$	—	$	—		$	—		$	(3	)




Net income		$	50		$	119	$	103		$	131		$	403




Earnings per Share:
Basic—




	Income from continuing operations	$	0.26		$	0.58	$	0.51		$	0.66		$	2.03




	Discontinued operations	$	—		$	0.02	$	—		$	—		$	0.02




	Extraordinary item	$	(0.01	)	$	—	$	—		$	—		$	(0.01	)




	Net income	$	0.25		$	0.60	$	0.51		$	0.66		$	2.04
Diluted—




	Income from continuing operations	$	0.26		$	0.56	$	0.50		$	0.64		$	1.96




	Discontinued operations	$	—		$	0.02	$	—		$	—		$	0.02




	Extraordinary item	$	(0.01	)	$	—	$	—		$	—		$	(0.01	)




	Net income	$	0.25		$	0.58	$	0.50		$	0.64		$	1.97





1999




Revenues		$	842		$	960	$	948		$	1,079		$	3,829




Costs and expenses		$	702		$	689	$	736		$	861		$	2,988




Income (loss) from continuing operations		$	(925	)	$	142	$	44		$	101		$	(638	)




Discontinued operations		$	(7	)	$	—	$	—		$	(64	)	$	(71	)




Extraordinary item		$	—		$	—	$	(2	)	$	(30	)	$	(32	)




Net income (loss)		$	(932	)	$	142	$	42		$	7		$	(741	)




Earnings per Share:
Basic—




	Income (loss) from continuing operations	$	(4.86	)	$	0.76	$	0.23		$	0.51		$	(3.41	)




	Discontinued operations	$	(0.04	)	$	—	$	—		$	(0.33	)	$	(0.38	)




	Extraordinary item	$	—		$	—	$	(0.01	)	$	(0.15	)	$	(0.17	)




	Net income (loss)	$	(4.90	)	$	0.76	$	0.22		$	0.03		$	(3.96	)
Diluted—




	Income (loss) from continuing operations	$	(4.86	)	$	0.73	$	0.23		$	0.50		$	(3.41	)




	Discontinued operations	$	(0.04	)	$	—	$	—		$	(0.32	)	$	(0.38	)




	Extraordinary item	$	—		$	—	$	(0.01	)	$	(0.15	)	$	(0.17	)




	Net income (loss)	$	(4.90	)	$	0.73	$	0.22		$	0.03		$	(3.96	)



				Additions (Deductions)

							Charged
							to/from
		Balance		Charged			Other			Payments/			Balance
		January 1,		to Expenses			Accounts^(a)			Other			December 31,

2000




Trade receivables—allowance for doubtful accounts		$	62	$	2		$	(8	)	$	(11	)	$	45




Notes receivable—allowance for doubtful accounts		$	43	$	17		$	6		$	(24	)	$	42




Reserves included in accrued and other liabilities:




	Restructuring and other special charges	$	121	$	—		$	(13	)	$	(8	)	$	100




1999




Trade receivables—allowance for doubtful accounts		$	55	$	5		$	—		$	2		$	62




Notes receivable—allowance for doubtful accounts		$	31	$	4		$	—		$	8		$	43




Reserves included in accrued and other liabilities:




	Restructuring and other special charges	$	202	$	3	^(b)	$	(15	)	$	(69	)	$	121




1998




Trade receivables—allowance for doubtful accounts		$	45	$	13		$	7		$	(10	)	$	55




Notes receivable—allowance for doubtful accounts		$	55	$	—		$	—		$	(24	)	$	31




Reserves included in accrued and other liabilities:




	Restructuring and other special charges	$	730	$	149		$	(79	)	$	(598	)	$	202


	Trade and Notes
	Receivable—			Restructuring
	Allowance for			and Other
	Doubtful Accounts			Special Charges

2000




Other assets	$	(5	)	$	—




Other liabilities		3			(13	)

Total charged to/from other accounts	$	(2	)	$	(13	)

1999




Other assets	$	—		$	(3	)




Other liabilities		—			(12	)

Total charged to/from other accounts	$	—		$	(15	)

1998




Notes receivable	$	—		$	(20	)




Investments		—			(27	)




Other assets		—			(15	)




Other long-term liabilities		—			(17	)




Acquired assets		7			—

Total charged to/from other accounts	$	7		$	(79	)



					Initial Cost				Costs Subsequent				Gross Amount Book Value
					to Company				to Acquisition				at December 31, 2000

													(a)
															(a)(b)
							Building and				Building and				Building and
Description	City		State		Land		Improvements		Land		Improvements		Land		Improvements

The St. Regis, New York		New York		NY	$	65.0	$	149.8	$	—	$	6.5	$	65.0	$	156.3




Other hotel properties, each less than 5% of total						393.4		3,377.5		—		249.0		393.4		3,626.5

					$	458.4	$	3,527.3	$	—	$	255.5	$	458.4		3,782.8

Land																458.4




Furniture, fixtures, and equipment																483.4




Construction in progress																24.9

															$	4,749.5


		Year Ended
		December 31, 2000

Real Estate and Furniture and Fixtures




Balance at beginning of period		$	4,599




Additions during period:




	Acquisitions		—




	Improvements		204




	Other		34




Deductions during period:




	Sale of properties		(88	)

Balance at end of period		$	4,749

Accumulated Depreciation




Balance at beginning of period		$	(306	)




Additions during period:




	Depreciation expense		(183	)




	Other		(5	)




Deductions during period:




	Sale of properties		5

Balance at end of period		$	(489	)


																Principal Amount
																of Loans Subject
							Periodic					Original		Carrying		to Delinquent
		Interest			Final		Payment			Prior		Face Amount		Amount of		Principal or
Description		Rate			Maturity		Terms			Liens		of Mortgages		Mortgages^(a)		Interest

First Mortgages:




	Ramada Inn—Tucker, GA		9.00	%		2002		^(b	⁾		No	$	2	$	2




Second Mortgages:




	Westin Portland—Portland, OR		11.50	%		2003		^(c	⁾		Yes		2		2

												$	4	$	4

Intercompany Mortgage Loans




First Mortgages:




	W New York—New York, NY		9.50	%		2006		^(d	⁾		No	$	40	$	40




	Westin Maui—Maui, HI		10.00	%		On Demand		^(e	⁾		No		105		121




	Westin Regina—Cancun, Mexico		9.00	%		2005		^(f	⁾		No		41		40




	Westin Regina—Los Cabos, Mexico		9.00	%		2005		^(f	⁾		No		53		44




	Westin Regina—Puerto Vallarta, Mexico		9.00	%		2005		^(f	⁾		No		25		21




	Westin Hotel—Turnberry, Scotland		10.00	%		On Demand		^(g	⁾		No		27		16




	Sheraton Holding Corporation Mortgage Note		10.00	%		2005		^(h	⁾		No		2,489		1,289




	Sheraton Holding Corporation Mortgage Note		8.50	%		2005		^(h	⁾		No		210		210




	Starwood Hotels & Resorts Worldwide, Inc.		8.50	%		2005		⁽ⁱ	⁾		No		150		150

												$	3,140	$	1,931